Logistics of buying land or real estate with cash

[NattyAnn]

I'm considering potentially buying land or real estate with cash, sometime in the next 1-3 years. I'm going to be looking at making a purchase in the $100k-$350k range, and I'd like to hear about the logistics from anyone who has done this.

Did you wait until you were under contract, and then sell investments all at once to cover the purchase? Do sellers expect you to have actual cash (vs investments) in order to prove you can fund the purchase at the time you put in an offer? Did you slowly sell off investments and have a huge amount just waiting in Savings until you found a property? Did you spread the money around multiple Savings accounts, so you weren't over the FDIC $250k limit?

Just trying to figure out how, logistically, people go about actually executing a cash purchase.

[mspym]

Hi, we did this a couple of years ago and not in the States so YMMV

1- we waited until the contract had gone unconditional and then sold investments all at once
2- the sellers did not inspect our finances at all. We did have to deposit 20k in an escrow account once the offer was accepted, which would be returned if the conditions of sale weren't met [inspections + legal review of contract]
3- we weren't expecting to buy a place when we did so there was no time to execute a slow sell-off
4- since we have separate finances, the money sat in two different account until it was transferred, thus under the insurance limit
5- the payment process in NZ is to send the money to the lawyer's escrow account and they handle sending it to the recipient as part of the contract execution, which was a weight off my mind.

[seattlecyclone]

Sellers don't generally look into buyer finances. You sign a contract to bring the money on the appointed date, put down a mutually agreeable amount of earnest money to show you're serious about it and compensate the seller for their trouble if the deal falls through, and that's that. I would say that if you're planning to buy a property within a few months or years perhaps the stock market already isn't the best place to park those funds. You could very easily lose purchasing power between now and then. Something with less short-term downside risk (such as a bond fund or money market fund) would probably be more appropriate. You can wait to sell those investments and transfer to your bank account until much closer to the closing date.

[lhamo]

Sellers don't generally look into buyer finances. You sign a contract to bring the money on the appointed date, put down a mutually agreeable amount of earnest money to show you're serious about it and compensate the seller for their trouble if the deal falls through, and that's that. I would say that if you're planning to buy a property within a few months or years perhaps the stock market already isn't the best place to park those funds. You could very easily lose purchasing power between now and then. Something with less short-term downside risk (such as a bond fund or money market fund) would probably be more appropriate. You can wait to sell those investments and transfer to your bank account until much closer to the closing date.

This has not been true in my experience.  I have purchased two homes for cash in Seattle in the past 7 years.  On both occasions I needed to provide a letter from my bank with proof of liquid funds along with my offer.

[reeshau]

I bought our current house for cash, because nobody was doing asset-based mortgages in July 2020.  I happened to have the cash at hand, as we had equity from a former house (sold in 2018, was overseas between) and a large severance from my former employer.

It was coincidence for me, but I was also investing a lot at the time.  If you expect to buy in less than 5 years, put it in cash.  That could be 1-year CD's, if you are first willing to decide the year you will buy.  If not, a high-yield Money Market is fine.  You do not want to be under the time pressure of having signed a contract, to find out the Fed won't cut / crazy dictator invaded / latest business scandal has made your property 10-20% more expensive.  Rates on cash are decent at the moment, and many indicators point to the stock market being highly valued.  Use that.

As for the process, yeah: either you will cut a cashier's check for the total, or will wire the money to the title company's escrow.  They will believe you, so far as your earnest money is in place.  And if they don't, show them a statement with the account number redacted out--no big deal.  Also, give your bank a heads up that you will be making such a large transaction; coming out of the blue with a withdrawal that big could trigger fraud protections, and delay your request.  Telegraphed transactions of this size happen every day, though, for them.  It can be routine.

If you are married, you each get $250k on the account, so no need to even worry about that.  If otherwise, use a bank you have used for a while, and transfer in the overage a few days before.  Armageddon isn't that close at hand.

[lucenzo11]

We bought real estate last year with cash. The way it worked for was we put in the offer, said we were offering all cash and we said how much we would put for 1st and 2nd deposit. Cash was in separate savings accounts but we had moved it into one previously to make the transaction easier. Our agent told us to provide proof of funds with the offer so they knew we were legit. We weren't required to submit it right then, but we wanted to show them we were serious. We just had a PDF of bank statement and redacted account numbers and other private info. Some sellers may want to see a signed letter from the bank but our realtor said usually a bank statement is sufficient.

First deposit was personal check. Second deposit was bank check. That was our test for getting a check from the bank for a large amount, no issues. Day before close, we went back to the bank to get the remaining amount. That was the big check and no issues there either. They did ask what it was for and we said house, but it wasn't clear if that was a curiosity question or security question. If there was an issue, then we had an extra day to figure out a wire, but realtors and lawyers were very opposed to wires as there had been some recent scams.

Check went to the escrow account and transaction was settled by the lawyer from there.

We tried to keep under the $250k limit for as long as we could, but weren't too concerned about it. We were maybe over for three weeks or so. We felt it was fairly low risk.

If I were you, I'd probably start getting funds into cash, CDs, or something else safer. You can probably use investment account statement as proof of funds, but once they accept your offer, I'd be looking to sell. Cash transactions can usually go fast, ours was under a month. If they want longer for some reason, then maybe wait until after the inspection/once you know you don't want to back out.

[GilesMM]

We have always had to show an investment statement, like Vanguard, sometimes before we could book an initial viewing.  I only show an amount equal to the asking price or so, not the full account.  Nobody seems to verify these so one could conceivably gin one up in Word or something.


Then, about 10 days before closing, if there are no further impediments to the sale, I figure out what to liquidate.


If you are in a competitive situation, cash is your friend and you can add further sweeteners like shorter close, no inspection (if you are feeling like taking a big risk or the place is just such a wreck you don't care), etc.

[Dicey]

The first time we paid cash, we sold two properties when we combined households, and bought one together. It was kinda funny, because we hadn't planned on paying cash. The mortgage broker pissed us off (didn't lock the rate when we specifically asked them to, in person. Of course, rates then spiked.) We looked at each other and said, fuckit, we're just gonna pay cash. We still kinda regret doing that.

We had to overbid 12 other bidders to get our offer accepted, but it was one "highest and best" offer, no back and forth*, but back then paying all cash wasn't quite the bargaining chip it is now.

IIRC, at one point someone wanted "proof" of where our fresh money had come from, so we just hauled in all of the escrow paperwork from the two recent house sales.

Before anyone gets their very intelligent DPOYM panties in a pretzel, we have three other properties with long, low mortgages on them. We re-fied them about 2.5 years ago, so they still have 27.5 years to run, and we have no plans to pay them off early.

We paid cash for a less expensive property two years ago, and it was a breeze in comparison. We had "aged" cash on hand, because it was our seed money for our next RE project.

*That's only if you don't count the additional $35,000 the selling bank (it was a short sale) tried to bilk squeeze out of us at then end of an eight-month escrow. We got the call late on a Friday afternoon. By Sunday, DH was leaning toward agreeing, until I pointed out that he could buy his wife a very fine used car with that kind of money. We held our ground, and it finally closed.

[Laura33]

We bought this year in cash.

We did not need to demonstrate we had the cash when we made the offer -- just the earnest money check.

We did, however, have to provide proof of funds to the title company managing the transfer.  That was just a copy of a current bank statement (I downloaded it from the website) with the account numbers redacted.

The transfer had to be either wired or by certified check.  We wired the money a few days beforehand -- we were out of state, there was a whole Process to get a certified check, and it was just easier. 

We sold the investments after we had all the contingencies satisfied but before closing.  But we hadn't specifically planned to buy right then -- we were looking to familiarize ourselves with the market to buy in a year or two, and we found a fantastic property.  If we had planned appropriately, we would have had all the $$ in a HYSA before beginning to shop in earnest.

We paid no attention to FDIC limits.  Most of the money was in a brokerage, which isn't protected anyway.  But we use a major national bank, and the likelihood of the bank failing over the course of the c.2 weeks we had that money all together was infinitesimal.

[Sibley]

My parent's cash purchase in 2021 was same as Laura33's. I know because even though it was their purchase and money, I did all the work. Earnest money was a check if I remember correctly, purchase was wire transfer.

[Bartlebooth]

Both times I have done it, the seller's realtor asked to see a proof of funds letter.  This was just a simple letter from a banker saying that they had observed that I had the funds necessary to complete the transaction.  In one case the banker was doing it as a favor to the realtor, who he dealt with a lot.  In the other case it was my banker so existing relationship.  No charge either time, though I could imagine a fee for someone taking the trouble in a completely cold relationship.

For one, I had half the funds in the bank account and for the other half I showed him the crypto-exchange app where I had a vault with 1 day remaining of the 2 day "vault" withdrawal lockup after which I told him I planned to sell it.  So it is not a super formal process.

Proof of funds letter is better than bank statement, IMHO.  You don't disclose any banking info other than "has funds sufficient for this transaction."

[NattyAnn]

Awesome, thanks for the insights, everyone. Super helpful!

[ChickenStash]

If providing a brokerage statement showing real balances is not really desired - even if the account numbers are redacted - many brokerages can provide verification letter that only says some amount is available much like banks do. I know Vanguard does (not sure since when) and I would assume most of the other big names do, too. For Vanguard, it's under My Dashboard->Activity->Statements->View->View or request valuation report & verification letter.

[YttriumNitrate]

I've bought raw land (twice) and I've bought residential real estate (twice). In my experience, with the raw land the buyers tend not to be in a hurry to buy while the sellers tend not to be in a hurry to sell. From what I recall, the verification of assets was minimal (if anything) beyond the earnest money for the raw land since the properties would have likely just been sitting on the market anyways.

I just sold assets after I had the contract accepted.

[Cranky]

We bought our condo for cash last year, and we had to show copies of accounts, etc. to demonstrate that we had the money available before we could put in an offer, but it didn’t have to be in cash at that point.