By Johanna Wiseman
The 2024 real estate market is underway, with a combination of low inventory and relatively high-interest rates. With so few homes for sale, the market is very competitive. Desirable homes generally attract multiple offers, with buyers bidding above the asking price to make their offers more attractive. Aside from the offer price, the method of finance carries the most power. As the saying goes, “Cash is King.”
In real estate, “cash” does not mean stacks of paper money. Even if you have enough money in the bank to buy a home, you will not withdraw the cash and carry it to the closing table in a suitcase (though some have tried!). The effort, risk, and documentation involved are too great for all parties. Instead, the “cash” will be wired from one bank to another.
Who has enough money to pay for a home in full without a mortgage? You may be surprised to hear that cash purchases totaled roughly one-third of existing home sales from 2021-2023,
according to estimates from the National Association of Realtors. One of every three sales means that cash purchases are not limited to the wealthiest individuals. In fact, cash comes from regular folks with long-term savings, inherited funds, or from the proceeds of a previous home sale, to name a few examples.
Some lenders contend that their mortgage products are “same as cash,” but this is a stretch. True, when the wired funds arrive in the seller’s bank account on closing day, the total proceeds are the same whether they came from a lender’s account or an individual buyer’s…however; all the interim steps make a huge difference.
A cash offer is more attractive to sellers because it reduces risk by avoiding the requirements of a mortgage company. Proof of Funds, in the buyer’s name, is all that is normally required to document the financing. By contrast, a mortgage adds risk to the seller: issues with documentation of buyer finances, property appraisal, interest rates, and regulations can negatively impact the transaction, leading to delay or cancellation.
iBuyers, or instant buyers, are technology companies that generate quick offers on homes selling under duress. The speed and convenience carry a high price tag, with homes sold to iBuyers generally selling for much less than standard transactions-a whopping 11% less, quotes a MarketWatch study.
The same types of investors are behind the deceptive “magic marker” poster signs you see at busy intersections. They promise “instant cash” for any home, but Forbes.com reports that “according to real estate data firm Collateral Analytics, iBuyer options cost more in fees and result in a lower-priced sale than properties sold by traditional agents.” Why? iBuyer and “Sharpie Sign” investors can’t make money paying market value. If a seller doesn’t consult local professionals, they may not be aware of the property’s value. Without knowledge of the benefits of a competitive marketplace, a seller might be persuaded to take less than a fair price and be overcharged with predatory fees.
In matters of money, it’s wise to look behind the curtain and examine the true meaning of terms and phrases, “cash” being one example among many. Do your research, and consult trusted professionals to gain a broader understanding of the transaction taking place.
Local expert Johanna Wiseman of RE/MAX Preferred Professionals can be reached at 908-705-0652, or visit www.MyBridgewaterHome.com
