The benefits of all cash offers

All too often, first-time homebuyers struggle to get their offers accepted in competitive bid situations. Sellers and their agents prefer cash offers without appraisal or financing contingencies, and a guaranteed and quick close. So how can a first-time buyer create a compelling cash offer to compete against other well-qualified buyers?

An illustrative example is a recent transaction on the “Irving”, a home a first-time homebuyer secured with Ownify in Durham, NC. The home was originally listed for sale at $294,900. The average sale to list ratio in Durham at the time was 99%, so the seller should have expected a sale price of ~$292,000. Ownify was able to buy the home for our Owni for $274,000, or about 7% below that number. 

Why did a lower cash offer make sense to the seller and why did they accept it? 

1. List price too high. Based on our in-house valuation and validated by our appraiser, the most likely market value of the home was $285,000. The home had been on the market for 52 days vs a median DOM of 25 days in Durham, validating that assessment.
2. Speed to close: The average mortgage-financed purchase offer takes 44 days to close. Ownify offers close in as little as two weeks and in this case we proposed an all-cash offer with a 20-day close. The seller's carrying cost on this property were about $2,200 / mo between mortgage, HOA, property taxes, and insurance. A 20 day close vs a 44 day close effectively was worth $2,000 to the seller.
3. Certainty to close. A conservative estimate by NAR is that 5% of all deals fall through after offers are accepted. So the expected value to the seller of a potential market rate offer would have been $292,000 x 95% = $277,400. Minus carrying costs of $2,000 as outlined above, for an expected value of $275,400. Compared to that, a certain cash offer in hand of $274,000 is a good deal. Which is why the seller accepted it.
4. Rational seller. It helped that the seller in this case was a consummately rational financial advisor familiar with time value of money and risk.
5. Experienced Ownify agent. The buyer’s agent in this case was an experienced agent who used market comps and risk / return analysis to explain the Ownify offer to the seller and their agent.

First-time homebuyer offers are generally weaker offers, whether because of an FHA inspection contingency, a down payment assistance program, a less experienced agent, or hesitation to put down a stronger earnest or due diligence amount. Often, agents counsel their clients to increase the offer amount to compensate but that makes the down payment and monthly payment even less affordable.

With the right structure, a strong Ownify offer puts first-time buyers to the front of the line. At the same time, our unique compensation plan ensured that the buyer's agent actually earned more on the transaction with a reduced sale price than they would have at the list price.