Real estate agents well know the cliché that cash is king, but it increasingly becoming a way of life in the real estate world.
In competitive markets, cash my rule but coming up with the full purchase price of a home for sale in isn’t easy to do.
Nationwide, the share of cash sales averaged about 25 percent of all home sales prior to the housing crisis, according to CoreLogic. Cash deals have increased since the crisis as investors bought bank-owned homes in cash. The practice peaked in January 2011 when 46.6 percent of transactions were done in cash.
During the first quarter of the year, cash deals were a shade over 36 percent of all transactions, according to CoreLogic.
While cash sales are not a new trend, but there are more of them lately, according to Nancy Blaker Weber, a Nyack, N.Y.-based associate broker affiliated with Better Homes and Gardens Rand Realty.
“If you are in a multi-bid situation, you don’t want to be up against a cash bid because very likely, you are going to lose,” she said. “If multi offers are being evaluated, you are always going to give a lot of weight on something that’s very-heavy cash or all-cash.”
For clients who are selling, the cash offer is preferred because deals involving mortgages often have a financing contingency, which allows prospective buyers to walk away without penalty in case they can’t get their mortgage approved within a certain period of time.
The mortgage approval process typically takes between 30 days and 60 days, and if the buyer’s mortgage is rejected in a deal with a financing contingency, “the seller is left with nothing except for a lot of lost time,” said Jim Gricar, general sales manager with Houlihan Lawrence.
In some instances, clients are using the cash first, mortgage later strategy to circumvent these contingencies. They still finance their home with a mortgage, but they delay that process until after the sale is final.
There also is a variation on all-cash, with some prospective buyers excluding a mortgage contingency in their offers even when they plan on taking out mortgages, according to Gricar.