Cash is king, or is it?
We’ve all heard the adage that ‘cash is king’. What does that mean, exactly? Well, in its simplest form, cash trumps all other payment methods for a myriad of reasons such as simplicity, speed, and flexibility, to name a few. And currently, transactions that are closing with cash as the purchase funding type make up approximately 15% of the market.
You might ask why that matters in a real estate transaction because the seller is getting their money all the same. Stepping back and looking at the broader picture, real estate transactions are really just a progressive series of events happening one after another over a specified period of time until all have been completed and the contracted parties sign on the dotted line. How, then, does cash look more attractive than other funding options?
Remember that series of events I mentioned earlier? That series of events is more like a series of hurdles of varying sizes; some small - home inspections, mortgage origination, and employment verification, some large - appraisal and credit score, some constantly moving and occasionally impossible to satisfy - underwriting. Trip hazards can be difficult no matter what you’re doing, but especially during a real estate transaction.
The one, surefire, way to bypass most of these hurdles - and sometimes even get a minor price discount - is to make your home purchase with cash. Or, at least that’s how it used to be.
Enter 2022. We have all heard about the crazy real estate market and how difficult it is to get offers accepted. For years, that ‘cash is king’ mentality has held serve but, in recent years, seems it is being supplanted by desperate buyers and agents looking for an advantage. This has come to be known in some form or another as ‘appraisal coverage’ or an ‘appraisal guarantee’. This is a sum of money that a prospective buyer is willing to pay OVER AND ABOVE the appraised value in the event that it falls short of the agreed upon purchase price. It adds extra peace of mind for the seller knowing they’re significantly more likely to get the entirety of the sale price and it gives buyers the opportunity to compete with all cash offers.
What about those other hurdles like credit score and underwriting? One good thing to come out of the Great Recession is tighter mortgage lending regulations. And any quality lender will give a strong pre-approval letter, prior to writing an offer, that will have turned many of those more minor question marks into mere formalities. Some of my favorite lenders are even running buyers completely through underwriting in advance to avoid any surprises, again, giving sellers more peace of mind and, consequently, buyers a stronger platform on which to compete.
As it’s difficult to find the perfect home these days, more and more sellers are willing to allow slightly increased closing timelines in exchange for the higher priced financed offers as ‘appraisal coverage’ makes them similar to cash.
Our team is always available to help you formulate a plan of attack and talk you through all of the creative options at your disposal to make sure we get you where you want to grow. So, if you are thinking about moving and wondering how you can compete with cash, think about offering ‘appraisal coverage’ and using a reputable, local lender to help you get to the finish line in first place. Happy hunting!
Josh Yskes, Associate Broker, GRI
