Why All-Cash Bids Are Dominating the Real Estate Market

All-cash buyers are scooping up real estate properties left and right, boxing out other competitive bids—even ones that are way above asking price. In parts of Florida and New York, over 50% of home sales were paid for entirely in cash. Redfin reported that 30% of all real estate purchases in the first four months of 2021 were also all-cash transactions, up almost 5% from 2020.

This trend is showing no signs of slowing down either. For one thing, despite increasing home values, the demand for investment properties continues to climb while housing supply is at a record low. According to Redfin, the number of new listings was down 13.5% year over year, while rental growth reached double-digit percentages in 2020.

The message is ringing loud and clear: whether you’re looking to buy your own home or want to invest in a rental property, your best (and most competitive) bet may be to make an all-cash offer. Thanks to a speedier process and less risk to the seller, they tend to be the more attractive choice for all parties—especially when it comes down to a bidding war. Here are a few reasons why:

 Fewer Contingencies

Mortgage-seeking buyers put in bids that typically include financing, appraisal, and inspection contingencies. As cash buyers don’t need to go through a lender, a financing contingency is irrelevant. Lenders require an appraisal before approving a mortgage, but in the case of all-cash bids, the home’s value is determined by how much the buyer is willing to pay, rendering the appraisal contingency irrelevant as well. An inspection contingency may or may not be included in all-cash offers, but it’s a risk that many are willing to take—especially in fix-and-flips or otherwise strategic investment opportunities.

 Less Paperwork & Lower Fees

Without the need for financing, cash buyers circumvent the entire process of handing over credit scores, tax returns, and other paperwork that a lender normally requires. The buyer would also be spared the closing costs and mortgage fees associated with a traditional loan, which could ultimately save tens of thousands of dollars.

Why the Cash Boom? Why Now?

One likely reason for the cash boom is the stock market. While markets were briefly in turmoil at the beginning of the pandemic in March 2020, stocks recovered and the S&P 500 ended the year up over 16%, while the Nasdaq was up a whopping 43.6%. In 2021, the S&P 500 kept going, ending the year up nearly 27%. Then as the housing market took off in 2021, savvy investors diversified in both equities and real estate saw their net worth balloon.

Interestingly, some of the top markets for all cash offers were in areas popular with retirees, like West Palm Beach and Naples, Florida. But all-cash transactions were lowest in housing markets with some of the most expensive zip codes, mainly in California, suggesting buyers are looking to pour their cash into less expensive markets.

Final Thoughts

Between low housing supply and exploding demand, all-cash buyers will continue to have an upper hand in a red-hot real estate market. Needless to say, an all-cash bid would make it much more difficult for traditional homebuyers and smaller real estate investors to beat out anyone with plenty of liquid cash that’s ready to deploy.