Though seemingly surprising, it is undeniable that cash buyers are currently pivotal in the real estate market across the U.S. If you’ve been exposed to the real estate world, you’ve certainly come across the term “cash buyers” or “cash offers.” This term brings back the age-old adage “cash is king” to the real estate industry.
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A recent Washington Post analysis found that a third of all listed homes in the U.S. were sold to cash buyers. This marks an 8% increase in cash home purchases from 2021. While these figures are mostly from regular homes, do luxury properties also sell for cash?
What Does Cash Buyers Mean in Real Estate?
Cash buyers are typically individuals or organizations with heavy financial backing. Cash buyers have the financial ability to purchase a property without seeking financing. Cash home buyers could be individual investors or a company comprising a group of real estate investors.
Liquidity is crucial for cash buyers, which makes them a perfect option for anyone looking to “sell my house fast Norfolk.” Cash buyers have access to funds and don’t have to sell other assets to purchase your property. Cash offers are inherently appealing to homeowners because they don’t rely on loans.
Traditional home selling process primarily relied on financing conditions. This means the potential buyer could retract or negate the deal if they couldn’t secure a mortgage. Cash offers eliminate these uncertainties. The absence of financing also eliminates common hurdles of property inspections, appraisal, and other requirements for securing a loan.
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Do Luxury Buyers Use Cash When Buying High-end Properties?
Even though the real estate market largely remains unpredictable, luxury properties also get their fair share of cash offers. Below are insights on cash home purchases drawn from three luxurious residential cities in the U.S.
Los Angeles
A good percentage of homeowners buy and sell their properties for cash in Los Angeles. Cash transactions in LA are influenced by several factors. For starters, Los Angeles is the convening point for most wealthy people, and most wealthy parents buy homes for their children in cash.
Cash offers for homes in Los Angeles are also becoming more popular than in other cities due to tech money. Foreign buyers looking to take money out of their countries also pay for properties in cash.
New York City
The New York real estate market also strongly favors cash transactions. However, unlike Los Angeles, international buyers in New York are strongly felt. Domestic buyers have also stepped up, with most of them using asset-backed lending options to afford cash transactions.
Miami
Miami is also known to attract foreign customers, and mega luxury property sales are completed in cash. More than half of real estate investors in Miami pay everything in cash. However, while cash offers are enticing to sellers, they aren’t always the best deals. Most property owners in Miami expect cash homebuyers to meet their asking prices, which unfortunately rarely happens. The price of cash buyers is often lower than the market price.
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Why Is Cash Still King in Real Estate?
Cash is an attractive option to buyers and sellers for various reasons. For starters, the buying or selling process is dramatically simplified than financed deals. Other reasons include:
Fewer Contingencies
Contingencies are simply the various conditions that buyers and sellers should meet before closing the real estate transaction. Cash offers eliminate mortgage contingency, which buyers often use to back out of the agreement and ask for a refund of their deposit if they can’t secure financing within the given period. Cash transactions also eliminate home sale contingency. This clause typically allows buyers to ditch the deal if they don’t sell their previous home before the agreed date.
It Doesn’t Require an Appraisal
Most luxurious properties are always fairly maintained, so their fair market value is often close to the actual appraisal value. Traditional lenders often require a property appraisal to ensure the property is worth the requested loan. Lenders can reject the mortgage approval if the appraisal value is low. However, some cash buyers may still request an appraisal.
Faster Flipping
Investors mostly prefer cash transactions because they can flip the property sooner. Lack of appraisal requirements, faster closing, and surety of the deal allows them to flip the property quicker. This is beneficial to investors looking to capitalize on the current sellers’ market.
Streamlined Closing
Buyers and sellers also prefer cash transactions because of its streamlined closing process. Since there is no reliance on financing, the closing process for cash transactions is fast. It eliminates the tedious paperwork and mortgage application procedures. Cash offers are as simple as signing the settlement statement, deed, and title and receiving the check.
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Endnote
Cash offers are an unignorable factor in the current real estate realm. Property owners prefer cash offers to financing because of their speed and convenience. Homeowners also don’t have to repair, renovate, or stage, as they can sell their homes as-is. This also applies to high-end homes.
