Ready to buy?
Congratulations! You found a home you want to buy and are ready to make your offer. Before you put your hat into the ring, be sure to make your offer one that can’t be refused. Keep in mind, your offer may not be the only one the seller receives. Your offer must be competitive and that means removing as many barriers as possible.
Making a cash offer on a home is the cleanest, most attractive offer possible and benefits both the buyer and the seller. Here’s why:
Cash offers have less risk
The biggest reason cash offers are more likely to win is that they bring little risk to the table. Unlike offers that are contingent upon mortgage financing, the sale of an existing home, or a specific bank appraisal value, all-cash offers don’t have these risks. The seller has peace of mind that the deal won’t fall through due to you not obtaining financing (or enough financing) or your existing home not selling fast enough. For them, it’s likely a slam-dunk deal that is less stressful, therefore, highly attractive.
Cash offers close faster
Let’s face it, no one likes to drag out a real estate transaction. The seller is ready to move on to their next home and constant showings are a pain. A financed offer can take more than 60 days to close, and that’s when everything goes smoothly. If there are hiccups along the way, the time frame can be even longer. An all-cash offer, on the other hand, eliminates the need for a mortgage approval process, which can take 30-45 days. Cash offers can close within a week or two of having a signed purchase contract. This fast turnaround time benefits both you and the seller.
Cash offers can save you money
Cash offers are so compelling, some sellers are willing to accept asking prices of up to 5% lower. They see the advantages of a cash offer and prefer it over dealing with an offer contingent on financing, an appraisal, or a home sale. With the average home price in the U.S. at $362,700, that 5% savings totals more than $18,000. What could you do with another $18,000, particularly during a move to a new home?
By making a cash offer on a home, your offer inevitably rises to the top of the pack. Almost 80% of home sales included some sort of contingency within the offer, so removing as many of them as possible from your offer makes your bid stand out and can save you tens of thousands of dollars in the process.
Where to get your cash
Now that you understand all you (and the seller) have to gain by a cash offer on a home, you may be asking where you will get this cash. Of course, the straightest route would be to have liquid cash in hand. If you do, making your cash offer on a home is as easy as withdrawing that money from your account. If that money is tied up in investments and retirement accounts, you may want to consider another option.
Money invested is money earning interest and/or a return. Pulling that money out of those investments can bring risk of a lower return as well as penalty fines and taxes that can reduce the value of those investments significantly. In the case of withdrawing from your 401(k), you can only withdraw a certain amount and may also have to pay back the balance immediately if you leave your job. Before you go down this path, it’s wise to speak with your investment advisor to determine if it makes sense to dip into any account to retrieve enough cash to pay the balance on a new home.
So, now what? Before you give up, consider the relatively new option of working with a company like Homeward that can give you access to their funds to make a cash offer on a home. This isn’t a loan, mind you. It is leveraging the cash they have access to from their institutional capital providers. You pay a 1.9% fee for this capability but that amount can be rolled into the purchase price of your home and save you 5% on the sales price. The amount of cash you have access to is dependent upon your financial situation and how much home equity you have in your current home.
To work with Homeward, all you have to do is:
- Fill out an application (It takes about 10 minutes)
- Work with Homeward to get approved
- Once approved, make your winning cash offer on the home
- List your existing home for sale
- Rent your new home from Homeward for up to six months
- Close on the sale of your existing home and get a mortgage on your new home and buy it back from Homeward
You don’t have to worry about the penalties, fines, and tax implications of pulling money out of your retirement accounts. The riskiest contingencies can be thrown out the window. You close faster and save money. While this option isn’t traditional, It’s one that is gaining popularity because it’s giving control back to the buyer. Instead of having to sell an existing home first before purchasing a new home, instead of attaching multiple contingencies to an offer, and instead of risking losing a home because of timing issues, homebuyers can buy the home they want, when they want. It’s a new way of buying residential real estate and it’s saving buyers significant stress.
How to play the market
We always hear about buyer’s and seller’s markets in real estate. If you’re a buyer, you hope when it comes time to buy your next home, it’s a buyer’s market. This means there are more houses on the market than buyers. In essence, you get the pick of the litter. You may have to worry less about the home you want receiving multiple offers, instigating a bidding war. Your offer may be the only one on the table and the sellers may be more willing to lower their price and accept contingencies.
Here’s the rub, however. Even in a buyer’s market, where all the chips are in your corner, there’s a good chance you’re competing against other offers, particularly if the home is in a desirable area. You may not be competing against 20 offers, as in a seller’s market, but you still need to make your offer more attractive than one or more other offers. Removing risk from your offer and promising a faster closing by purchasing the home with cash goes a long way to ensure you get the home you really want, no matter the type of market.
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