Do Not Fear the All-Cash Offer
Experts explain how to compete against flippers armed with dough.
Compete with cash, says agent Anne Catherine Bowcut.
Photo by Stephen Texeira
They’re the bugaboo of every East Bay home shopper: Investors, many of them filthy rich from house flipping, waving armloads of cash to snatch that dream home from under your nose. But have no fear: Traditional homebuyers can compete with all-cash offers—if they understand what motivates sellers.
The best way to compete is on price, said Anne Catherine Bowcutt, a real estate agent and broker who specializes in Oakland properties. “Most sellers want the highest price. Cash buyers want and expect a discount, because it’s all cash,” she explained.
The good news is that the number of all-cash sales in Alameda County has dipped from its peak in the first quarter of 2013, when they accounted for a full 30 percent of home sales, according to Attom Data Solutions, a provider of national data on real estate. Since then, as prices have risen, the percentage of cash offers has dropped.
But they’re still common—accounting for nearly one-fifth of all home sales in Alameda County. In the second quarter of 2017, the percentage of all-cash purchases in the county was 17.8 percent, slightly up from 16 percent in the second quarter of 2016, according to Attom.
A lot of cash buyers were flippers, but they may be running out of cash as the market continues to soar. According to Attom, flipping has plateaued to 6.7 percent of all condo and single-family home sales in the first quarter of 2017. In Alameda County, it was even less—5.5 percent of all sales, down 2.6 percentage points year-over-year.
Even flips are more likely to be financed these days: One third of flips nationally were financed in the first quarter, according to Attom.
While the California Association of Realtors, or CAR, found that, statewide, cash transactions accounted for 20 percent of all sales in 2016, “Investors are looking to lower-cost areas, where the deals are,” said Jordan Levine, a senior economist with CAR.
Meanwhile, prices continue to rise while the supply of available homes squeezes tighter. According to CAR, in June, the Alameda County unsold inventory stood at just 1.6 percent, even less than the overall Bay Area’s 1.8 percent. And this is less than half of the historical supply of houses in California.
But you can’t pin this on cash buyers, Levine said. “Investor activity, all-cash buyers, and folks converting homes into rental properties are symptoms of a deeper issue. It wouldn’t be problematic if we had enough homes for individuals.”
One sticky issue for traditional buyers who need to finance is the appraisal—it’s where cash buyers may have the advantage, Bowcutt said. Appraisals are based on previous sales, but in this hot market, the price people are willing to pay for a house may be higher than others paid for a similar property a few months ago. If the appraisal is lower than the price the buyer offered, the buyer will need to make up the difference with cold hard cash.
Or with sweat equity. To make sure a recent listing of Bowcutt’s appraised high enough, the seller allowed the buyers to come in and paint. “A motivated buyer will do these kinds of things,” Bowcutt said. “That’s the way to compete with a cash offer.”