In today’s competitive real estate market, cash offers win 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 in recent years has produced one of the most popular markets, if not the most popular, in the last quarter century. With a limited number of homes for sale, competition is fierce and bidding wars abound.
To compete, many homebuyers offered cash bids to win over sellers; they accounted for 25% of all offers on the market in February 2022. Real estate platform ZeroDown investigated the popularity of cash offers in the current real estate market and their appeal to home buyers and sellers. as well as how the increase in cash offers affected competition in the market.
What do cash offers mean for traditional homebuyers who have gone to great lengths just to get a 20% deposit? A financed offer will likely need to be at least 1% higher than the cash offer to win in a bidding war. So are white picket fence dreams just that: fantasies?
Whether you’re a buyer or a seller in today’s market, here are some things to know about cash offers.
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Cash Offers Aren’t Actually Cash Only
When purchasing a home, there are several financing options to consider to cover the cost, including but not limited to conventional loans and FHA loans.
Some buyers opt for a cash offer. Despite what it sounds like, real money is not what is exchanged. In contrast, an all-cash offer means the buyer does not need to borrow money from a lender or take out a mortgage to purchase the home. There are many reasons why this is attractive to a buyer, including speeding up the sale by saving time and money processing paperwork and lender approvals.
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The demand for housing continues to exceed the supply of housing
As buyers and sellers consider entering the real estate market, many share the same question. Is the market finally stabilizing?
The Realtors Confidence Index survey conducted by the National Association of Realtors Research Group in February 2022 provides some answers about how tumultuous the real estate market has been in recent years. Compared to a year ago, the study found fewer listings entering the market. With housing demand outstripping supply, competition has been fierce. The study found that 84% of listed homes are purchased in less than a month, with most properties averaging just 18 days on the market. Sellers receive an average of 5 offers on their homes and almost half of the offers are above the asking price.
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25% of home offers in February 2022 were cash offers
Another Real Estate Agent Buyer Traffic Index stat to watch out for: In February 2022, 25% of offers were cash. In 2021, cash bids were more than four times more likely to win a bidding war. They also improved the success rate of a competitive bid by 334%.
The study also found that more than 23% of buyers used other strategies to successfully close deals, including waiving financial contingencies and prior property inspections.
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The lure of cash offers in 2022
Why might a seller prefer a cash offer to a financed one?
Cash offers offer verified proof of funds, ensuring a sale closes without delay or the risk of the buyer losing funds midway. And with no mortgage approval required, the underwriting process, which can take up to 60 days, can be as quick as two weeks with cash.
No lender means significant time savings during the paperwork and approval process. And finally, a cash purchase alleviates a potential appraisal gap, or the difference between how much a buyer is willing to pay and what a lender agrees to finance. If a property appraisal report determines that the home is worth less than the seller’s price, lenders may offer potential buyers less than the seller asks. But since an appraisal is not needed on cash offers, this means that a property’s value is based on what the buyer is willing to pay.
This story originally appeared on ZeroDown and was produced and distributed in collaboration with Stacker Studio.
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