1 in 4 home offers are now cash—here’s what that means for the average homebuyer
Real estate in the last few years has produced one of the hottest—if not the hottest—markets in the last quarter-century. With a limited number of houses for sale, competition is fierce and bidding wars abound.
To compete, many homebuyers offeredall-cash offersto win over sellers—theycomprised 25% of all market offers 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 rise of cash offers affected competition in the market.
What do all-cash offers mean for traditional homebuyers who’ve pushed hard just to come up with a 20% deposit? Likely, a financed offer will need to be at least 1% higher than the all-cash offer to win in a bidding war. So, are white picket fence dreams only that: fantasies?
Whether a buyer or seller in today’s market, here are some things you should know about all-cash offers.
Cash offers aren’t actually all-cash
When purchasing a house, there are various financing options to consider for covering the cost, including but not limited to conventional loans and FHA loans.
Some buyers opt for an all-cash offer. Despite how it sounds, actual cash isn’t what’s exchanged. Instead, an all-cash offer means the buyer doesn’t need to borrow money from a lender or take out a mortgage in order to purchase the house. There are a lot of reasons this is attractive to a buyer, including expediting the sale by saving time and money on paperwork processing and lender approvals.
Housing demand is still outpacing housing supply
As buyers and sellers consider entering the real estate market, many share the same question. Is the market finally flattening out?
The Realtors Confidence Index survey put forth by the National Association of Realtors Research Group in February 2022 provides some answers about how tumultuous the real estate market has been in the last few years. Compared to one year ago, the study found fewer listings coming into the market. With demand for housing outstripping supply, competition has been fierce. The study found that 84% of listed homes are snapped up in less than one month, with most properties averaging just 18 days on the market. Sellers receivean average of 5 offers for their homes and nearly half of the offers are above asking price.
25% of home offers in February 2022 were cash offers
Another stat from the Realtors Buyer Traffic Index to pay attention to: In February 2022, 25% of offers were all-cash. In 2021, all-cash offers were more than four times as likely to win a bidding war. They also improved a competitive offer’s success rate by 334%.
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The study also found that more than 23% of buyers were using other strategies to successfully close bids, including waiving financing contingencies and property pre-inspections.
The appeal of cash offers in 2022
Why might a seller prefer a cash offer over a financed one?
Cash offers offer verified proof of funds, which ensures the close of a sale without delays or the risk of the buyer losing funding midway. And with no need for mortgage approval, the underwriting process—which can take up to 60 days—can be as fast as two weeks with cash.
No lender means significant time savings during the paperwork and approval process. And lastly, an all-cash purchase alleviates a potential appraisal gap, or the difference between how much a buyer is willing to pay versus what a lender agrees to finance. If a property appraisal report finds the home is worth less than the seller’s price, lenders may offer potential buyers less than what the seller is asking for. But with no appraisal needed in all-cash offers, this means a property’s value is based on whatever the buyer is willing to pay.
This story originally appeared on ZeroDown and was produced and distributed in partnership with Stacker Studio.
FAQs
The appeal of cash offers in 2022
How many offers are normal on a house? ›
Up against multiple offers, home buyers may have to face some heartache before they win out on “the one.” Sixty-two percent of real estate professionals say their first-time home buyers typically had to put in four or more offers before closing on a home, according to Assurance IQ, an insurance provider.
How are so many people making all cash offers on houses? ›
Economic uncertainty, particularly surrounding mortgage rates, has made cash offers more appealing. With mortgage rates remaining high, many potential buyers relying on mortgages pulled back from the market, increasing the proportion of cash buyers.
What does all cash offer on a house mean? ›
When you make an all-cash offer on a home, it means you are offering to pay for the purchase with funds that are already in your bank account. As a result, you wouldn't need to arrange financing because you wouldn't require a mortgage.
How much lower should a cash offer be on a house? ›
Offering 1% to 4% below asking may not seem like a lot of savings when you're spending hundreds of thousands of dollars, but the reduced price will make your mortgage payments less every month. You may want to offer below 5% when you're paying with cash or when the market is more balanced.
What happens when there are multiple offers on a house? ›
When there are multiple offers, the seller typically takes one of three actions: Accepts the most favorable offer. Counters all offers to give everyone a chance to come back with a better bid in an effort to get the best price and terms. Counters the offer closest to the price and terms the seller's seeking.
Is it good to have multiple offers? ›
You have to weigh the salary and benefits against the intangibles like company culture, working styles, and management. And while it's hard to compare an apple to a pear, the cool part about multiple job offers is that clearly, you've got something that employers want!
Are cash offers usually lower? ›
Cash offers are often lower than finance-contingent ones — a “discount” cash buyers can give themselves, since they know they're making things faster and more efficient for you.
Why do sellers prefer all cash offers? ›
Cash is king for sellers
While mortgage-based buyers are trying to outbid each other, mortgages are not guaranteed, and a seller could be left high and dry if a buyer does not pass the hurdles of their mortgage lender. Without any mortgage underwriting risk, all cash sales allow transactions to close faster.
Are sellers more likely to take cash offers? ›
Sellers typically prefer cash offers because they greatly reduce the risk that the sale will stall or fall through as a result of an issue with the lender and because cash sales tend to be much speedier than traditional sales.
The major benefit of a counter-offer for buyers is the potential to secure the home for less money and on better terms, always a good thing. However, if you really want the house, it's not a great idea to go back and forth too many times with counter-offers.
Can a home seller reject a full price offer? ›
Home sellers are free to reject or counter even a contingency-free, full-price offer, and aren't bound to any terms until they sign a written real estate purchase agreement.
How much less can you offer with all cash? ›
Can you offer less than market value with an all-cash offer? You can offer whatever you like, no matter how you're paying. But a seller may be more inclined to accept a lower offer if it is all-cash. On the other hand, if it's a hot listing with multiple offers, they may not accept a low offer even if it's in cash.
What is considered a lowball offer on a house? ›
By strict definition, a lowball offer is one that is significantly below market value. In practice, an offer is considered "lowball" if it is significantly below a seller's asking price. Understanding this distinction between market value and asking price is critical to your success.
What is an acceptable first offer on a house? ›
Typically, a lowball offer is considered to be at least 20% below the asking price. If you're offering 10% below, the property should be in a good condition but may just need some cosmetic work done. The goal of offering 10% below the asking price is to use those extra funds to cover the repairs.
Are houses selling below the asking price? ›
Sometimes, you can purchase a house for less than the asking price, which usually happens when there is little to no competition for the property, often during a buyer's market.
What percentage of offers made it to closing? ›
In 2022, the National Association of Realtors reported that 7% of purchase contracts fell through. While this number shows that most home sales go through closing, a significant portion of home sales doesn't make it to closing.
Do sellers usually go for the highest offer? ›
“Home sellers typically choose convenience over a higher-priced offer because it could mean fewer headaches during the process.”
What is a strong offer on a house? ›
There's no reliable formula here. Typically, a low-ball offer is at least 15% to 20% lower than the asking price: offering $240,000 on a home valued at $300,000, for example. But sometimes a seller may be asking too much. If you can back up your offer with market data, you're making a serious offer.
How many offers before one is accepted? ›
Depends on the offer. If you are low-balling and offering below market, it may take 5, 10, 15 offers before someone accepts. The market is also a huge factor, desperate sellers will be more likely to accept. If you are offering what they're asking, it may only take 1 offer to seal the deal!
