What A Cash Offer Is In Real Estate and Why You Should Consider It
What is a cash offer in real estate?
It is an all-cash bid. This means that the home buyers want to purchase a home without taking a mortgage loan or any other financing. Cash offers are more attractive to sellers since there will be no buyer financing fail risk. There is a faster closing time when cash offers are provided.
Opendoor is one of the companies that uses cash offers by buying the home directly using a competitive offer. The only requirement is that the home ought to qualify as indicated in the website.
How widespread are cash offers?
They are prevalent in the modern world. Research from ATTOM Data Solutions indicate that cash sales accounted for over a quarter of all the condominium and single-family home sales in 2018 in the US. The data indicates that this was below the cash offer peak in 2011, which was 38%. However, it is higher that the pre-recession average from 2000 to 2007, which was at 19%.
The figures are different in every city. Research also indicates that metropolitan statistical areas with the highest share of cash offers in 2018 were Montgomery in Alabama, Naples in Florida, and Macon in Georgia with 54%, 53%, and 51% respectively. The collected data was among a set of 200 with at least a population of 200,000 and sufficient cash sales data.
The following instances render cash offers more common;
• When an investor is interested in the property
• When the buyer has sold their current homes and has sale proceeds to pull from to purchase their next home
• When the seller has approached an iBuyer about purchasing a home
• When the level of competition is higher and the buyer want to win and stand out when it comes to the purchase of the house
• When the property requires renovations and is attractive as a fix-and-flip home
However, it is worth noting that cash offers can come up in any transaction. If you are planning to purchase of sell a home, be aware of these offers and how they work.
How cash offers change the process of buying homes
Cash offers is different in buying and selling process as compared to mortgage. First, the process of using cash offers is faster since there is no need of applying for mortgage, documentation, or underwriting. In such as case, the buyer does not require an appraisal. However, buyers need to take care of the title policy and insurance, provide proof of funds, and sign closing documents. Experts say that closing can be done in as little as 14 days while using cash offers.
Other ways of how cash offers is different from other ways.
Cash sales do not require more contingencies as other forms such as mortgage. There is no need for financing contingencies as well as sale contingencies. However, buyers may require an inspection contingency because this will indicate that the home is safe and no extra cash will be required for repairs or renovations.
Appraisals are normally a requirement from the lenders. Therefore, since are no lenders in cash offers, a buyer will not have to worry about appraisals. There are instances when the buyer may want an appraisal especially if it is an investor who is interested in ascertaining guarantee returns.
The simplicity of the closing process in cash offers is evident. Buyers will need to sign title deed and settlement statement, hand over the money, and receive the keys to the new home. Paperwork reduces significantly when there is no financing drag. Additionally, the costs of closing are lower because of the lack of lender fees that are attached in the process of buying.
Escrow and title
Buyers will require title and escrow companies to handle the transaction. But, buyers tend to have more leeway in choosing the parties without involving lenders. Looking at different companies helps buyers to compare fees and decide on which company to settle for to handle the transaction.
Considering cash offers when buying a home
Just because the buyer has the ability to purchase a home using cash offers does not mean that the move is right. Cash offers has both advantages and disadvantages.
Here are some of the advantages and disadvantages that should be kept in mind as you decide;
Advantages of making cash offers
• Sellers have more confident
• Faster closing period
• Credit score is not a factor
• No need for home appraisal
• No interest payment and thus buyers can save money over time
• Reduced paperwork and documentation
Disadvantages of making cash offers
• A significant amount of money is needed
• It limits liquidity
• Buyers will not have the ability to utilize mortgage-related tax deductions
Buyers ought to consider the general competitiveness of the market. Cash offers may increase when there are more buyers interested in buying. Buyers should also not mistake the cash offer as all the money that will be required. There are additional charges required such as cover property taxes and expenses for moving.
Considering cash offers when selling a home
Sellers who are in an affluent market or locations that attract investors may encounter cash offers along the way. Cash offers are offered by iBuyers, investors, retirees, previous home owners, and wealthy buyers. The following are the advantages and disadvantages associated with cash offers that sellers should keep in mind;
Advantages of accepting cash offers
• No risk of buyer financing fail
• Faster closing process
• No need for an appraisal
• The seller can avoid some contingencies
Disadvantages of accepting cash offers
• Might be lower than other offers
• Buyers are not vetted
Cash offers provide massive advantages for buyers and sellers. However, they may not be the right choice. When selling a home, it is important to be aware of the advantages and disadvantages that come along with accepting cash offers. It is also important to understand the people who are making these offers. This ascertains that the buyer is doing business with reputable parties that have the funds to purchase the home.
When purchasing a home, think hard about putting all your finances into one asset. It is important to talk to an accountant or a financial advisor and ensure that you understand all the details before moving forward with making a cash offer.