In today’s competitive housing market, all-cash offers are winning bidding wars. Real estate platform ZeroDown shares research on how the trend affects buyers and sellers.
1 in 4 home offers are now cash – here’s what that means for the average home buyer
1 in 4 home offers are now cash – here’s what that means for the average home buyer
Real estate has spawned one of the hottest, if not the hottest, markets of the last quarter of a century. With a limited number of homes for sale, the competition is fierce and there are many bidding wars.
To compete, many homebuyers offered cash offers to win over sellers — they accounted for 25% of all market listings in February 2022. Real estate platform ZeroDown researched the popularity of cash offers in the current housing market and their appeal to homebuyers and sellers, as well as how the emergence of cash offers affected competition in the marketplace.
What do cash offers mean to traditional home buyers who have gone out of their way to make a 20% down payment? A funded bid probably needs to be at least 1% higher than the cash bid to win in a bidding war. So, dreams of white picket fences are just that: fantasies?
Whether you are a buyer or seller in today’s market, here are some things you should know about cash offers.
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Cash offers are not entirely cash
When buying a home, there are several financing options to cover the costs, including but not limited to conventional loans and FHA loans.
Some buyers opt for an all-cash offer. As it may sound, real money is not what is exchanged. Instead, an all-cash offer means the buyer doesn’t have to borrow money from a lender or take out a mortgage to buy the home. There are many reasons why this is attractive to a buyer, including speeding up the sale by saving time and money on paperwork processing and lender approvals.
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The demand for housing still exceeds the housing supply
As buyers and sellers consider entering the real estate market, many share the same question. Is the market finally leveling off?
The National Association of Realtors Research Group’s Realtors Confidence Index survey in February 2022 provides some answers about how tumultuous the real estate market has been in recent years. Compared to a year ago, fewer offers came on the market. With demand for housing outpacing supply, competition has been fierce. The survey found that 84% of listed homes sell in less than a month, with most properties on the market for just 18 days on average. Sellers receive an average of 5 bids on their home and almost half of the bids are above the asking price.
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25% of housing offers in February 2022 were cash offers
Another statistic from the real estate buyer traffic index to watch out for: In February 2022, 25% of listings were all cash. In 2021, all-cash offers were more than four times more likely to win a bidding war. They also improved the success rate of a competitive offer by 334%.
The survey also found that more than 23% of buyers used other strategies to successfully close bids, including waiving financing reservations and property pre-inspections.
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The appeal of cash offers in 2022
Why would a seller prefer a cash offer over a financed offer?
Cash offers provide verified proof of funds, ensuring a sale closes without delays or the risk of the buyer losing funding midway through. And without the need for a mortgage approval, the underwriting process — which can take up to 60 days — with cash can take as long as two weeks.
No lender means significant time savings during the paperwork and approval process. And finally, a cash purchase narrows a potential appraisal gap, or the difference between how much a buyer is willing to pay and what a lender agrees to fund. If an appraisal report shows that the home is worth less than the seller’s price, lenders may offer potential buyers less than the seller is asking. But because no appraisal is required with cash offers, that means the value of a property is based on what the buyer is willing to pay.
This story originally appeared on ZeroDown and was produced and distributed in association with Stacker Studio.
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