New research by real estate company Opendoor confirms what frustrated homebuyers already know: In the post-pandemic real estate market, cash is king.

According to a study by Opendoor published this week, 72 percent of sellers prefer cash offers. The iBuyer also found that three-quarters of sellers stated that a mortgage-dependent offer would have to be 10 percent higher than a cash offer to deserve the same consideration.

In other words, if you are bidding on a $ 400,000 home and need financing, Opendoor research suggests that you may need to offer $ 440,000 to get the seller's attention.

"Certainty is very important for sellers, especially in this market," says Kerry Melcher, Head of Real Estate at Opendoor.

Sellers worry about moving on to the house they want to buy and they need cash to compete in a hot market, Melcher says. Opendoor and other iBuyers offer themselves as a workaround – the companies give buyers certainty about the closing dates, although iBuying can also incur high fees.

The premium sellers who assign cash offers make sense, say real estate experts. If a funded offer fails, the seller may have to put the home back on the market and wait another few weeks for a deal to close.

Is the cash bonus really worth 10%?

Not everyone believes that financed buyers are so disadvantaged. Adam Pollack, co-founder and CEO of financial technology company Accept.inc, a mortgage lender that makes cash offers on behalf of borrowers, says the 10 percent premium sounds high. In his experience, sellers typically ask home buyers in need of mortgage loans to outbid cash buyers by 3 to 5 percent.

"In our experience, I wouldn't say it's 10 percent," says Pollack. "But the concept that Opendoor has shown is certainly true, namely that sellers tend to accept a lower cash offer."

Andy Sachs, a Keller Williams broker in Newtown, Connecticut, also says the premium sellers who make cash offers are around 3 percent.

"Cash is king, but 10 percent seems like a lot to me," Sachs says. "You're telling me someone won't roll the dice to take a $ 500,000 offer versus a $ 450,000 cash offer?"

Sachs advises sellers to carefully examine the details of the financing. If a buyer needs a loan but leaves a large amount, that offer can be as good as cash. On the flip side, a buyer who pays as little as 3 percent or 3.5 percent is at a higher risk of losing funding if the appraisal or inspection comes up with a surprise.

Why Home Sellers Prefer Cash Offers

Lenders approve millions of purchase mortgages each year, but a home loan is not a surefire thing. A job loss or other financial hiccup can ruin a deal.

Even so, most home buyers have solid credit ratings, so loans usually come through. "If someone qualifies for a mortgage in today's marketplace, there's a good chance they'll close," says Sachs.

In today's fast-growing market, characterized by a record high rate of appreciation, there is another danger of derailing business – low valuations. The appreciation has turned out to be the biggest hurdle in many deals, says Sachs: "The evaluation is currently more scary than the inspection process."

It is not uncommon for a buyer to bid aggressively, and competitive bids can drive the price beyond what an appraiser sets. In this case, the buyer may need to bring more cash at the final table.

"It's just difficult for appraisers to chase after this market when it has grown so much," says Melcher.

To deal with the possibility of a low appraisal, avid buyers include a waiver of value – a promise to the seller that the buyer will simply make up the difference with a larger down payment when the appraised value is low.

Another workaround is to use one of the new lenders – Accept, along with Homeward and Ribbon – who are making cash offers on behalf of borrowers.

An additional option for buyers is "decision-now-approval", also known as signed pre-approval or pre-acceptance. These terms mean the loan is funded and the buyer can fund contingencies from the offer without having to worry about losing the down payment.

Tips for Buying a Home at a Sellers Market

Here are some other ways to make your bid stand out:

  • Have the cash ready for closing costs.
  • Be ready to move quickly when you find a home that you love.
  • Go through the full underwriting process before submitting your offer.
  • Make sure your offering is aggressive enough to stand out – but not too expensive to afford.
  • Promise to close the deal even if the rating is lower than you hoped.
  • Understand that a small deposit can put you at a disadvantage.
  • Be ready to bid on lots of homes. Some agents report that buyers may make 30 offers before one is accepted.

Learn more:

source https://seapointrealtors.com/2021/07/23/how-homebuyers-can-navigate-a-housing-market-ruled-by-cash-bids/

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