Do you take cash?

At the high end of the market, many buyers are making cash offers to win bidding wars and help deals happen quickly

By Scott Pickering
Posted 5/20/21

Here’s a new phenomenon in the local real estate market. An increasing number of buyers are offering to pay cash for properties.

Does that mean they actually bring a suitcase of Benjamins to …

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Do you take cash?

At the high end of the market, many buyers are making cash offers to win bidding wars and help deals happen quickly

Posted

Here’s a new phenomenon in the local real estate market. An increasing number of buyers are offering to pay cash for properties.

Does that mean they actually bring a suitcase of Benjamins to the closing? No.

But they could — and that’s the point.

At the high end of the market, buyers are making full cash offers, meaning they will are willing to write a check for the home if they have to. There are often no strings attached.

One of the biggest strings is a mortgage contingency, where a buyer can walk away from a deal if their financing plan falls through. Increasingly, buyers are waiving their mortgage contingencies, so if they apply for a mortgage and don’t get it, the deal still stands. If they walk away the deal, they can lose their deposit, which is often substantial in transactions of $1 million or more.

Elizabeth Kirk of Residential Properties’ Kirk Schryver Team said this has become a regular occurrence. “Even though they’re getting mortgages, they’re stating their offers in cash. In some cases, they’re delivering proof of funds (meaning they have the money, if necessary) … They’re removing the mortgage contingency, and they’re putting down a significant deposit.”

The vast majority of them don’t end up buying the home with their own cash. They come to the closing with bank financing (a mortgage), and the final deal resembles a real estate transaction that most people are familiar with.

So why submit an all-cash offer? To win the bidding war against every other buyer in this wild, unprecedented, sometimes unpredictable market.

Consider a recent example. The Kirk Schryver Team listed a nice property in Barrington for not quite $1 million, but close to it. They opened it to showings on the Thursday before Mother’s Day. They showed it 28 times from Thursday evening until 3 p.m. on Saturday, which is when they set their deadline for offers.

They received five cash-equivalent offers, all waiving inspections, all over the asking price. The house sold in less than 48 hours to a “cash” buyer.

It’s all about the interest rates

Though the buyers of that Barrington home are qualified to buy the home in cash, they most likely won’t. “Even though buyers could pay in cash, because rates are so low, it seems silly to do that,” Ms. Kirk said. “Why use your own cash, when the cost of borrowing is so low?”

Cherry Arnold, Realtor with Mott & Chace Sotheby’s, said the same thing.

“The interest rates are so low, plus people are making so much money in the stock market right now, it just doesn’t make sense for somebody who’s buying right now, especially somebody who’s buying a second home, to pull money out of the market and buy in cash,” Mr. Arnold said.

Based in Little Compton and specializing in the “Farm Coast” properties of that region, Ms. Arnold is often working with clients on deals worth $2 million, $5 million or more. Yet even at those prices, she has seen a significant increase in “cash” offers. Most are still applying for a mortgage, but they are waiving that contingency and willing to close in cash if they have to.

Most of the time, the mortgage comes through in time for the closing. “Keep in mind, a lot of these clients are working with private banks, or with banks that have long relationships with these buyers,” Ms. Arnold said. So in most cases, the bank works quickly to get the financing in place for these quick closings.

But that doesn’t always happen. Ms. Arnold has seen numerous instances where the financing is not ready in time, the buyer goes forward and uses their own cash, and then takes out a mortgage after actually taking the keys. “They will come up with the cash, and then they come up with the mortgage,” Ms. Arnold said.

Cash to close

Soaring prices are another phenomenon at this high end of the market. The flood of wealthy urban residents into this region of waterfront vistas, combined with the record-low inventory, are driving prices higher and higher.

It can create problems for the “cash” buyer who just outbid every other potential buyer by aggressively making an offer well above the asking price. To qualify for their mortgage, they need an appraisal that gets within the same ballpark of the sale price in order for the bank to approve the loan.

If there’s anxiety about this, some of these buyers are consecrating their deals with significant cash at closing. If it’s a $1 million property, they might bring $500,000 to the closing and finance the remaining $500,000. The significant infusion of cash can help the bank sign off on the loan, even if the appraisal is a little shaky.

Inspections before listing

The pace of the market is frenetic right now, with properties listing, showing and closing within days. To help these deals happen at that pace, agents and sellers are doing a lot work before a property even hits the market.

Ms. Kirk said that in many instances, they advise their clients to hire a reputable inspector to go through the house top to bottom. Some issues they may address before listing the property; others they share with potential buyers so everything is known ahead of time.

“We all know no house is perfect. So we address a lot of those issues up front,” Ms. Kirk said. “It takes the onus off the sellers, off of us, and it delivers a cleaner package … People feel better when they’re making an offer that the house is the house, and there are no surprises … It’s all very ethical and it feels good to both sides.”

Ms. Arnold said inspections contingencies can be dealt with in a number of ways, and in the preponderance of deals happening today, inspections are not a stumbling block. Sometimes buyers will agree to inspect only something essential, like a well or septic system. In other cases, they might waive an inspection altogether, knowing that beautiful properties selling for millions of dollars have been meticulously maintained for many years.

With deep pockets and the willingness to waive things like mortgage and inspection contingencies, many of buyers are locking up these properties in record time. And though they don’t typically bring a suitcase of cash to the closing, they could.

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