Why the All-Cash Buyer Still Rules the Real Estate Market
Even as the share of all-cash sales falls in many areas, it's pretty clear that cash is still king, especially at the lower end of the market. This makes it more difficult for traditional buyers to compete with cash offers, especially in a tight inventory environment. So who are these cash buyers, and where are they located? Here are answers to some of your questions.
Why is this happening now? It's happening now for a couple of reasons. Lending standards are still very restrictive, and buyer competition is intense, particularly in markets with lots of demand and not much supply. The thinking is: If I pay with cash, I'll get to the front of the line and have a leg up on the competition.
Where is this trend most prevalent? This trend is nationwide, and while the share of cash sales is higher than "normal" in many parts of the country (even in rural heartland states that never had a%VIRTUAL-pullquote-More than one-third of all sales of the lowest-priced homes were made with cash. % housing bust), it's most prevalent in Florida and Midwest markets. In the first quarter of this year, Miami had the largest share of cash buyers in the country at nearly 65 percent of total sales, down from 71 percent in 2012. Tampa and Cleveland were close behind with 57.1 percent and 54.2 percent, respectively.
Who are these all-cash buyers, anyway? They aren't all institutional investors, necessarily. After all, they found their deals last year and have more or less exited the party as home prices have risen. Rather, they are baby boomers, empty nesters, wealthy families buying second homes/vacation properties and foreign buyers who are coming to the U.S. from all over the world and snatching up properties in places such as Miami, New York City and Las Vegas.
What does this mean to traditional buyers? Traditional buyers are faced with greater hurdles when making offers because they are likely to have to compete with cash offers, especially in the tight inventory environment in the bottom tier of the market.
Zillow examined the share of cash sales made in the bottom, middle and top one-third of home values and found that in 27 of the top 30 metros, more than one-third of all sales of the lowest-priced homes were made with cash. In three of the top 30 metros -- Tampa, Detroit and Miami -- more than 80 percent of all sales in the lowest price bracket were cash deals.
The good news is the portion of home purchases made with all cash is down from last year, which will help even the playing field for first-time and low-income home buyers.
How can non-cash buyers possibly compete with all-cash buyers? Your best defense is to be a well-qualified buyer. You're gainfully employed, able to make a substantial down payment (20+ percent), have been pre-approved, and, of course, have good credit. You should also make a strong offer and ideally one without any contingencies.
Finally, sweeten the offer any way you can. Find out what's motivating the sellers and give them what they want. Remember, at the end of the day, money is money, and many sellers may not be in a great rush to close; they are simply looking for clean offers that are going to go through, hassle-free.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow or AOL.