Startups Help Homebuyers Win the Bidding War... With Cash
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Here's your money briefing for Thursday, October 21st. I'm J.R. Whalen for The Wall Street Journal. They say cash is king. That's certainly true in the current red-hot housing market, where more prospective homebuyers are putting cash on the table to seal the deal. That might leave homebuyers who don't have access to a lot of cash on the sidelines. But a new crop of startups is aiming to bridge that gap and keep them in the game.
buyers with very good credit who are very well qualified, if they don't have all of the cash to buy the home up front, sometimes they're finding it hard to compete. And so this is really to help them compete in the market, help make their offer more competitive.
So how do these startups get cash into homebuyers' hands? And what does it cost? We'll ask WSJ housing market reporter Nicole Friedman about it after the break.
Fierce competition in the housing market is leaving a lot of homeowners, even those with good credit, struggling to put in an attractive offer. Now a handful of startups is stepping in to help buyers seal the deal with cash. Here to talk about how it all works is WSJ housing reporter Nicole Friedman. Nicole, thanks so much for being with us on the show.
Thank you for having me.
So, Nicole, can you give us a sense of what's going on in the housing market now that's led to a service like what these startups are offering?
Yeah, so the housing market is incredibly competitive for buyers. And this has been true for a couple of years, but it is increasingly true during the housing boom that we've seen in the past year, that there are a lot of buyers out there spurred by low interest rates.
Why are cash offers dominating today's housing market?
Maybe the pandemic encouraged them to move a little further from their office, move closer to family, somewhere where they can have more space. So there's really strong demand from buyers. And at the same time, the number of homes on the market is very low. And so there's a real mismatch between supply and demand, which means that a lot of homes that are on the market are getting multiple offers and there are bidding wars. One reason that the inventory of homes for sale is so low is that a lot of people want to move. They want to sell their home and buy a new one, but they're worried if they put their home on the market and sell it that they won't find anything new to buy. That a lot of sellers feel a little bit trapped in their homes that they don't want to be buyers in the current market.
So why are cash offers attractive to home sellers?
So in general, cash is attractive to a seller because the deal is likelier to close quickly. There won't be delays due to the financing and also a financed offer. There's the potential that it falls through. Maybe something comes up later in the process with the underwriting or maybe the person loses their job and their mortgage falls through. There's all sorts of reasons that even somebody who's a well-qualified buyer might have issues during the financing process. So cash offers are considered a little bit more of a certainty that the deal will actually close.
Do we have data on how widespread these cash offers are?
So all cash sales accounted for 22% of existing home sales in August. And that's up from a year earlier, August 2020, it was 18%. And that's from the National Association of Realtors.
Okay, so do these cash offers automatically give home buyers a leg up over other prospective buyers who might be doing financing?
So not automatically. When you talk to sellers and sellers' agents, they say it's the whole package, right?
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