Cash offer

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A cash offer refers to an offer made to purchase real estate submitted by purchasers who do not require any financing since they do not require a mortgage. The purchase is referred to as an "all-cash buyer." Such a buyer may also waive the appraisal, although not necessarily, since the contingency may exist to test or ensure the property’s market value. The term “cash offer” is typically applied to contracts in which both of these contingencies do not appear. Cash offers are common in markets like Denver, Colorado,[1] Seattle, Los Angeles, and are compounded by the limited supply of homes. Board Cash Offer (also known as a BCO), a type of cash offer, is a term applied to a real estate contract in which a mortgaged buyer has waived both mortgage and appraisal contingencies by prior special arrangement with BoardRE [1], the lender who coined the term. The pervasive use of cash offers in these markets are said to be the result of and exacerbating inequality.[2]

Cash offers account for over 28% of all home sales as of 2018 according to The Wall Street Journal.[3] Because of the absence of one or more contingencies in cash offers, they are preferred by sellers who perceive risks in delays, the execution of underwriting, or in the application of appraisal valuation models. Sellers may reject financed offers in preference to cash offers, even when net proceeds would be lower, because of these perceived risks. This problem is all the more acute for first time homebuyers who do not yet have the funds to submit for a significant down payment let alone an all cash offer. A cash offer can be a really important tool in helping real estate investors get more deals because if you are able to pay cash you can close more quickly. That's the exact model a company like Glasgow Invests uses.[4]

Other lenders assist mortgage buyers compete against cash offers. For example, a mortgage company may provide a buyer a commitment prior to identifying a home. This differs from a pre-approval letter, which is a formal estimate of what a buyer can afford - not an obligation. A commitment, however, does not account for the appraisal contingency, which can adversely effect the strength of a mortgage offer in competitive markets.[5]

Not all cash offers are alike. Most of the cash offers are coming from real estate investors. Some of these investors will get a contract on your house as a cash offer and then reassign the contract to a company that rehabs houses. [6] Simple Homebuyers explains in this article about importance of making sure homeowners use an reputable home buying company, when selling to a cash buyer.

References[edit]

  1. ^ Svaldi, Aldo (24 March 2015). "Denver buyers up their game to be last bidder standing in real estate deals". Denver Post. Retrieved 14 April 2018.
  2. ^ Lopez, Steve. "Cash buyers and premium prices leave middle-class home seekers locked out". Los Angeles Times. Retrieved 14 April 2018.
  3. ^ Kusisto, Laura; Rexrode, Christina. "Want That House? You'd Better Pay in Cash". Wall Street Journal. Retrieved 12 April 2018.
  4. ^ Click, Diana. "All-cash offers crushing first-time homebuyers". CNBC. Retrieved 12 April 2018.
  5. ^ MarksJarvis, Gail. "Homebuyers who pay cash win deals as appraisals derail sales in tight Chicago market". Chicago Tribune. Retrieved 12 April 2018.
  6. ^ Johnson, Francis. "Are We Buy Houses" Companies Real". The Bay Net. Retrieved 12 Jan 2020.