00:00:00 Music Intro
[Speaker] Kathy Fettke: Competition is so fierce among homebuyers, that we’re seeing a surge in all-cash offers. A new Redfin study shows that all cash-offers are up almost 5% nationwide in the last year. There are also a host of start-ups that help buyers make cash offers and they are expanding.
Hi I’m Kathy Fettke and this is the Real Estate News for Investors.
The Redfin study found that all-cash offers rose from 25.3% last year to 30% this year. (1) Redfin used county records dating back to January 2001 for this study. You may remember the last big surge happened during the recession when cash offers grew to as much as 34.1% in 2011 and 2012. We’re not quite there yet, but the lack of inventory is making the market much more competitive.
Surge in Cash Offers
Many of those cash offers were from investors, but in today’s market, people buying their own homes are coming up with cash. A Redfin real estate agent in Idaho says she been seeing more cash offers over the last year than she’s ever seen in her career. Shauna Pendleton says: “I just sold a $700,000 home to a cash buyer last week. The entire $700,000 came from his E*Trade account.”
She says another way that buyers are getting the cash they need is by selling their homes in expensive cities and moving to places where home prices are lower. That’s a strategy that’s become popular because so many people can work remotely.
Pendleton says: “Affluent homeowners in Seattle, Portland and parts of California are selling their homes for $1 million or $2 million. Then they’re coming to Boise, where they’re buying houses that are twice the size for half the price.”
There’s also been an increase in all-cash offers from investors who are coming back into the market after the initial pandemic slowdown. Redfin says there was a 2.7% increase in home purchases by investors during the first quarter of this year.
But coming up with the cash isn’t always easy, especially when you have to sell your home to get the cash you need to buy a new one. Not having that liquidity is a big a disadvantage when there’s a lot of home-buying competition. Redfin says that about two-thirds of the offers written by Redfin agents wind up in a bidding war.
iBuyers Help Buyers Compete
That’s created a market for companies that will help homebuyers by paying them cash for their homes so they can buy a new home before they have to move out of the old one. There are several so-called iBuyers in this space such as Opendoor, Ribbon, Accept.inc and Flyhomes.
Flyhomes just announced a huge expansion of its business with $150 million in funding from venture capitalists. (2) It’s a five-year-old start-up that plans to double its workforce and move into new markets. It’s currently operating in some big markets including Seattle, the San Francisco Bay Area, Los Angeles, San Diego, Portland, Oregon, and Boston. (3)
Buyers working with Flyhomes must get pre-underwritten so they know how much of a home they can buy. The company will then provide a short-term loan so the buyer can buy the new home. Once the old home sells, Flyhomes will refinance the short-term loan into a long-term loan. Any proceeds from the sale will go toward the down payment.
Flyhomes does have a brokerage that can finance the long-term loan. The website shows some sample rates for someone with excellent credit, and the rates for a 30-year fixed were below 3%. The company also offers a sales guarantee for the old home. If it doesn’t sell within 90 days, the buyer will have the option to sell it to Flyhomes, or leave it on the market.
Accept.inc also raised millions of dollars to expand. It recently announced $90 million in funding and currently operates in Colorado. (4) But the company considered the leader in this iBuyer category is Opendoor. (5) It was founded in 2014 and operates in 41 major metros across the country. It offers a similar service to buy homes and provide financing to homebuyers. Ribbon is also similar. It operates in North and South Carolina, Tennessee, Georgia, Texas, and Florida. (5)
Pros & Cons of Cash Offers
One thing to remember is that sellers don’t always want a cash buyer. Some may need time to close on a new home, and prepare to mov. A buyer who’s getting a mortgage might be a better option in that case. Sellers may also get a higher price if they go with the buyer who needs a loan, but much will depend on the details of the offer.
Those drawbacks aside, there are several reasons why sellers like cash offers. MarketWatch lists five reasons why they can benefit sellers. (7)
1 - There’s a higher chance that the deal will go through.
2 - The sale takes place more quickly.
3 - There are usually fewer contingencies.
4 - Closings are less complicated.
5 - Appraisals are not required.
A decision on whether to accept a cash offer will probably be based on the offers. Although a majority of offers are now over list price, a significantly higher offer from a buyer seeking a loan could be the winner.
For buyers, choosing to go with an iBuyer might give you even more options. Just remember to use your calculator to determine how you benefit financially from any of these options.
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Thanks for listening. I’m Kathy Fettke.
3 - https://www.businesswire.com/news/home/20210610005171/en/Real-Estate-Innovator-Flyhomes-Raises-150M-in-Series-C-Financing-to-Accelerate-Expansion-and-Level-the-Playing-Field-for-Homebuyers-Amidst-Record-Setting-Housing-Market