How Homebuyers Are Actually Affording All-Cash Offers
In a competitive real estate landscape, making an all-cash offer is one way to stand out from the pack.
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Good Question: Should You Still Buy a Home in Today’s Market?
“Every home purchase starts with a negotiation between buyer and seller, and an all-cash buyer walks into that negotiation with the upper hand,” said Ben Creamer, managing broker at Downtown Realty Company in Chicago. “Sellers look at a cash offer as a done deal. They know it will close fast, and there is less risk of the transaction falling through at the last minute, as long as the home inspection and attorney review go smoothly.”
In addition to appealing to the seller, making a cash offer is also a way to potentially save money.
“Sellers are often willing to take a lower sales price because there is less hassle for them throughout the transaction,” Creamer said. “Cash buyers also save money [in other ways]. In addition to lending fees, appraisals and closing costs, mortgage-backed purchases rack up interest, making the overall cost of the home go up. This is especially true in today’s rising-rate environment.”
But how can people actually afford to make all-cash offers, considering the median home sale price in the U.S. is now over $400,000? Anytime Estimate surveyed over 1,000 American homebuyers who purchased in 2021 or 2022 to find out.
How Americans Can Afford To Make All-Cash Offers
Among those who successfully purchased a home in the past couple of years, the survey found, 1 in 10 made cash offers. Among these buyers, nearly half (43%) said they make enough income to do so. However, not everyone who makes a cash offer is flush with disposable income.
Here are the other ways Americans said they were able to afford to make cash offers:
Withdrew money from savings (29%)
Cashed out investments (27%)
Borrowed money from friends and family (25%)
Used money from the sale of their last home (23%)
Used money they inherited (20%)
Made sacrifices for a more affordable home (16%)
Moved to a more affordable location (15%)
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When Making a Cash Offer May Not Be Worth It
One of the most common ways Americans were able to make cash offers is by cashing out investments. If these are held in brokerage accounts, this may be OK, but Herman “Tommy” Thompson Jr., a certified financial planner with Innovative Financial Group, does not advise withdrawing funds from retirement accounts.
“Do your diligence and research before cashing in an IRA or 401(k) to make a cash offer,” he said. “There can be substantial fees and taxes associated with doing so. The broker advising you that all cash is best might not be taking fully into account the potential negatives. If you do wish to cash in qualified accounts, please consult with your tax advisor before doing so.”
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This article originally appeared on GOBankingRates.com: How Homebuyers Are Actually Affording All-Cash Offers
