New data shows that cash offers are four times more likely to beat financed bids in competitive situations. But data also shows that more and more offers are cash. In fact, in April 2021, 25% of all home sales were cash deals according to the National Association of Realtors® Confidence Index Survey. That represents a significant increase from the 15% share of cash offers in 2020 and 20% share in 2019. So we’ve introduced the Dual Appraisal Advantage, our unique approach to waiving your appraisal contingency, making the Homeward Cash Offer even more competitive.
“This is the lowest risk and most flexible way to waive the appraisal contingency,” explains Brian Gubernick, our Chief Real Estate Officer. “It's low risk because your clients can see this Preliminary Appraisal during their option period and use that to make a go/no-go decision. It's flexible because they can still move forward, even if that Preliminary Appraisal comes in lower than their purchase price.”
“In the past, what we’ve seen is that the highest bid wins,” says Brian, “But that’s not the case anymore.” Gubernick explains that this is a good thing. “That kind of bidding war can lead people to poor decisions. Instead, agents need to think about other levers they can pull.” One of those levers is removing the appraisal contingency.
Appraisal contingencies serve as safeguards, protecting your client from overpaying for a home. “But in today's market,” says Gubernick, “any contingency can make your client's offer less attractive to sellers.” And appraised values — which are based on past home sales, not our current low-inventory, high-demand reality — are coming in lower than contract price more often. So we’ve enabled homebuyers to make winning offers by waiving their appraisal contingency, and removed some of the risk. We do this with our Dual Appraisal Advantage, which includes a Preliminary Appraisal and a Final Appraisal. Here’s how it works:
The Homeward Cash Offer involves two transactions. First, we buy the home your client loves with cash on their behalf. We call this the Homeward Purchase. Then, when they’re ready, your client buys the home back from us. We call this the Customer Purchase. There is an appraisal done before each of these transactions.
We complete a Preliminary Appraisal during the option period. “This Preliminary Appraisal gives your client insight into the value of the home before we buy it for them,” explains Gubernick. “It helps them understand how their loan and cash to close might be impacted. So if it comes in low, they can either back out and recover their EMD, or choose to move forward.”
If the preliminary appraisal value is below your client’s purchase price, they can still choose to move forward if they’re willing and able to cover the appraisal shortage. (The Homeward Mortgage approval team will review your client’s ability to cover a shortage.) In some cases, your client will need to make an additional deposit to proceed:
For Buy with cash clients: If the preliminary appraisal is lower than purchase price, your client deposits the difference.
For Buy before you sell clients: If the preliminary appraisal is within 10% of the purchase price, there is no additional deposit required. In the uncommon case when the preliminary appraisal is below 90% of the purchase price, your client deposits the difference to bring it to 90%. For example, if the purchase price is $1M and the appraised value is $850k, they’ll need to deposit an additional $50k.
Your client’s lender will order the Final Appraisal for lending purposes. If the Final Appraisal is less than our Preliminary Appraisal, the buyer can terminate within three days and keep their EMD. “We see very little difference between preliminary and final appraisals,” explains Gubernick, “but we know this possibility gives agents and their clients pause." We take on the risk in this scenario so you and your clients don’t have to.
Of course, if the Final Appraisal is equal to or greater than the Preliminary Appraisal, we’ll expect your client to move forward.
We hear it time and again: the Homeward Cash Offer wins not just because it's cash or the highest offer, but because it's the most competitive offer. That’s certainly what real estate broker Danielle Dolan of HomeSmart Greenwood Village in Colorado, recently discovered. “Before working with Homeward, we were losing out to cash offers even when we bid more,” she explains. “The ability to waive the appraisal contingency on a Homeward Cash Offer in the competitive Denver market made all the difference for my clients.”