- Cash offers have become more common as buyers compete and investors compete for properties.
- Sellers often prefer the speed and reliability of cash offers over traditional financing.
- Here are six companies that offer ordinary people the opportunity to make cash offers.
- This article is part of “The Road to Home” series aimed at helping first-time home buyers navigate the daunting and exhilarating process of buying a home.
In today’s hot housing market, ordinary people are looking for ways to be on a level playing field with deep-pocketed investors and wealthy buyers with cash.
A growing number of people are turning to companies that help them with cash offers, giving them a better chance of landing their dream home.
With limited supply and high demand, home prices continue to rise. They hit an all-time high last month, with the median U.S. home price hitting $392,000, according to Realtor.com.
With all this competition, cash offers have grown in popularity, even among regular shoppers.
Sellers often prefer all-cash offers over traditional financing because cash provides more certainty that the deal will close quickly and smoothly. A study from real estate brokerage Redfin found that buyers who submit cash bids for a home nearly quadruple their chances of winning a bidding war.
Last July, 23% of homes were purchased with all-cash offers, up from 16% the year before, according to the National Association of Realtors. Yes, some of these cash offers are coming from deep-pocketed investors and buyers with funds from a recent home sale, but part of the uptick is due to the growing number of companies providing services to help ordinary people to make cash offers.
The process is quite simple – once one of these companies has pre-approved you for a mortgage, they will work with you to find a home and purchase it in cash on your behalf. Then you’ll buy it back once your traditional mortgage is closed.
Other companies, including Knock and Opendoor, operate using a slight variation of this process called cash collateral offers. They guarantee your loan will be funded in cash on the closing date, even if your mortgage is not 100% ready, giving buyers the certainty that comes with cash offers.
Some of these cash offer companies charge a transaction fee as a percentage of the house price, but this fee may be waived if you use this same company to secure your long-term mortgage, as the company then earns money. money by issuing your loan.
In order to qualify for an all-cash offer, you will need to provide the type of information you would give to any other mortgage company in order to obtain a loan, such as credit history, bank statements and statements of income. You will also need to make a deposit to show that you are committed to buying the house, which will then be applied to your down payment.
Some of these companies only operate in certain states, and fees and requirements for cash offers vary.
Mike Delprete, a scholar-in-residence at the University of Colorado Boulder who studies the intersection of technology and real estate, said he expects this pattern to continue to develop. The more people lose to all-cash offers, the more incentive they will have to work with a business to start one themselves, reinforcing the cycle.
“Right now it’s really tough to buy homes, and anything you can do to sweeten your offer, or at least reduce the risk, is critically important,” said Delprete, who is also an investor. and consultant for Homeward, one of the companies offering this service.
Here are six companies that are helping buyers make cash offers on their dream homes.
Ribbon, founded by tech investor Shaival Shah in 2017, offers a cash offer product with fees ranging from 1% to 3.25%, depending on how long after the sale the buyer obtains a mortgage.
So, for a $350,000 house, the typical price in the United States, with a 5% down payment and a mortgage of $332,500, the costs would be between $3,325 and $10,806.
Ribbon itself does not offer long-term mortgages, which Ribbon spokesperson Sean Piazza says is part of what makes it unique. The company does not have a lending arm or brokerage because part of its founding mission is to eliminate the impact on small lending and brokerage businesses, Piazza said in a statement.
The company currently operates in some of the hottest residential states in the Southeast and Midwest: North Carolina, South Carolina, Georgia, Florida, Alabama, Texas, Tennessee, Missouri, and Indiana. It plans to announce its expansion into new states soon, Piazza said.
Flyhomes is a West Coast-based brokerage and all-cash deals provider that aims to help first-time home buyers secure a home through its services.
While other companies charge fees, Flyhomes does not. It launched its newest no-fee all-cash offer product in December, which subsidizes $1,200 to $11,500 in additional mortgage closing costs once the offer is made.
This is financed by part of the brokerage commission paid to Flyhomes by the buyer.
The company operates in Washington, California, Oregon, Texas, Colorado and Massachusetts.
Orchard offers an all-cash product specifically designed for first-time home buyers, which also has no associated fees.
The company operates in Colorado, Georgia, Maryland, North Carolina, Texas, Virginia and Washington, DC. Orchard will begin offering the product in Oregon later this month, according to spokeswoman Mandy Menaker.
Known primarily for offering quick and relatively easy online mortgages, Better also gives homebuyers the ability to make cash offers on homes through its Better Cash Offer program.
To use Better Cash Offer, you will need to start by working with one of Better’s in-house real estate agents. You’ll also need to get pre-approved for a mortgage through Better Mortgage, the company’s lending arm. Once you have done this you will be able to make a cash offer on a home.
There is no charge to use Better Cash Offer if you also obtain a mortgage from the company. But if you use another lender, you’ll pay Better a transaction fee equal to 2.5% of the price you pay for your home.
Better Cash Offer is currently available in 17 states and Washington DC. Check the company website for a full list of available locations.
The startup made headlines in late 2021 when CEO Vishal Garg abruptly laid off 900 employees
, a video of which went viral and drew intense criticism. Better has now reportedly laid off 3,000 additional employees, but the cash-offer service is operating as normal, a spokesperson for Better told Insider.
Homeward offers two main services: “buy with cash”, for buyers who are simply looking to upgrade their offers to all-cash offers; and “buy before you sell,” which is for homebuyers who want to secure their next home before selling their current home.
In each of the four states where Homeward’s “buy with cash” offering is available — Arizona, Colorado, Texas and Georgia — the company charges a fee of 1.9% of the home price for its service.
However, if you use Homeward Mortgage as your lender, the company offers a discount that effectively reduces fees to zero. Homeward lets you use any real estate agent as your broker.
Adam Pollack, co-founder and CEO of Accept.inc, told Insider he wants to give all homebuyers a “superpower” – the ability to make cash offers.
Accept.inc provides an online portal for homebuyers to be pre-approved to make cash offers, a process that can take as little as 24 hours for qualifying customers.
Accept.inc then buys your chosen home on your behalf and resells it to you once your mortgage is closed.
Accept.inc is a lender, so you must obtain a mortgage through the company in order to take advantage of its cash offers. The company touts its lack of additional transaction fees and will work with any real estate agent you choose.
Accept.inc is currently only available in Colorado, a spokesperson said, but is actively exploring new markets nationwide.