Do cash homebuyers have an advantage?
Cash offers on homes have increased substantially over the last few years. In 2022, according to Redfin, 30% of all home sales were paid with all cash with 64% of all $1 million plus sales in Palm Beach, Miami-Dade, and Broward counties as well as 46% those under $1 million being cash deals.
What are the Seller Advantages?
Although it may be intuitive, there are several reasons as to why purchasing a home for cash is more advantageous to a seller. Perhaps most important is that, with a cash deal, a seller does not have to deal with a mortgage contingency. As such, the seller knows by verifying the buyer’s financials that, aside from the inspection period, the closing will occur. When a buyer, however, has a mortgage contingency, the buyer has an opportunity to get out of the real estate contract should the lender not provide approval for the deal. Without having the mortgage contingency, the real estate transaction can close quickly since there is no lender involvement.
Another reason why sellers favor cash deals for their homes is that, in Florida, when there is no lender, the parties can bypass the appraisal process. Appraisals are required when a buyer obtains a mortgage because the lender wants to insure the property for what it is worth. Sometimes when a buyer obtains a mortgage, the lender’s appraiser may value the property for less than the contract price. If this occurs, the buyer may be able to terminate the contract. With cash deals, there is no requirement for the property to appraise, and as such the house sells for the agreed upon contract price.
Why are there so many cash buyers in Florida?
Florida is attractive for relocation because of our climate and low taxes. As a result, there has been an influx of people who have moved to Florida from higher tax states such as New York and California. Since home prices and salaries are typically higher in those states, people who relocate from there are able to sell their old homes and have enough cash to cover their Florida home purchases in full.
In addition to the climate and lower taxes, more and more businesses from other areas of our country, including Goldman Sachs and Blackstone from, have made the move to South Florida bringing high salaried executives who are able to pay all cash for their homes. Further, Florida has been popular with seniors who are cash-flush, due to their retirement savings or selling their original homes that have appreciated greatly.
Adding to all of this is the fact that there are many wealthy buyers and vacation home buyers in Florida who are both likely to pay cash. There is a significant amount of international home purchasers and investors in Florida, and in Miami, in particular, who seek to either place funds in a more stable asset than their home countries and or simply are looking for permanent or second homes. From April 2020 to March 2021, for instance, Florida was the top state for international home purchases, accounting for 21% of all sales—and has been the top for the past thirteen years.
Further, the fact that the housing supply has not kept up with demand and that for a period of time obtaining a mortgage was difficult many buyers were forced to offer all cash deals with no contingencies in order to get the real estate deal. Even buyers who do not have enough cash can now look to programs where companies purchase the property on the buyer’s behalf, so the deal is all cash, and then, the buyer later finances the property after the deal has been closed.
What does this all mean?
The saying that “cash is king” is true, especially when it comes to real estate. All cash deals remove the potential risk for a seller that a buyer may not obtain the necessary approval to proceed to closing and that the contract price remains in place as the appraisal process is avoided.
From The Trenches