Question: I just lost a competitive offer to an all-cash buyer. How common are cash buyers in Arlington? How much of a disadvantage am I at?
Answer: I have personally noticed an increase in cash buyers and expected to find a significant increase in the number of cash deals over the last 12-18 months, so I was a little surprised when I ran the numbers and learned that the percentage of homes purchased by all-cash buyers has only increased a few percent in the last couple of years. Since 2019, 17.5% of homes purchased in Arlington have been by all-cash buyers, compared to 14.3% in 2017.
Increased Cash Deals Attributed to Condo Sales
The number of cash purchases in Arlington jumped in 2018 and 2019, likely due to more cash investors getting involved after the Amazon HQ2 announcement in November 2018. This increase is attributed completely to condos (likely investors). The number of buyers paying cash for single-family or townhouse purchases has remained about the same since 2015.
The rate of all-cash purchases seems to be spread pretty evenly across all price-points and housing types. I assumed that the lower priced condos would have a much higher rate of all-cash deals, but it turns out that since 2019 only 20.5% of sub-$400k condo purchases were all-cash, which isn’t much higher than the overall Arlington market.
The chart below shows the percentage of homes sold in Arlington that were bought by all-cash buyers since 2015, also broken out by condo and single-family/townhouse purchases.
Cash vs Mortgage – What’s the Difference?
The idea of getting a cash offer sounds exciting, but what exactly does it mean? After all, a dollar from a lender is worth the same as a dollar from a savings account.
- Contingencies: Cash buyers don’t need the contractual protection of a financing or appraisal contingency because they don’t need a lender to approve/review anything. This is appealing for sellers because it decreases the possibility of something going wrong that disrupts the sale.
- Speed: Cash deals can close faster, often in one week or less, than financed deals which usually take at least 3-4 weeks due to the time it takes to process the loan.
- Security: Cash deals are considered more secure because the purchase funds are already available
- Cost: Cash deals have lower buyer closing costs because there are no lender fees or lender’s title insurance. Lenders also require a substantial about (usually 1-1.5% of purchase price) of money be pre-paid into an escrow account for future property tax payments and homeowner’s insurance.
Given how competitive the current housing market is, many buyers using a mortgage take steps to make their offers as cash-like as possible by removing the appraisal and financing contingencies and/or working with lenders who can close quickly. For buyers that have taken these steps, there’s very little difference to sellers between their offer and a cash offer.
If you are a seller considering a cash offer, make sure you verify the existence of the cash funds the same way you would verify a buyer’s mortgage qualification with a pre-approval letter. The most common method of verification is to request bank statements, but a letter from the buyer’s bank should also suffice.
If you’d like to discuss buying or selling strategies, don’t hesitate to reach out to me at Eli@EliResidential.com.