They assert that cash holds supremacy, and this notion has undeniably held true in the real estate sector over recent years. As per the National Association of Realtors, cash transactions accounted for 23% of home sales in 2021, a figure that escalated to 36% by the culmination of 2022.
So, what instigates the surge in cash bids for homes?
The explanation might be tied to escalating mortgage rates. With interest rates hovering around 7%, buyers encounter challenges in securing affordable mortgages. Those with readily available funds often opt to purchase homes with cash, circumventing mortgage applications entirely.
Given the scarcity of cash purchasers in the market and the unfamiliarity with closing through a cash bid, it’s understandable that sellers would approach them with skepticism. Nevertheless, cash buyers are not the sole beneficiaries; sellers also stand to gain significantly from cash bids.
Cash offers allure sellers because the selling process is typically quicker and less stressful when mortgages aren’t involved. In an all-cash transaction, buyers save on the purchase price, and sellers save time by bypassing the need for third-party financing approvals.
In this discourse, we will explore the concept of a cash bid, its origins, the advantages of accepting one, and how to discern if a cash bid is a scam.
WHAT CONSTITUTES A CASH BID?
In real estate, a cash bid denotes a buyer’s willingness to cover the cost of a home purchase with cash instead of a mortgage loan. Cash home buyers typically deposit funds via check or wire transfer within a matter of weeks.
Cash transactions differ from traditional sales as they eliminate the need for a home loan, allowing both the buyer and seller to bypass escrow companies, lender fees, and other associated expenses.
While cash transactions often involve fewer expenses, closing costs still need to be covered.
WHAT TYPES OF CASH DO BUYERS OFFER?
Homeowners often receive unsolicited offers via email, text messages, and cold calls from various cash buyers with the financial means to purchase a property outright.
Some are traditional buyers with substantial financial resources, while others are investors seeking lucrative returns. Here are some legitimate cash buyers homeowners may encounter:
Investors: Real estate investors purchase properties with the intention of profiting through fix-and-flip or buy-and-hold strategies.
Wholesalers: Facilitating home purchases for sellers and buyers, wholesalers charge finder’s fees typically ranging from 5% to 10%.
Real Estate Agents (acting on behalf of buyers): Traditional homebuyers may submit cash bids, particularly in highly competitive markets where buyer demand exceeds housing supply.
BENEFITS OF A CASH SALE:
Cash bids offer sellers several advantages, including expedited transactions, cost savings, and reduced contingencies:
Quick transactions: Accepting a cash bid enables sellers to sell their homes within weeks rather than months, bypassing the need for extensive marketing, showings, or mortgage approvals.
Cost savings on staging, repairs, and commissions: Motivated cash buyers are usually willing to purchase properties as-is, sparing sellers from additional expenses.
Covering closing costs and fees: Cash-heavy buyers often agree to cover closing costs, outstanding property taxes, and other associated fees, easing the financial burden on sellers.
HOW TO VERIFY THE LEGITIMACY OF A CASH BID:
To ensure legitimacy, sellers should:
Request proof of the buyer’s ability to purchase, such as recent bank statements or legal documentation confirming their financial capacity.
Conduct thorough due diligence by researching the buyer’s reputation and seeking referrals from real estate professionals.
Assess the buyer’s responsiveness and communication skills.
Identifying cash bid scams:
Be cautious of phishing attempts via email or text messages and avoid upfront fees or equity skimming schemes.
Consulting with real estate agents:
While cash bids may yield less than market value, they remain a legal means of selling properties.
Engaging reputable agents can provide sellers with guidance and help mitigate risks associated with cash bids.