Today’s aspiring homebuyers are faced with dire prospects by continually getting “outbid” by fierce competition. Proptech firms are coming to the aid of homebuyers with versatile, streamlined programs that offer all cash buying power.
How to Compete with Cash Offers
With an abundance of challenges, today’s aspiring homebuyers are faced with the dire prospect of continually getting “outbid” by heavy competition, or worse, succumbing to the belief that the American dream of homeownership may be perpetually out of reach.
Conversely, homeowners fortunate enough to be equity rich in their current homes, whether wanting to upgrade or downsize to a new home, need to be able sell their homes quickly in order to secure their future home. Any potential delays or risks will weaken their offer when compared to other non-contingent offers. These homeowners even run the risk of selling their existing home, only to have the deal for their next home fall through.
However, there is promising news on how these stressful situations can be handled – innovative Proptech firms are coming to the aid of homebuyers with flexible, streamlined programs that are empowering buyers to compete effectively, even in an extreme sellers’ market.
Proptech to the Rescue
Solutions for these market challenges are largely being packaged into two types of services:
- Cash Offers
- Buy Before You Sell Non-Contingent Cash Offers
These class of proptech firms are typically combining the following tactics in order to deliver these solutions:
- Capital to provide homebuyers with upfront Proxy Cash Buying Power
- Advanced Technology (e.g. Artificial Intelligence & Data Analysis) to make quick & accurate decisions on home valuations and homebuyer qualifications
- Optimized Processes to streamline the selling process to be faster than traditional lenders
- Partnerships with Real Estate Agents in order to integrate with existing sales and buying channels, and to enlist their support in educating homebuyers on these valuable options
Extreme Sellers’ Market
The consensus from realtors, mortgage bankers and economists is that home prices are definitely increasing, due to tight inventories and increasing mortgage rates. Add to these market forces preventative measures that have been put in place to thwart a repeat of the 2008 housing market crisis by tightening borrower requirements and you have an almost impossibility for many hopeful homeowners.
Compounding these challenges, a high number of buyers are coming to the table with all-cash offers. Having all the funds needed to cover the buyer’s asking price means there is no financing contingency that may hinder the deal.
In an unprecedented case earlier this year, a fixer-upper in Silver Springs, Maryland recently received 76 all-cash offers. The home eventually sold for 67% over its asking price. Perhaps the apex of the market buying irrationality can be illustrated in yet another real estate tale of frenzy, a Berkeley, California home sold for $1 million over its asking price and received 29 offers in 11 days.
Why So Many Cash Offers?
So, how can a first-time home buyer, or any buyer for that matter, compete with the prevalence of “All Cash Offers”? Who are these buyers that are willing to pay all cash for a home and forego the mortgage financing part of the home buying process?
Typically, cash offers result from one of the following scenarios:
- The buyer has recently sold a home and is using the proceeds from that sale to make a new purchase
- The property is priced low enough for a buyer to use personal savings for the purchase
- An investment company, purchases the property for rental purposes or a future sale
- The property is priced low due to poor condition and is an attractive investment target for a “house flipper”
- The buyer is a High Net Worth Individual with large amounts of liquidity who can forgo the long-term costs of financing
Now there is a new, less traditional scenario rising in popularity, where available:
- A buyer, with the assistance of an iBuyer* Proptech firm, is “given” capital upfront to make an all-cash offer, eliminating both the Financing and Home Sale contingencies from the offer
* We recognize that some vendors mentioned in this article explicitly state that they are NOT iBuyers. However, for the purposes of this article we are using this term broadly to imply proptech firms that are assisting customers with the home buying experience.
Why Sellers Prefer All Cash Offers
All cash offers are typically preferred by property sellers since the transaction times are much faster and more reliable than those with financed buyers. Since the buyer is paying in cash, there is no need for mortgage lender requirements such as: credit checks; application documentation and processing; underwriting; appraisals; and other loan related procedures, before the actual “drawdown” or transfer of cash from the bank to the seller.
Assuming that there are no contingencies, such as a home sale by the buyer, an all cash sale can be done in as little as two weeks. This is a considerable time savings, since the average sale with a mortgage loan took 45-47 days in 2020, and can be longer if the financed buyer encounters “11th Hour” issues.
This prolonged time can also introduce additional opportunities for the transaction to fail such as: the lender refuses to finance; the buyer gets cold feet; or the buyer is disqualified due to a change in employment status or incurs other income losses. When any of these setbacks occurs, the seller will need to restart the home selling process.
Another advantage that makes all cash offers attractive is that once the proof of funds is verified, there is very little risk for the seller or the deal falling through. Note: it is not impossible for a cash deal to go sideways, but the likelihood of this happening is rare. Also, the seller can avoid contingencies such as financing and appraisal, since these are only necessary for mortgage funding.
Proptech that Enables Buyers to Make All Cash Offers
Thanks to this new type of financing partner, homebuyers can leverage the capital of proptech “buying” firms to make cash offers, and to address timing issues related to dealing with an existing home sale. Proptech capital is used to streamline the buying process for both homebuyers and sellers, while eliminating any risk that could terminate the deal.
All cash offers are becoming prevalent in today’s real estate market as lending requirements and closing timelines are key elements to closing transactions. The term “all cash offer” usually includes no appraisal or inspection contingency, as these are both required by lenders before the drawdown from the mortgage bank.
A first-time home buyer who makes an all cash offer is an extra special unicorn, as there is never any sales contingency, meaning that the buyer will not need to sell a current house before buying the new house.
There are a number of companies, categorized as iBuyers*, who are willing to provide cash or financing assistance to buyers that will allow them to compete with other buyers. iBuyers or “instant Buyers”, are real estate companies that use technology or artificial intelligence to buy and resell homes quickly and efficiently. By taking advantage of the inefficiency of traditional mortgage lenders, iBuyers can help you make a cash offer in 2 days, rather than months, to increase your chances of getting the home that you desire.
These real estate disruptors are offering various programs to empower prospective homebuyers with “instant” capital to make winning offers in highly competitive markets. Keep in mind, that these companies are likely to make adjustments to their programs in the near future as these types of services are highly dynamic and continue to evolve.
In aggregate, these firms are primarily offering financing solutions for the following prevalent real estate situations:
- Timing Issues with Selling a Home In Order to Buy another Home:
- Most homeowners are unable to qualify for two simultaneous mortgages, so they must sell their current home within a tight timeframe in order to secure financing for their next home
- Some homeowners may have to accept an offer on their current home, before they have found another home, necessitating two moves – first to rental housing then to their future purchased home
- Competing Against Non-Contingent All Cash Offers
- As previously explained, bids that are tied to contingencies are less attractive and will typically lose to all cash offers that are faster, more convenient and less risky
Given that many of these programs appear to be quite similar on the surface, we recommend getting detailed quotes from all vendors that may be in your market to determine which would be the best for your specific situation. For example, some financing partners may require that you work with agent or may have limits on the age or valuation of the home of the home you are wishing to sell or buy. How they treat your inquiry and address your concerns will be likely indicators of your future satisfaction.
Working with Real Estate Agents
If you prefer to work with a real estate agent, these firms either have partnerships with agents or have their own network of licensed agents:
- EasyKnock: Sale-Leaseback Program for Agents
- Flyhomes: Flyhomes Brokerage Team
- Knock: Knock Certified Agents
- Homeward: Homeward Certified Agents
- Opendoor: Agent Partnership Opportunities
- Reali: Reali Real Estate Agents
- Ribbon: Ribbon Certified Agents
Video courtesy of Amber Moore.
EasyKnock’s MoveAbility program helps homeowners who wish to sell their existing home before purchasing their next home. The beauty of this program is that homeowners are conveniently allowed to stay in their current home until they find their future home and are ready to move.
Their process works as follows:
- EasyKnock buys your house
- EasyKnock releases your equity funds, which can be used towards your next purchase
- EasyKnock leases the home back to you until you are ready to move
- Homeowners are then in a position to make non-sale contingent offers
- If homeowners are “downsizing”, they could have sufficient capital to make an all cash offer, as well.
This program is also especially helpful for homeowners that are having their future home constructed or renovated and cannot accurately estimate a precise move date.
Current Markets Served: EasyKnock states on their website that they operate in most states, but cannot service every market. The best way to confirm if they are in your market is by filling out their qualification form.
Flyhomes’ Cash Offer program enables buyers to make cash offers on homes, while they work to secure a mortgage, at a competitive rate, for the newly purchased property to be used to buy the home directly from Flyhomes for the same price.
They also offer a Trade Up program that allows homeowners the ability to buy before they sell their current homes. Their process involves the following:
- Flyhomes provides a guaranteed minimum price for your existing home
- Homeowner is qualified for a cash amount that can be used for a non-contingent all cash offer
- After the homeowners move into their new home, Flyhomes preps and lists the home for sale, with the goal of maximizing the sale price
- If the home cannot be sold within 120 days, the homeowner will be paid the minimum guaranteed price
Current Markets Served: Boston; Portland; San Francisco Bay Area; Seattle; and Southern California.
Homeward offers a Buy with Cash program that enables approved homeowners to make cash offers and then buy back the home from Homeward, once a mortgage has been approved and funded. This process involves two transactions: 1. Homeward buys the home in cash; and 2. The homeowner then buys the home back from Homeward.
Homeward also offers a Buy Before You Sell program. In this scenario, you can rent the new home from Homeward until your existing home sells. If your home does not sell within six months, Homeward will buy the home at a predetermined agreed upon price.
Current Markets Served: Colorado, Georgia and Texas, with plans to roll out across the United States.
Knock provides a pre-approved loan to home sellers to purchase and move into their new home before their current home is sold. Through their Home Swap product, Knock allows sellers to start making offers for their next home, provides down payment assistance for the purchase and advances sellers six months’ worth of mortgage payments for their current home to avoid paying two mortgages. The company is committed to ensuring that the seller receives top dollar for the current home by providing $25,000 of pre-paid home renovation funds in preparation for listing the home on the market.
Knock also offers Knock Nest which allows homeowners to sell their home to Knock, and then stay in the home afterward for an indeterminate amount of time. Homeowners are then able to move on their own time schedule, or can decide to buy their house back at a predetermined agreed upon price.
Current Markets Served: Athens/Clarke County, GA; Atlanta; Austin; Bakersfield; Boulder; Charlotte; Colorado Springs; Dallas-Fort Worth; Denver; Fort Collins; Fort Lauderdale; Houston; Jacksonville; Los Angeles; Miami; Minneapolis; Nashville; Orlando; Palm Springs; Phoenix; Raleigh-Durham; Riverside; San Antonio; San Bernardino; San Diego; Santa Barbara; Tampa; Tucson; Ventura, CA; and West Palm Beach.
The pioneer of the iBuyer market, Opendoor has now entered into the All Cash Offer arena with their new product, Cash-Backed Offer. Buyers get pre-qualified for a specific dollar amount and are armed with this assurance to make an all cash offer for their next property. If an offer is accepted, and the buyer has an issue with financing, Opendoor will escalate the financing by purchasing the home for the buyer. The buyer has up to 240 days to clear his financing issues and get funded so that Opendoor can sell the property back to the buyer at the same purchase price and loan terms.
Opendoor also offers a Buy & Sell program where homeowners can purchase a new home with a cash offer prior to selling their existing home.
Current Markets Served: Atlanta; Austin; Charlotte; Dallas-Fort Worth; Houston; Los Angeles; Orlando; Phoenix; Raliegh-Durham; Riverside; Sacramento; San Antonio; San Diego; Tucson
With their Move First service, Orchard enables homeowners to unlock their home equity to buy their next home without rushing to sell first. Homeowners can get up to 90% of their home value upfront to put toward a new home purchase. After moving to your new home, Orchard will prepare your previous home for listing with a complimentary cleaning, professional photos, and a 3D tour. When your home sells you’ll receive the additional proceeds above the cashed-out equity amount you received. If your home does not sell within 120 days (95% of their properties sell within this period), you are permitted to keep your instant equity amount.
Current Markets Served: Atlanta; Austin; Charlotte; Dallas-Fort Worth; Denver-Colorado Springs; Houston; Raleigh-Durham; and San Antonio.
Reali’s Cash Offer gives homebuyers a competitive edge by pre-approving a borrower’s qualified amount through their Reali Loans program, which works as a bridge loan to a final mortgage. Buyers can make a non-contingent, cash offer on a property, and once accepted by the seller, the deal proceeds to escrow with a direct to escrow down payment. Reali then funds the remainder of the sale price to the seller and the borrower has 60 days to refinance with Reali Loans or another lender of their choosing.
Reali also offers a Trade In program where homeowners can purchase a new home with a cash offer prior to selling their existing home.
Current Markets Served: Available to buyers and sellers in most major markets throughout California.
Ribbon, through their RibbonCash Offers program, enables homebuyers to make all-cash offers on residential homes. The process involves Ribbon purchasing the home on the buyer’s behalf and then allotting 180 days for the buyer to secure financing from a lender of their choice to repurchase the home back from Ribbon. Buyers are required to use an agent when using Ribbon.
When making a RibbonCash Offer there are two outcomes with different fees:
- If the buyer closes with their own financing the fee is 1.0%
- If Ribbon steps in to reserve the home, the fee is 2.0 – 2.4%, in addition to rent payments while we hold the new home.
Additionally, if the home is already under contract and Ribbon is needed to rescue the closing, the fee is 3.0%.
Current Markets Served: North Carolina, South Carolina, Tennessee, Georgia and Texas, with plans to expand to several more.
Additional Proptech Firms Providing Services for Homebuyers
- CoBuy: Joint Financing Homeownership
- Divvy: Rent-to-Own
- Hurry Home: Helping Renters Become Homeowners
- ZeroDown: Try Before You Buy
Additional Information on Proptech iBuyers
- Mike DelPrete’s Analysis of Opendoor, Zillow, and the iBuyer Business Model
- Mike DelPrete’s 2020 iBuyer Report (Preview)
- PropTec.org’s Directory of Home Financing Startups
- Home Sellers Guide to Curbio & Pre-Sale Renovations
- How to Make Homebuyers Want Your Home in the First 8 Seconds
- What Homeowners Should Know about Proptech
- How to Tap Into Your Home Equity Without Adding Debt
- Home Inspection Technologies to Alleviate Your Purchase Anxiety
- Why Homeowners Should Invest in Prefab ADUs
- Researching a Neighborhood: Frequently Asked Questions
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