Cash Buyers

 

Cash offers always get accepted, correct?

 

Sellers give a discount for cash offers, right?

 

Is it also true that getting a cash offer is as good as heading to closing and transferring the title?

 

There are a couple of aspects of paying cash for a home we can agree on:

 

A cash offer has the potential of closing sooner than an offer with a loan.

 

A cash offer has the potential of moving forward without needing an appraisal as compared to a loan where there is a risk of a low appraisal and sale-fail.

 

Employment verification is usually needed for a home loan but not for a cash buyer. 

 

In fact, if a buyer quits their job prior to funding and recording on their new home, they risk losing their loan when the lender does an employment recheck.

 

An escrow officer is a neutral third party but is obligated to inform the buyer’s lender they are no longer employed if the buyer casually mentions at closing “glad signing is over because I just quit my job.”

 

Why does a cash offer just have the “potential” of closing sooner than a financed offer?

 

If a buyer is approved subject to an appraisal, some lenders could, with a willing appraiser, close in two weeks which is a typical inspection period.

 

Cash could possibly close in less than a week yet most cash buyers still want a home inspection which would extend the closing date to that of a fast tracked loan.

 

What about appraisals? 

 

A home lender could have an appraisal waived or just require an automated appraisal. They could also rush an appraisal.

 

On the other hand, when a cash offer comes in, some buyers think they have a cash offer but it may be subject to the closing of another home, selling stock, getting funds from a relative who “promised” them money to pay cash, or even being subject to the funds coming from a retirement account only to find out funds aren’t immediately available.

 

Let’s look at some recent cash offers.

 

If a seller receives a cash offer $50,000. above asking price and has a second offer with a  loan 50% down but $100,000. above asking price, which would most sellers take?

 

It comes down to risk versus benefit and a slice of seller preference.

 

It is always the seller's choice and sometimes a seller will choose a buyer that may not be the highest price, the quickest closing, or all cash. 

 

The local market determines the value of a cash offer.

 

The past several years with low interest rates may have been a time of a slight preference for cash offers if all other terms were equal.

 

However, as interest rates increase, if the pool of qualified buyers starts to shrink, the value of a cash buyer to sellers may increase greatly.

 

Let’s look at the facts to better understand the value of cash offers so far this year.

 

Are cash offers reserved for lower or moderately priced homes?

 

Let’s take Lake Oswego for detached homes from Jan 1 2022 to April 28, 2022 as shown on RMLS for answers to many of the above questions:

 

Conventional Loans Closed: 92 

Average Cumulative Days on Market: 39

Percentage Sold to Original Asking Price;     104.68

Average Sold Price:           $1,290,027

 

Cash Offers Closed: 34 

Average Cumulative Days on Market: 27

Percentage Sold to Original Asking Price;             98

Average Sold Price:           $1,715,703

 

Any observations?

 

In Lake Oswego the average closed cash offer compared to a conventional offer was priced $425,476. higher, sold 31% faster, and buyers paid on average 6.68% less than their conventional loan counterparts.

 

Here are the houses sold in Portland for the same period:

 

Conventional Loans Closed:      1,901

Average Cumulative Days on Market: 24

Percentage Sold to Original Asking Price; 105.06   

Average Sold Price:        $659,573



Cash Offers Closed:           388 

Average Cumulative Days on Market: 28

Percentage Sold to Original Asking Price;   104.74

Average Sold Price:          $820,045

 

Any observations?

 

In Portland the average closed cash offer compared to a conventional offer was priced $160,472. higher, sold 16% faster, and buyers paid on average just .32% less than their conventional loan counterparts.when a cash offer comes in, some buyers think they have a cash offer but it may be subject to the closing of another home, selling stock, getting funds from a relative who “promised” them money to pay cash, or even being subject to the funds coming from a retirement account only to find out funds aren’t immediately available.

 

Here is what happened in Vancouver Washington for the same period:



Conventional Loans Closed:           881

Average Cumulative Days on Market:   5

Percentage Sold to Original Asking Price;     103.83   

Average Sold Price:             $546,367



Cash Offers Closed:           143 

Average Cumulative Days on Market:   5

Percentage Sold to Original Asking Price;     103.95

Average Sold Price:             $568,918

 

Observations?

 

In Vancouver Washington,  the average closed cash offer compared to a conventional offer was priced just $22,551. higher ($568,918 vs $546,367), both sold in an average of five days and cash buyers actually paid, on average .12% (12/100ths of a percent) MORE than their conventional loan counterparts (103.95% of asking price for cash vs 103.83%).

Isn’t that interesting that cash buyers typically bought houses in a higher average price range than their conventional loan counterparts and that in one area the impact of paying cash upon sale to asking price was nothing, yet more dramatic in another.

 

What we don’t know is how many conventional offers were made before an acceptance as compared to cash offers made before acceptance.

 

So apart from getting an acceptance, it sounds like on average, luxury home sellers may have a smaller buying pool, are less down to the last dollar sensitive, or are just more willing to negotiate price than midrange homes when it comes to price.

 

Accurate expectations from cash buyers and those needing financing will vary based on location and price point.

 

As interest rates rise, will lender requirements change, fewer buyers qualify, and therefore the value of a cash buyer, and willingness to negotiate with them, increase?

 

And, or, will the stock market go down and fewer cash buyers exist?