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1 in 4 home offers are now cash – here’s what that means for the average buyer
Real estate over the past few years has produced one of the hottest, if not the hottest—markets over the last quarter century. With a limited number of homes for sale, competition is fierce and bidding wars abound.
To be competitive, many buyers offered cash offers to convince sellers – they composed of 25% of all offers on the market in February 2022. Real estate platform ZeroDown studied the popularity of cash offers in today’s housing market and their appeal to buyers and sellers, and how the increase in cash offers has affected market competition.
What do all-cash offers mean for traditional homebuyers who pushed hard just to get a 20% down payment? It is likely that a funded bid will need to be at least 1% higher than the all-cash bid to win in a bidding war. So, are white picket fence dreams just that: fantasies?
Whether you’re buying or selling in today’s market, here are some things you need to know about cash offers.
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Cash offers are not actually all cash
When buying a home, there are various financing options to consider to cover the cost, including but not limited to conventional loans and FHA loans.
Some buyers opt for an all-cash offer. Despite what it seems, real money is not what is traded. 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 this is attractive to a buyer, including speeding up the sale by saving time and money on document processing and lender approvals.
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Housing demand still exceeds housing supply
As buyers and sellers consider entering the real estate market, many share the same question. Is the market finally flattening out?
the Real estate agent confidence index A survey conducted by the National Association of Realtors Research Group in February 2022 provides answers on the turmoil in the real estate market over the past few years. Compared to a year ago, the study found that fewer listings were coming to market. With demand for housing exceeding supply, competition is fierce. The study found that 84% of homes listed are sold in less than a month, with most properties averaging just 18 days on the market. Sellers receive an average of 5 offers for their homes and almost half of the offers are above the asking price.
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25% of housing offers in February 2022 were cash offers
Another Realtors Buyer Traffic Index statistic to pay attention to: In February 2022, 25% of offers were all cash. In 2021, aall cash offers were more than four times more likely to win a bidding war. They also improved the success rate of a competing offer by 334%.
The study also found that more than 23% of buyers used other strategies to successfully close deals, including waiving financing contingencies and pre-home inspections.
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The allure of cash offers in 2022
Why a the seller prefers a cash offer on a funded?
Cash offers offer verified proof of funds, which guarantees the closing of a sale without delay or risk of loss of financing mid-term for the buyer. And without needing a mortgage approval, 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, an all-cash purchase mitigates a potential valuation gap, or the difference between how much a buyer is willing to pay and what a lender is willing to finance. If a property appraisal report reveals that the home is worth less than the seller’s price, lenders may offer potential buyers less than the seller is asking. But since no appraisal is needed in cash offers, it means that 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 partnership with Stacker Studio.