For frustrated homebuyers, cash auction programs emerge as a new workaround
Shrikant Murali has spent a frustrating year trying to buy a home in Austin, Texas, a city with an extremely competitive real estate market. The software engineer made one offer after another that turned out to be close but not good enough.
âThere are a lot of buying investors, and they pay everything in cash,â Murali says. âIt’s a very hot market.
Murali eventually landed a spot by making an all-cash offer. But the first-time buyer failed to save $ 360,000 for a townhouse in Austin. Instead, he relied on a new cash offer program from Better.com, a New York-based real estate lender and broker.
Better.com bought the townhouse for Murali and then sold it to him. It’s the kind of innovative offering that is becoming increasingly common in an American real estate market that is increasingly straining Americans’ finances.
Startups Accept.inc, Homeward, and Ribbon have started offering cash deals in recent years. Better.com unveiled its program in August.
In a super hot market, money is king
As the coronavirus pandemic reshapes the U.S. housing market, bidding wars are common in many corners of the country. When sellers are evaluating multiple offers, they often choose the certainty of a cash offer over one that needs financing.
As a result, cash buyers usually get a small discount compared to buyers who rely on finance. And cash buyers may be able to negotiate more difficult inspection contingencies.
âWe are seeing two trends in the industry,â says Paul Tyger, CEO of Better.com. âThe first is that it is hypercompetitive and it is extremely difficult to stand out. The second is the rise of iBuyers. You can get your capital quickly, but it comes at a cost. “
It refers to companies such as Opendoor, Offerpad, Zillow Offers, and Redfin Now. They promise to buy homes quickly and with little hassle, albeit for a fee. However, iBuyers have reduced the fees so that they are more competitive with traditional transactions.
According to Zavvie, a real estate technology company, the average cost of selling to an iBuyer fell to 7% in mid-2021, from nearly 11% in 2020. The drop in fees brings the reduction of iBuyers closer to traditional sales.
Better.com isn’t the only company that sees an opportunity to present itself as a cash buyer to creditworthy buyers. The ribbon also allows bidders to bid in cash. It charges a fee of 2% to 2.4%. Ribbon’s service is available in North Carolina, South Carolina, Tennessee, Georgia and Texas, and the company plans to expand its reach. Ribbon has raised over $ 650 million from investors.
Homeward has also started a business around the concept of making cash offers on behalf of creditworthy buyers who do not have $ 500,000 to transfer to sellers. Homeward, which has made more than $ 370 million to investors, charges buyers fees of up to 1.9%.
Another player, Accept.inc, was launched in 2019 and this year announced that it had raised $ 90 million from investors. As of October 2021, the company was only operating in Colorado, although it had plans to expand to other states.
How it works
Better.com’s cash offers are available in a dozen major metropolitan areas, including Atlanta, Chicago, Dallas, Denver, Miami, New York, and Washington, DC. Buyers should use a Better.com real estate agent.
If a buyer also takes out a mortgage through Better.com, they pay no fees for the service – and they get a real estate commission rebate and closing costs rebate. If a buyer makes a cash offer through Better.com but uses another mortgage company, the consumer pays a 2.5% fee and forfeits the discounts.
The buyer can move in as soon as Better.com buys the property – that’s what Murali did with his Austin townhouse. In mid-October, he was renting the house from Better.com and expected to own it by Halloween.
Better.com has announced plans to expand its geographic reach. Mike delPrete, a real estate analyst who studies iBuyers and cash offers, says the concept of “power buyer” could expand beyond a few early innovators to become common practice in buying a home. House.
âI would not be at all surprised to see the number of real estate agents, brokerage houses and major real estate brands offering powerful buying products continue to increase,â said delPrete. âIt’s just like iBuying – originally developed by a few, it is quickly becoming another tool in an agent’s toolbox. “
Tips for buying a home in a sellers’ market
If you are not shopping in a marketplace served by Better.com, Accept.inc, Homeward, or Ribbon, you may not be able to opt for an all-cash offer. Here are some other ways to make your offer stand out:
- Get pre-approved for a mortgage and have the money for closing costs.
- Be prepared to move quickly when you find a home you love.
- Go through the entire subscription process before you make your offer.
- Make sure your offer is aggressive enough to stand out, but not too expensive for you.