In Marin’s hyper-competitive home market, all-cash offers give prospective buyers a sizable leg up on the competition.
On average, cash offers are 4X more likely to get the deal.
“Cash buyers have the advantage of being able to close quickly and are often willing to forgo any contingencies in their offers. These two factors are very attractive to sellers!”Jim Freeman, Senior Loan Advisor at CrossCountry Mortgage
We explore some options to help buyers who do not have cash on hand compete:
- What options exist for those who don’t have cash on hand but already own a home?
- What solutions exist for those who don’t have available cash or existing home equity?
- Can you be a loan buyer and still win the deal?
Options to compete in cash if you already own a home:
- Cash-out refinance can be an option when you already own your home outright. You aren’t paying off an existing mortgage, so most or all of the loan will come to you as a lump sum of cash. You can typically borrow up to 80% of your home’s value.
- Bridge Loans are used to eliminate a cash crunch and “bridge the gap” while buying a new home prior to selling your current home. For someone who owns their home outright or with a very low loan amount and wants to buy a new home, these can be an interesting option. You can borrow 65-70% of the combined value of both homes and use it to purchase the new home for cash. After the sale of the departure residence, some of the margin loan is paid down and then the balance is paid off by putting a permanent mortgage in place on the new property. Cons – Bridge loans are costly, typically about 2% upfront and charge around 8% interest Pros – A bridge loan allows you to compete effectively on the purchase of your new home and allow times to maximize the value of your old home. The resulting savings may offset the costs. Some of the points and interests may be deductible or offset capital.
- Hard Money Loan is a type of loan that is not secured by real property. Hard money loans are considered loans of “last resort” or short-term bridge loans. The lender generally is an individual or companies and not banks. The cost of a hard money loan to the borrower is typically higher than financing available through banks or government lending programs, reflecting the higher risk that the lender is taking by offering the financing. According to Jim Freeman, they can cost a couple points and have rates in the 10%+ range but allow for quick access to capital for a relatively fast close. They are typically paid off by putting a permanent mortgage in place after closing.
- FinTech Platforms for Homeowners like Revive offer a buy before you sell solution. Revive makes an all-cash offer on a buyer’s behalf. The buyer can move into the new home immediately and rent it from Revive (based on fair market value) for up to 12 months. When the old home sells, the buyer exercises the purchase of their new home. The fees for services like these are typically in the 1 to 3 point (%) range.
Options if you don’t own a home:
- Delayed financing allows buyers to use cash and stocks, to buy a house and obtain a mortgage after the home is purchased. Essentially, they’re enjoying the advantages of being a cash buyer while still getting the benefits of using a mortgage for leverage.
- Margin Loan or Liquidity Line against an equity portfolio or brokerage accounts can be a great option for folks who have a large brokerage account but may not want to sell shares and pay capital gains taxes. The rates are typically low and the ability to access the cash is quite fast. The risk to a margin loan or liquidity line is if equity prices drop you can be at risk of the brokerage having to sell your stock to pay back the loan. After the purchase they put a permanent mortgage in place and pay off the margin loan.
- iBuyers & Fin-Tech Companies for First Time Buyers have stepped in to capitalize on the fact that many prospective buyers without collateral assets are struggling to compete with cash rich wealthy people and investors. iBuying companies like Better, HomeLight, Opendoor, or Ribbon, make all-cash offers on buyers’ behalf. Then the buyer pays back the company. Fees, rules, and market availability vary.
“…for a fee of 1-3% companies will provide you with cash for a purchase and allow you to make a non-contingent offer to purchase a property and then put a permanent mortgage in place. Our company just announced a partnership with Ribbon to provide this service to borrowers on purchases up to $1mm using conventional mortgages for the permanent financing.”Jim Freeman of CrossCountry Mortgage,
Based on the calculations from the National Association of Realtors, the cost of obtaining a cash-backed offer is not much higher than the 3.7% to 4.4% average percent above the list price that buyers have already been offering to sweeten their loan backed offers.
How to win the deal even if you are a loan buyer:
Non-Contingent Offer – A loan buyer can effectively compete with a cash buyer when they write a non-contingent offer and close relatively quickly (21 days or so).
“Our job as loan advisors is to put a potential borrower in as strong a position as possible to purchase with a loan. Ideally we pre-underwrite the borrower so in some cases they can make a non-contingent offer to compete effectively with cash buyers.”Jim Freeman of CrossCountry Mortgage
Parameters for non-contingent offer:
- Pre-underwritten by their lender (rather than just pre-approved). In essence the lender has “credit approved” the buyer for a new loan
- Excess cash and assets beyond the necessary down payment, closing costs and any required reserves that could make up the loan gap if the appraisal comes in below purchase contract price
- Property is a single family home as opposed to a condo or townhouse which require a project approval from a lender a loan contingency in those offers are recommended
Sweeten the Deal
Even with a non-contingent offer, buyers would still need to be aggressive offering a higher price than the cash buyer to ensure the seller prefers their offer. The offer should be well written and have terms favorable to the specific seller’s needs such as flexibility on timing and an option for up to 60 day free rent back period.
The landscape of options is complex and every buyer’s situation varies. Please reach out if you have questions about what approach and solutions might be best for you. Boulevard prides itself on providing the resources and insight you need when buying or selling luxury properties in Marin County.
Boulevard Real Estate was founded by fourth-generation Marin native Elizabeth “Bitsa” Freeman. Bitsa’s expertise in the local market, reputation for genuineness, honesty and deep community connections have made her a top-producing luxury agent throughout Marin County. Boulevard is proud to be certified as a Green Business by the California Green Business Network, and awarded Marin IJ Readers Choice Best Realtor Honor for four years running- 2019, 2020, 2021, 2022.