An all-cash offer does not mean you show up with a suitcase full of cash. But this means that the buyer has the means to buy a home without getting a mortgage.
It may seem impossible to people who are trying to simply save up a 20% down payment, but the “all-in-cash” offer is becoming more common. In April, 25% of all home sales were in cash, up from 15% a year earlier, according to the National Association of Realtors.
According to Arlene Gonnell, an agent for Weichert Realtors in Short Hills, NJ, the attractiveness of a cash offer to sellers is that there is less risk of a deal going bust and they usually close faster than a mortgage offer. …
“This makes the offering stronger in this market, where sellers are faced with many competing offers,” she said. “Sellers can know with confidence that they have made a deal.”
While cash buyers usually still conduct inspections, the deal is not subject to mortgage financing approval or the ability to appraise the home at an agreed price.
But the money supply is not always the end of the story. Some buyers who win the trade war by offering cash end up funding the house. And there are even ways that buyers looking for a mortgage can use cash-based offers to be competitive.
Where does all the money come from?
Money used to be king. Someone offering everything for cash can usually offer a lower price due to the attractiveness of a cash transaction.
“But now there are other cash buyers, you are no longer the leader of the pack,” said Tomer Friedman, a Compass agent in Beverly Hills, California.
Friedman said that in his market, especially with ultra-high sales of $ 10 million and up, there have always been a lot of cash purchases. But now he sees more money coming from sudden “wealth events” such as money from IPOs, company sales, or windfall profits from cryptocurrencies.
“It’s crazy how many people have so much money,” Friedman said. “Even if someone buys a house for $ 1 million in cash – additional reserves needed. “
And in such a competitive market, it is not enough just to have cash.
A three-bedroom home in Beverly Hills, put up by Friedman’s team agent Antonio Bruno, went up for sale Friday afternoon for $ 1.599 million. Bruno performed one after the other that day, and 45 more over the weekend. By Sunday, sellers had received eight offers worth up to $ 1.8 million, but accepted the offer entirely for cash with a five-day close and no contingency of $ 1.705 million dollars.
“We had offers that included short-term contingencies that were more expensive, and even another cash offer that was more expensive,” Bruno said. “But the confidence that sellers can sign an offer and complete a home within the same week without any contingencies was worth the price difference.”
Possibility to pay cash, but opts for a mortgage
Funding, especially at the current low interest rates, can be attractive to buyers, even if they have cash. But offering money will increase their chances of making a deal.
“Interest rates are incredibly low,” said Nina Hatwani, a Compass agent in San Francisco. “Everyone would like to get a mortgage in order to save their money and do something more productive with it. The only question is, how can I win this competition? “
For an all-cash offer that could close in 10 days and a funded offer that would take a month or more, the seller usually takes the money, Khatwani said.
Typically, she said, a funded offer must be at least 1% higher than a cash offer to win the day.
But just because someone offers cash doesn’t mean they still aren’t borrowing money.
“Due to the large number of cash-based offers, buyers borrow money, they simply do not borrow on this property,” Khatvani said. “They may well be using a stock margin account. They can borrow expected liquidity and receive a line of credit. Or their parents could lend them a couple of million dollars. ”
Some buyers offer cash for a home and then decide they want to get a mortgage after their offer is accepted, Khatwani said.
“It’s not trickery to exchange cash for a loan,” Khatwani said. “The buyer should be thinking, ‘How can I win this property? »And” How can I finance this? ” ”
Full cash offer, no real cash
Recently, the number of purchases made by investors who often buy with cash has been increasing, while the number of new buyers has been falling. Usually these two move in opposite directions.
According to NAR, 17% of buyers were investors in April, up from 10% a year earlier. Meanwhile, the number of first-time shoppers dropped to 31% in April from 36% a year earlier.
But not all hope is lost for those entering the market for the first time. There are new ways well qualified buyers can make an offer for cash, even if they need a mortgage.
When Sherri Lee and Jonathan Kimura bought a new home in Cupertino, California last fall, it was one of the most expensive markets in the country, with a typical home selling for $ 2.3 million, according to Zillow. They knew the competition was fierce, but Lee, a high school teacher, and Kimura, a software engineer, did not have the money to buy a house with cash.
“We knew the Cupertino market was so competitive,” Lee said. They had friends who beat bid after bid, and they tracked homes on Zillow, where properties typically sold for $ 100,000 or $ 200,000 in excess of the asking price.
When the four-bedroom townhouse hit the market for $ 1.68 million, they decided to take advantage of it by offering all the cash through the online lender’s HomeLight Cash Offer program that their real estate agent had recommended to them. …
HomeLight, a real estate technology company and lender, warrants and approves a buyer by confirming that he will be able to apply for a loan. He has his own appraisal team that evaluates the home they want to buy. The company then makes a full cash offer on behalf of the buyer. If accepted, the company buys it and can close it in as little as eight days, holding the home and title while the buyer provides traditional funding.
For buyers who use HomeLight as a lender, a commission of 1% of the purchase price for the service is charged. If another lender is used, the commission is 3%. The program is currently only available in California and Texas, and the company says it is working to expand into new markets across the country.
“You shouldn’t be punished just for not having a lot of liquidity,” said Vanessa Famulener, vice president of HomeLight Cash Close. “We want the average highly skilled person to be able to compete with someone with very deep pockets.”
It mattered a lot to Kimura and Lee. Their all-cash offer was a winning of at least six offers. They bought the house for $ 1.7 million.
“We couldn’t pay for everything in cash,” Kimura said. “We’d have to go through the normal loan waiting process and outbid the price a whole bunch more, the usual way to get a home.”