The Creative Way Homebuyers Are Winning Bidding Wars Against Cash Investors

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Cash is king in the homebuying market. The thing is, there are a whole lot of kings in the current real estate monarchy — in fact, 30 percent of home purchases last year were paid with all cash, up from 25.3 percent in 2020, according to Redfin. 

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Even with sizable down payments, first-time buyers have a hard time competing with all-cash buyers, who are favored by sellers because they can make it to the closing table fast and aren’t tethered to financing or appraisal contingencies that sometimes cause deals to fall through. So when a seller is weighing identical offers, they’re likely to bite at the one that has more cash and fewer contingencies.

So, what’s a buyer to do without a throne of cash or significant equity to leverage? A slew of new players are emerging in the homebuying market, with start-up companies like Orchard, FlyHomes, HomeLight, Ribbon, Own Up, and Knock helping first-time and repeat buyers compete with the cash buyers saturating the market. 

Each company has different arrangements and strategies for how they help cash-strapped buyers win bidding wars, but the common idea is to make it easier by fronting buyers cash and helping clear contingencies. 

You see, over the past year, the housing market has been one of the toughest in decades for potential homebuyers — inventory is low, prices have skyrocketed, interest rates are rising and homes are being sold at a record pace, says cofounder of Own Up Mike Tassone. 

“In addition, there has been a growing presence of iBuyers and investors who are gobbling up properties with all-cash offers,” Tassone says. “This has created intense competition in the housing market, causing even the most qualified buyers to lose out on their chances of purchasing a home.”

Sometimes, the best way to compete with an all-cash offer is to make one yourself, Tassonne says. Own Up launched a “Power Buyer Program” for consumers to make a “cash-backed offer,” meaning if their financing falls through, Own Up will purchase the home in cash on their behalf. 

Another company, Knock, which partners with agents to provide home loans that allows all buyers to make cash-like offers, continues to see demand for its alternative financing products grow as real estate professionals increasingly recommend their clients go in with their strongest offer from the onset. 

Knock’s Home Swap program, for instance, allows customers to buy before they sell their home and thus pull the equity. Knock GO, meanwhile, is designed for first-time buyers, giving them full approval before making an offer, allowing them to remove the financing contingency and guarantee a quick close. 

“By removing the financing contingency and having appraisal protection, Knock GO levels the playing field for a first-time home buyer competing against a cash buyer or someone who is putting down a larger down payment,” says Knock cofounder and CEO Sean Black.

These programs may be helpful for some, however, borrowers should always understand the full scope of benefits, challenges, and total costs associated with these offerings, says Stephanie Younger, a Compass real estate agent with The Stephanie Younger Group in Los Angeles.

“It is crucial to sit down with an experienced advisor to discuss goals and specific circumstances to help ensure these types of programs fit your specific needs,” she says.

Gary Grewal, a certified financial planner who runs the personal finance site FinancialFives.com, says another way to make your offer stand out as a first-time buyer is to offer a leaseback to sellers who may need some flexibility as they search for their own home. 

Grewal adds that some homeowners associations are starting to restrict sales of homes to owner-occupants only, which could be an interesting trend that swings power back to more traditional buyers.



Source
Las Vegas News Magazine

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