Are Cash Offers Really Good For Home Dealers?

(NerdWallet) – Are you ready to sell your home? Regardless of the listing price, you may find that in today’s strong seller market, you are getting at least one cash offer. In March 2021, 23% of homebuyers (including real estate investors) raised their purchases in cash, according to the National Association of Real Estate Agents. But are cash offers better for homeowners? It depends on the offer and the seller.

If you are looking to sell your home fast or don’t want to deal with contingencies, a cash offer may be ideal for you. But if you may need more time to find a new home or want to make sure you are maximizing your profits, you may be better off with a mortgage buyer Hmm. It really comes down to the details of the offer, not just where the buyer is raising money.

Who buys a house for cash?

Traditionally, cash buyers tend to be extremely concentrated in either the housing market. At the low end, you’ll see home flippers and investors buying homes that may not be eligible for a mortgage due to terms, prices, or both. At the high end, there are always buyers who don’t need a mortgage. It may be because they have enough capital from home sales, have received gifts or loans from their families, or are simply wealthy.

But in today’s market, more and more average homebuyers are paying cash. Paying cash is one of the tactics some buyers are using to win the bidding war due to tight housing inventories and high buyer demand.

“The seller is absolutely in heaven,” says Edgard Guerrero, a Century 21-affiliated real estate agent in Chicago. “Every property has 10 or 15 buyers.”

If you receive a cash offer from a more or less regular buyer, it may be smoother than if you were working with a first-time cash buyer. Tasks such as creating purchase contracts and securing life insurance are nothing new to them.

Investors and iBuyers vs Home Shopper

The categories of regular cash buyers include real estate investors, house flippers and iBuyers. iBuyers is a company that pays homes in cash, offers offers within days, if not hours, and allows sellers to close in just two weeks.Investors and flippers look for a list, but when you have to take the initiative Sale to iBuyer..

These buyers generally do not plan to live in their homes.They are likely to Abandon the contingency of the inspection, Because they expect repairs and upgrades as part of their investment. Not requiring repairs is another way iBuyers can guarantee a quick deal. However, because they want to profit from buying a home, investors may make lower offers than buyers looking for a place to live.

Guerrero said tax auctions and the sale of bad properties have been suspended, so real estate investors who usually get properties at auction “must come to the open market to get a home.” Stated. This will intensify competition among homebuyers, raise prices and encourage non-investors to consider cash offers.

Homebuyers who buy a home for the first time in cash, whether it’s a primary home or a secondary home, are more likely to actually plan to live in that home. This type of purchaser may ask for contingencies such as home inspections. Given that they have already paid a fair amount of cash to their homes, it is unlikely that they want a property that requires a major upgrade or major modification. Safe, solid and occupant properties can be expected of this type of cash buyer.

Why Cash Offers Are Better Than Funding Offers

The prospect of a cash offer may dream of jumping into a pool of money at Scrooge McDuck, but keep in mind-unless you own your home completely, a good deal of those funds Part of is directed to repay your mortgage. Still, there are many reasons why cash offers can appeal to homeowners.

  • Confidence in ongoing transactions. In the case of cash, the buyer either has or does not have the money — if you check the proof of the funds, you know that you can close. Most sales are ending as expected, according to data from the National Association of Real Estate Agents. As of April 2021, only 5% of contracts have expired, but some sellers want a higher level of certainty. The same report shows that closing delays are much more common, affecting 22% of transactions in the last three months.
  • Faster process. Even pre-approved homebuyers need to get the actual mortgage approval before underwriting. It can take 45-60 days. It can take only two weeks to complete a cash transaction.
  • There are fewer unforeseen circumstances. Cash buyers are less likely to request an appraisal, home inspection, or other contingency.
  • Easier closing. Cash buyers take ownership and take it on their own to acquire an escrow company and have an experienced buyer’s agent (and perhaps a real estate lawyer) to ensure that the paperwork is complete and correct Must be. Still, without the involvement of the lender, it is much less likely to review and sign off to close the deal.
  • There is no evaluation stress. The lender Appraisal Before approving a mortgage, the property secures the loan. When home prices are rising rapidly, valuations based on comparable home sales do not always keep pace, leaving a gap between what the buyer is willing to pay and what the lender agrees to lend. .. If there is a cash offer and no appraisal, the value of the house is what the buyer is willing to pay.

Why funding is better than cash

Given all that, you might think that a cash offer always wins. But offering a home is more than just funding. Some variables to consider:

  • What is good for your timeline? If you’re in a hurry to drop an empty house or move to a new one, speedy closures are great.But if you are trying Buy while selling, You may need some extra time. Compare the suggested end dates and timelines between offers to see which one works best for you.
  • How much money you might give up. From 1980 to 2017, two researchers at the University of California, San Diego’s Rady School of Management found that sellers accepted, on average, 12% lower cash offers than loaned offers. Even if you’re interested in fast closures, weigh their convenience against the money you might have left at the table.
  • The type of buyer you are dealing with. If you are working with an experienced cash buyer, all of the above “cash transactions are generally quick and easy” points are likely to apply. For first-time cash buyers, contingencies can still occur. If the buyer is not working with a real estate agent, it can also complicate the transaction. In this scenario, having a listed agent with experience as a cash buyer can be a big asset.

Assuming cash offers are attractive, cash buyers can be potentially aggressive. Mike Ferrante, an agent at Cleveland’s Century 21 Home Star, said:

He talked to the seller. The seller decided to postpone the cash instead of taking it. “In this case, there are currently three offers, one of which is significantly higher than the one they offered,” says Ferrante.

Should I accept a full cash offer?

Perhaps now it’s pretty clear that everyone’s situation is different and you need to decide what matters most to you. Whether accepting or funding cash offers, guerrero and FERRANTE agree that it makes sense to wait for the right offer in a market where multiple offers can be expected.

“Some people will say,’If you list in 199 and get a 215 or 220 offer, you just take it,” Guerrero says. He encourages sellers to refrain from offering “highest and best use” and take the time.

His recent list was sold for $ 46,000 above the asking price to cash buyers who came to the “11th hour” when there were already more than a dozen offers at the table. “If we had accepted the offer within 24 hours, or within a couple of days, we wouldn’t have received the incoming offer,” says Guerrero.

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Article Is Cash Offer Really Good for Home Dealers? Originally appeared in Nerd Wallet.

Are Cash Offers Really Good For Home Dealers?

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