Erin and Wes Leforce have been looking for a house in Westchester County, New York, for almost a year now. So when they found a beautiful historic property that checked all their boxes earlier this month, the two were pumped. They put in an offer 21% above the listing price and waited with bated breath.
Sadly, the seller went with another offer, leaving the Leforces “pretty bummed” and back at square one.
“We loved the home,” Erin says. “It was in a beautiful neighborhood, built in 1915 with original features and had a lovely garden and outdoor space.”
There’s not much the Leforces could have done, though. In fact, their offer was actually higher than the winning bid. The kicker that pushed that other offer over the edge? It was all cash — no mortgage loan required.
According to an analysis from real estate brokerage Redfin, cash offers are four times more likely to win a bidding war than a financed offer, and what’s worse? All-cash offers are now incredibly common. Data from the National Association of Realtors show they account for more than a quarter of all home sales — a 25% increase over 2019.
“It’s surprising to me the amount of cash offers I’ve seen in the last couple of years,” says Bill Gassett, a real estate agent with RE/MAX and founder of Maximum Real Estate Exposure. “They’ve been far more common since the pandemic and the explosion into a widely skewed seller's market.”
With mortgage rates soaring, there’s a chance cash offers may become even more prevalent in the coming months. Meanwhile, homebuyers who need mortgages may find it harder to qualify or the higher monthly payments unworkable.
“The rising cost of borrowing will factor in,” says Mike Fabbri, a licensed real estate salesperson with NestSeekers International in New York City. “Buyers who would normally consider financing because of low rates are now deciding to offer cash.”
It’s a luxury to be sure, but cash offers aren’t just coming from the super-rich or Wall Street investors. While those are part of the equation, many cash offers come from regular consumers — just average Joes down the street.
Buyers who sold existing homes first, for example, have recently had sky-high sale proceeds to fund their purchases. Meanwhile, first-timers have increasingly been turning to burgeoning cash-offer programs like Ribbon, Accept.Inc and Homeward to make their offers look like cash on paper. These companies essentially buy the home on your behalf, and you finance it after closing.
However the offer’s presented, these cash buyers will likely have the upper hand. But why? Cash or not, a seller walks away with money in the bank. Why, then, do cash offers (or cash-like ones, at least) so often win out? Here’s why real estate pros say cash is almost always king.
Cash offers give sellers more certainty
For sellers, the biggest perk of a cash offer is the surety it comes with — particularly in a volatile rate environment. Mortgaged buyers just come with more risk than cash-backed ones. Namely, they should have finance contingencies in their contracts, which allow them to back out if their loan doesn’t come through.
“Anything can happen during a loan process,” says Michelle Dugan, a real estate agent with Realty ONE Group in Las Vegas. “The buyer can lose their job, credit scores can go down, hours at work can be decreased — all making the buyer not qualify for the loan any longer.”
If that were to happen, they’d have to back out of the deal, forcing the seller to relist and start the entire process over again. Not only is it a hassle, but it might mean footing the bill for two mortgages at once if the seller has already bought a new home.
These risks are much lower if the buyer has provided proof that they have the cash in hand. As Dugan puts it, “The seller has a better guarantee that the transaction will actually close with cash.”
Cash offers are faster
Cash offers also offer quicker closings. The typical mortgage loan takes at least one to two months to close. But a cash deal? That can close in a few weeks (or less) in most cases.
For sellers that need to relocate or reinvest their profits quickly, this can be ideal.
“A financed loan needs between 30 to 45 days from start to finish to close a transaction,” Dugan says. “Cash can close in as quick as one to two days — or more commonly one to two weeks. It makes a cash offer much more desirable than a loan.”
Speed is one of the reasons real estate investor Craig Stevens chose a cash offer above other comparable financed offers when selling a New York property earlier this year.
“I was interested in cashing out quickly to reinvest,” Stevens says. “I would estimate the cash offer expedited the sale by about one to two weeks.”
There’s no appraisal with cash
Another perk: Cash offers require no appraisal. When buyers finance a property, their mortgage lender will require an appraisal (or two) to ensure the home is worth what they’re loaning out. If it’s not, the buyer has to make up the difference (between their offer and the appraised value) out of pocket.
If they’re unable to, the seller is forced to accept a lower offer or, worse, lose the deal altogether.
“I would say about half the time, depending on the amount of the deficit, the buyer and seller can work it out and maybe meet halfway, but if not, we are back to square one,” Dugan says.
In a balanced market, this isn’t too common a problem. But in the hot market of the last few years, appraisal problems became more common — posing risks to buyers and sellers alike. In fact, according to NAR, 12% of all terminated contracts in April were due to appraisal issues. They also accounted for 21% of all delayed closings (up 16% from pre-pandemic days.)
“The appraisal and underwriting process is very common, but it does present a potential hurdle that doesn't exist with a cash offer,” says Walt Danley, CEO of Walt Danley Christie's International Real Estate in Arizona. “The appraisal and underwriting processes can easily take a couple of weeks, so some sellers feel they are in limbo during this time. Most sellers want to feel confident that they have a deal put together so they can make plans for their own move.”
Cash offers are (now) competitive
Finally, there’s the money to think about. Today’s cash offers aren’t the low-balled bids sellers saw a few years ago. (When I sold my last house in 2017, we had one cash-offer $30,000 under list price!) According to agents, cash buyers in this competitive market tend to be at, above or even well beyond asking price. This makes it even harder for your average buyer to compete.
“While offering cash used to be a way for some buyers to purchase for less money, that hasn't necessarily been the case for the last year or so,” Gassett says. “Buyers who come with cash are typically one of the better overall bidders.”
Sellers say mortgaged buyers would need to not just match these high offers — but surpass them — in order to win out. According to a survey from Opendoor, 75% of sellers say a financed offer would need to be about 10% higher than a cash offer in order to win a bidding war. That’s the difference between a $428,700 offer (today’s median home price) and a $471,570 one.
As Fabbri puts it, “All else being equal, there is no reason not to opt for a cash deal.”