An all-cash deal is just what it sounds like -- a transaction where the buyer pays cash for whatever she buys from the seller. While all-cash deals can happen in just about any transaction, the term is commonly used in real estate. Although an all-cash deal requires that the buyer tie up a lot of her money in one asset, it has benefits for both sides.
What All-Cash Means
To be clear, an all-cash deal doesn't actually involve a suitcase of bills or an armored car. All-cash simply means that the transaction is conducted without the use of any debt or non-cash payment methods, such as offering stock. The cash in an all-cash deal can come from a check, a cashier's check or a wire transfer.
For a seller, an all-cash deal offers speed and certainty. Since a lender isn't involved, the sale doesn't have to be delayed waiting for the buyer to apply to financing, for the appraiser to finish her report and for the lender to underwrite the transaction. There's also no risk that the lender will refuse to lend and kill the deal, since there is no lender.
When a buyer buys with all cash, he doesn't need to worry about making loan payments while he owns the asset. In addition, since sellers usually like all-cash offers, he may be able to negotiate a lower price. Finally, buying on an all-cash basis lets him do business with motivated sellers who need a fast and certain close, such as banks that want to unload foreclosed properties. Frequently, these motivated sellers can offer good deals, but they might not be open to you unless you can buy on an all-cash basis.
Faux All-Cash Deals
Not every all-cash deal is actually an all-cash deal. Some investors get a "proof of funds" letter from their lender that says that they have the money, even though they're actually borrowing it. While many of these lenders offer fast execution and will fund the transaction, there's still a third party in the transaction that could kill the deal. Some residential buyers do the same thing -- they still intend to get a mortgage, but they write the contract as if they aren't.
All-cash transactions come into play in the "A" in M & A -- mergers and acquisitions. When companies merge, they typically swap stock or combine stock to create a new issue. In an acquisition, one company buys the other one. Instead of giving the owners of the old company stock or some other security, the owners get cash in an all-cash transaction. All-cash deals are more likely when the acquiring company has a healthy balance sheet.
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