3 min read.Updated: 21 Sep 2021, 06:54 PM ISTNICOLE FRIEDMAN, The Wall Street Journal
Some companies front buyers the cash to buy homes outright; others buy houses directly on a buyer’s behalf and then sell them to the buyer
When Nestor and Tracy Eugenio decided to move to northern California, they worried about landing a home in such a competitive market. The Eugenios planned to take out a mortgage, which is often a disadvantage when pitted against all-cash buyers who can close quickly.
So they turned to Flyhomes Inc., which helps buyers with less cash on hand make all-cash offers. The Seattle-based startup bought a three-bedroom house in San Ramon, Calif., for $1.525 million in May on the Eugenios’ behalf, then sold it to them at the same price a few weeks later when their mortgage closed.
“We weren’t the highest, but we had the best terms, because we had a cash offer," said Mr. Eugenio, who competed against five other bidders for the house.
In today’s frenetic housing market, buyers who take out mortgages are struggling to compete with those putting up all cash. Cash offers are more attractive because there is less chance the deal will fall through or be delayed due to financing issues.
Now, a number of startups are offering programs to help level the playing field. Some of these companies front buyers the cash to buy their homes outright, while others buy houses directly on a buyer’s behalf and then sell them to the buyer. The programs often target homeowners who need to buy a house before selling their current one.
“It’s really taken off this year," said Mike DelPrete, scholar-in-residence on real estate technology at the University of Colorado at Boulder. “In a seller’s market—high demand, low supply—you need to empower buyers."
Home sellers routinely receive multiple offers and can choose the most attractive one. Homes sold in July received an average of 4.5 offers each, according to the National Association of Realtors, up from 2.9 offers a year earlier. About 23% of existing homes sold in July were purchased in cash, according to NAR, up from 16% a year earlier.
Startups with cash-offer programs are expanding quickly. Companies like Ribbon, HomeLight Inc. and Orchard announced new funding rounds this month. Knock said this spring it is exploring plans to go public. Opendoor Technologies Inc., a house-flipping company that went public in late 2020, launched a cash-offer program in March. Real-estate brokerage Redfin Corp. is piloting a cash-offer program in some markets, a spokeswoman said.
Cash-offer companies are paid through commissions, fees or both. In some cases, the companies act as the buyer’s real-estate agent or mortgage lender and are paid through sales commissions or origination fees. Other companies charge a flat fee, often between 1% and 3% of the purchase price.
One advantage for companies offering these programs is it helps them connect with consumers early in the home-buying process, said Guy Cecala, chief executive of industry-research firm Inside Mortgage Finance.
“The reality of the situation is it is very, very hard to shop for a house now unless you can put in an all-cash offer," Mr. Cecala said. “The question is, what kind of strings and everything else do they have attached to it?"
Cash-offer companies are taking a risk. If a home buyer’s financing falls through, the company could end up owning the house and needing to resell it. There also might be limited demand for these programs in a less frenzied market.
Andrew Bouery, who is 24 years old and in the Army National Guard, made more than 10 unsuccessful offers on homes in the Atlanta area. His agent, Edgar Gonzalez, said it is more difficult for his clients to get offers accepted when using loans backed by the Department of Veterans Affairs, as Mr. Bouery was, because those loans can take longer to close.
Mr. Bouery worked with Ribbon, which bought a two-story house in Snellville, Ga., for $276,000 in May and sold it to Mr. Bouery in June after his loan closed.
“Once we started submitting offers as an all-cash offer, rather than a VA loan, I think we ended up going from the bottom of the stack of offers to the top three," Mr. Gonzalez said.
Sean Black, chief executive of Knock, thinks this business can continue to attract home buyers even after the current housing mania subsidies. “In our case, it’s all about the convenience" offered to homeowners who are simultaneously buying and selling houses, he said.
Dave Ness, a real-estate agent in Denver, said he often suggests cash-offer programs to his frustrated clients. However, while sellers like the convenience of a cash offer, they will still pick a financed offer if it is significantly higher, he added.
This story has been published from a wire agency feed without modifications to the text
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