More Middle-Class Buyers Using Cash-Offer Services
In today’s competitive market, more buyers are turning to a cadre of relatively new companies that help them submit an all-cash offer.
MIAMI – Luis Alberto and his wife made an offer on a home in Miami they were hoping to buy, only to have another buyer beat them by offering cash. Over the next five months, they would lose out on three other homes, some because they were competing with buyers who could throw cash at the deal.
The Albertos are among many South Florida buyers relying on financing and, in today’s competitive real estate market, losing out on their dream home. One solution might be a relatively new crop of companies, such as HomeLight and Better, that are helping middle-income buyers offer cash for homes.
Typically, these companies purchase the home using their funds, then sell it back to the buyer using a mortgage.
It’s an option that makes more and more sense for some middle class buyers – the South Florida real estate market has soared in the past two years, and so have cash offers, which are appealing to sellers, who often turn to cash as a quicker and more definitive way to close a deal.
Cash sales jumped 40% in November compared to the year before in Broward County, while cash offers in Palm Beach County jumped 28%, according to numbers from the Broward, Palm Beach and St. Lucie Realtors. For Miami-Dade County, cash sales shot up 41%.
“We saw a lot of our buyers getting buyer fatigue. We had a couple of customers that lost out on like five homes in a row, saying ‘we just can’t win anything when we are coming against cash,’” explained Christian Wallace, head of real estate services at Better, which launched their cash offer program in the South Florida area a few months ago.
When the Albertos made a cash offer through Better, they were able to buy in less than a month. They paid a pro-rated rental fee of $100 a day until Better approved his mortgage for the home. The company sold the house back to him with a mortgage rate of 2.65%. “It was a simple process,” Alberto said.
Better pre-approves a buyer for a certain amount, and makes a cash offer on a home a buyer finds, using a Better real estate agent, based on the amount they have been approved for. While the buyer is waiting for the mortgage to come through, they can rent the home through Better for a pro-rated fee.
Other cash-offer companies work in different ways. HomeLight has buyers apply to their Home Loan program, which verifies their income, assets, and purchasing power and approves them for a certain amount. A HomeLight real estate agent helps them find a home for the amount they were approved for. Then, HomeLight uses their funds to buy the home for the buyer until the buyer is able to get financing for the home.
The buyer has to put down a 5% deposit once the initial offer is accepted. Once they do, the home is sold back to the buyer at the same price it was paid for by HomeLight. The company charges a small program free for this, sometimes as low at 1% of the purchase price.
If HomeLight refers a client to a broker and the transaction closes, they will charge a standard broker-to-broker referral fee. They also have a trade in program, where you can sell your home while buying a new one. For the trade in program they charge fees to buy the home from you, own it and then sell it.
Both companies offer competitive mortgage rates.
“For buyers, you want to take out all uncertainty from a transaction,” Vanessa Famulener, president of HomeLight Homes, said.
Better’s data shows that in South Florida, 50% of Better cash-offer customers were first-time homebuyers.
Are cash-offer programs risky?
Ken H. Johnson, real estate economist at Florida Atlantic University, said these programs could be a good thing for local buyers, who have been crowded out by cash-slinging out-of-state buyers.
“I don’t see any collateral damage coming from these programs,” said Johnson.” As long as they are conservative with their lending practices, this could be a good thing. It allows other people to be competitive in a market where it’s almost impossible to buy when it’s contingent on having financing.”
Real estate agents who have used the cash-offer program said it’s been beneficial for their buyers, after watching them lose out on multiple homes before winning one with a cash offer.
HomeLight real estate agents said the company has given their buyers, many of them middle-class, an opportunity to break into a real estate market that had previously thwarted them.
“It really puts the local community in a very strong position when they are competing with out-of-state people who are looking to move here and are coming from areas where the homes are more expensive,” real estate agent Chris Molano said.
One of his clients, a couple who worked at Publix and Whole Foods, had looked for a couple of months for a home, putting in 6-10 offers, none of which were accepted. After using the HomeLight program, they were able to purchase a three-bedroom, two-bathroom home in the Cutler Bay area of Miami.
“It makes the difference with the cash offers. It’s easier to negotiate the price,” said Monica Posada, an agent in the HomeLight network who recently utilized the program to help one of her buyers use the cash offer program to secure a sale on a condo.
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