All-cash offers and contingencies: what you need to know
As Elvis Presley infamously sang, “Home is where the heart is.” The line often resonates deeply for both home buyers and sellers who are on the cusp of taking the next step in their homeowner journey. But, did you know even after an offer has been made and accepted, a contingency can extinguish the entire deal at the last minute? That’s certainly heartbreaking for all parties involved. In real estate, a contingency, also known as a “walk away” clause, refers to the conditions that must be met in order for the purchase or sale of a home to become legal and binding. For instance, in NAR’s monthly Realtors® Confidence Index report, “issues related to obtaining financing” continually leads the pack as the primary reason for the delay or termination of a real estate contract When buying a house with cash, however, there’s no financing contingency baked into the contract – eliminating the risk and heartache of the deal falling through. So, what common contingencies should you know about? In what ways can they protect you? In what ways can they increase the risk of a deal falling through? And how do cash offers impact real estate contingencies? Here’s what you need to know. Financing contingency A financing contingency states that the home sale is dependent on the buyer securing the expected mortgage. No financing approval, no contract. Closing a loan traditionally is a lengthy process, taking an average of 47 days to complete, according to Ellie Mae, the software company that processes 35% of U.S. mortgage applications. During this window, a deal can fall through due to financing at any time. Buyers and sellers alike can think the sale is a done deal, only to be notified of a financing problem on day 46 under contract. When instances like these occur, the financing contingency allows buyers to retract their offer without facing any penalties. No one wins when the buyer's financing falls through. For sellers, the challenge of the financing contingency is having to wait to find out if the deal will fall through, in which case, the seller will be forced to start from scratch and find a new buyer all over again; placing their home back on the market and fielding added expenses that arise from the failed sale. Often, the home also has to be listed at a lower price due to a stigma placed on homes that fall out of contract, regardless of the reason. Buyers aren't immune to wasted money and time either, facing their own frustrations of losing out on their dream home. And real estate agents can't get paid until their clients make it all the way through the sales process. Using an all-cash offer, however, there’s no financing contingency on the table. That's because a cash offer means the buyer has full proof of funds ready and loaded when they make the offer. Buyers who are Cash Approved™ -- not just "pre-qualified" or "pre-approved" -- pose no risk of falling out of a deal due to a financing contingency. Home sale contingency When a buyer’s offer is contingent on successfully selling their existing home first, that means the offer has a home sale contingency. Like the financing contingency, a home sale stipulation can stall the entire purchase process from moving forward. This type of contingency can be found in both financed and cash offers. In a hot market, home sale contingencies may not be as common since buyers don’t want to risk making their offer less attractive and have fewer concerns about being able to sell their current house. However, if you're a buyer who needs to include a home sale contingency, making a cash offer -- by getting Cash Approved™ for example -- is often a good way to go because cash gives you more negotiating power than a traditional financed offer. Appraisal contingency Another condition that can sour a deal is the appraisal contingency. After a seller accepts an offer, a traditional mortgage lender will require a property appraisal to ensure the asking price coincides with the market value of the home. From the condition of the property to renovations to tax records, if an appraiser’s assessment determines the market valuation is below the asking price, the lender can deny a buyer’s loan application after the offer is already made. If the mortgage lender agrees to move forward with financing in this particular scenario, the buyer would be accountable for paying the difference out-of-pocket. Most buyers don’t have the liquidity to front the difference, and the appraisal contingency allows them to terminate their offer without forfeiting their earnest money. Similar to the no-financing contingency, appraisal contingencies can be removed in an all-cash offer. But you don't need to be a billionaire with deep pockets to make a cash offer on a reasonable home. At Accept.inc, we want the mortgage process to work for everyday people -- what a radical concept! To speed up the closing process, we perform a value check on a home at the beginning of the home buying process – before an offer is made – rather than in the final hour like a traditional mortgage. That means no nasty surprises to torpedo the deal in the final hour. All-cash offers and contingencies In today’s supply-starved real estate market, homebuyers are seeking ways to make their offer stand out from the crowd. Bidding way above the asking price isn't the only way to do that -- fewer contingencies is another reason why sellers prefer a cash offer. Cash buyers represented 36% of home sales in 2020, according to CNBC. So, how can one go up against these Goliaths with easy access to millions of dollars in cash? The secret lies in aligning yourself with a lender who will let you negotiate with the power of cash, but with the ability to pay the money back over time like a normal mortgage. Interested in making a cash offer on your next house, with no financing contingencies and no additional costs, increasing your likelihood of making a winning offer by 4X? Learn how to get Cash Approved™ today!
Kelly K. | Jul 22, 2021
7 fees & closing costs associated with real estate cash offers
You’ve made an exciting decision: you’re ready to begin searching for the home you’ve always dreamed of – covered patio and all. Whether you’ve just started to explore different neighborhoods, or you’re in the initial stages of budgeting and planning, successfully navigating the homebuying process requires a solid understanding of the costs and expenses you’ll incur along the way. What to expect for closing costs, for example, is an important detail when figuring out how much you can afford to pay for a house. Closing costs are the fees and expenses you pay, outside of your down payment, to complete the sale of the house. According to data gathered by The Motley Fool, in 2020, the average closing costs for a house were $5,749. However, this number can vary greatly based on a home’s market value and geographic location. As a homebuyer, you can expect to pay 3%-6% of the home's purchase price on closing costs, but that number can be as low as sub-1% or as high as 4+%, depending on the state. What closing costs do you pay with cash offers? Increasingly, homebuyers in competitive markets are learning that "cash is king" -- that is to say, buying a house with a cash offer increases your chances of winning when there are multiple offers on a home. Sellers prefer an all-cash deal as it eliminates the uncertainty and slow process of transacting with a traditional mortgage lender. Seriously, high-fives all around! It’s a common assumption that in order to make an all-cash offer, you have to have hundreds of thousands of dollars already stashed away in your bank account, or a wealthy relative who does and is willing to front you the cash. However, there’s another option for buyers who aren't high rollers: making an all-cash offer facilitated by an iLender like Accept.inc. The same benefits of a cash offer without the need for upfront liquidity? That’s what we call a win. Do cash buyers pay closing costs? Yes, if you're making a cash offer on a house facilitated by a mortgage lender, you are still responsible for paying closing costs. In fact, all-cash offers are subject to many of the same closing costs any buyer pays when following the old-fashioned mortgage process. To delve deeper, here’s a look at the closing costs you'll pay with a cash offer on a house. Earnest money deposit (EMD) Earnest money, also known as a "good faith" deposit, refers to money paid to a seller, accompanied by your offer, to communicate to the sellers that you're serious about following through with the purchase. It's held in escrow until closing. How much you'll want to put down for your EMD depends on a couple of things. From market demand in the neighborhoods you are considering to the terms outlined in your purchase agreement, you can expect to pay a good faith deposit to be around 2%-5% of the purchase price. Your real estate agent will be a great resource to help you determine a specific earnest money amount that is appropriate for a competitive offer. The good news? This amount is not an additional fee but a deposit that is credited towards your down payment at closing. Title insurance & title search fees Title insurance is a one-time fee that serves as a form of protection against any unexpected title issues that may arise while you own the property. On average, title insurance costs about $1,000 per policy. In addition to procuring insurance, a majority of states require a title search to access public records and verify the seller is the home’s rightful legal owner. A title search, which can cost between $75 and $250 for a single-family home, will also reveal any undiscovered or undisclosed claims on the property, such as liens, wills, outstanding mortgages or deeds – all of which could affect the purchase process. Homebuyers who use Accept.inc's partner title company will not incur this additional expense -- we pay it for you. Escrow fees An escrow fee, or closing fee, is generally paid to the title company – an independent third party that handles title transfers, paperwork – like recording the deed – and the distribution of funds involved in the real estate transaction. Typically, the escrow fee is based on a percentage of the home’s purchase price (rather than a flat cost), but it’ll ultimately vary by company and locale. It can range, on average, anywhere from less than 1% to as high 2%. So, if you’re buying a $250,000 home, for instance, it could cost anywhere from $1,000 to $5,000. An escrow account, which operates similarly to a savings account, is used to collect and safeguard funds during closing, as well as throughout the lifespan of the loan. In addition to protecting your earnest money deposit, your lender may utilize an escrow account to fund your homeowner’s insurance and annual property taxes. Property taxes Property taxes may also be part of your closing costs, even when making a cash offer. Some states charge property taxes in advance – collecting either 6 months or an entire year’s worth of taxes upfront. Because property taxes are often prepaid by the seller, when ownership is transferred, the buyer will be responsible for reimbursing the seller for a prorated portion of the taxes. This number is calculated by dividing the total amount of property taxes paid by the seller by the number of days remaining in the year. Homeowners insurance Buyers are typically responsible for paying the entire annual premium for their homeowner’s insurance at closing. The cost of a homeowners policy varies greatly – using factors like coverage amounts, location, the value and size of your home and the deductible to calculate your premium. For instance, your new humble (or not so humble!) abode may be located in an area that requires your policy to include flood or earthquake coverage for added protection against these potential threats. HOA transfer If you’re purchasing a piece of property located in a community governed by a homeowners association (HOA), you may be responsible for covering a transfer fee. Separate from your yearly dues, the transfer fee exists to compensate the HOA board for recording and distributing the proper paperwork and documents. Private mortgage insurance (PMI) An Accept.inc all-cash offer is similar to a traditional mortgage when it comes to private mortgage insurance -- Since you are still receiving a mortgage at the end of the process, if your down payment is less than 20% of the home's purchase price, you'll still pay PMI. The cost, which ranges from 0.5% to 1% of the loan amount, is calculated annually and added to your monthly mortgage payments. Closing costs on cash offers typically include the buyer’s first month’s payment. How do you buy a house with cash without all the cash? All-cash offers provide a smoother, quicker real estate transaction – and they’re highly attractive for sellers, so cash offers are more likely to win a bidding war. But, let’s face it: most homebuyers don’t have access to the kind of liquidity or money required to fork over the price of the entire house up front. When you're competing with institutional buyers and those with deeper pockets, that feels unfair. That’s why Accept.inc is here to level the playing field. We believe anyone who qualifies for a mortgage deserves the speed, certainty and competitive advantage that comes with making a cash offer – but with the ability to pay back funds over time like a mortgage. We provide homebuyers just like you with competitive rates and no additional costs (or hidden fees). Ready to start making strong real estate offers that stand out from the pack? Get Cash Approved™ today!
Kelly K. | Jul 14, 2021
Rich relative no longer required: A big moment for Accept.inc.
Today is an exciting day for Accept.inc as we move closer to our mission of putting an all-cash offer on every home. I wanted to share a bit more about me and why we started Accept.inc. It all changed over a gin & tonic I grew up in a stable middle class family in Long Island, NY. My father was in the mortgage industry and real estate was a daily conversation. I was lucky enough to spend my summers in Fire Island, NY building Wagon Express, a hauling company that I started with my identical twin brother, Benjamin. It wasn’t fancy, but I got to work the docks with my best friend, delivering bags and beer for weekend travelers eager to enjoy a few days of paradise in their summer rentals. That said, having seen first-hand the impacts the real estate crisis had on my family, I swore I’d never go into real estate. Instead, I thought I would concentrate on getting into a good college and pursue a traditional, stable career path. Adam Pollack (left) and Benjamin Pollack (right) haul the cargo of a visitor on Fire Island. The Pollack brothers run perhaps the last schlepping business on the island and have abandoned their radio flyers for larger, plastic wagons. Phillip Montgomery for the Wall Street Journal. Around the end of high school, something shifted in me. I became more interested in public service and the pursuit of something more meaningful. That shift started with small decisions, like dropping the standard math and econ classes at Harvard and choosing to study Social Theory and Argentine Tango (I totally bombed the “lab portion” of this dance class). I met Nick Friedman, one of my co-founders, freshman year (he was dormmates with my twin brother), and it didn’t take long to realize that we both wanted similar things out of our careers and lives. We ended up spending a few summers developing venture ideas that we thought were brilliant, but in hindsight were complete duds. They are still on a whiteboard in the basement of my parents' house! For whatever reason, we kept at it and in 2016 became fixated on the idea that while technology had changed the way many things were bought and sold, including homes, few ventures had changed the way homes were transacted. We asked ourselves, “What is the best, smoothest transaction in real estate and how do we provide that experience to everyone?” You don’t need to be the son of a mortgage attorney to know that a cash offer that can close in 3 days is a whole lot better than waiting 1.5 months to know if a home sale is going to go through with a mortgage. The problem is, the majority of buyers don’t have hundreds of thousands of dollars sitting in their bank accounts to make a cash offer. So then came a big decision: I left school with Nick in mid-2016 to build the cash offer for everyone who can qualify for a home. Shortly thereafter, we joined forces with our technical co-founder, Ian. Now, all we had to do was prove our concept with our first transaction and raise money. You’ve heard of the overnight success story. This isn’t one of them. We had so many failures along the way to getting our first transaction done. We got ripped off. We got told “no” hundreds of times by investors and customers alike. Potential buyers, industry partners and investors laughed us out of the room. Some told us that what we were trying to accomplish was just too good to be true, or, there had to be some catch. In August 2018, we hit rock bottom. I had to tell Harvard whether or not I was coming back or deferring (again). We had just hit another obstacle and it seemed ludicrous to keep going. I remember calling Nick that afternoon, saying we should call it quits. Nick offered to buy me a gin and tonic, and we went to our favorite bar perched where the Denver skyline meets the Rocky Mountains... I was done. Beyond done. We had just 800 bucks left in our bank account from our pre-seed round, no viable way to run the business, and we hadn’t paid ourselves going on two years. Six hours and many drinks later, we mapped out our options and decided that we’d give the venture until the end of the year. We called everyone we knew, cold call after cold call, pitch after pitch. We had our first break in November when Y Combinator agreed to fly us out for a 10-minute interview. When the interview team asked us why the hell they should invest in us after two years of failing, I told them that we were an encyclopedia of a 1000 ways this venture wouldn’t work... and because of that we finally had the one that would. There’s a lot of trust that’s built between partners when your chips are down. That’s when you learn who you are and who you are with. And it makes the victories along the way all the more sweet, in our case getting into Y-Combinator 7 days before we had planned on killing the company. And yes, the business model Nick, Ian, and I pitched to YC is the very same Accept.inc uses today. YC DemoDay Pitch with Nick & Ian. Back then, Accept.inc was named Board after the company’s roots from our college dorms (i.e. room and board). The fundamental problem with a traditional mortgage transaction is that sellers and agents really have no way of knowing the creditworthiness of buyers who place bids on their home. That means sellers end up waiting 40+ days on a lender to know if the buyer is going to get a loan and the home sale is actually going to go through. Think of early Ebay (pre PayPal) when sellers wouldn’t even send a buyer’s item before they received a check by mail and knew it wouldn't bounce. Cash, on the other hand, is great for home sellers because they don’t need to wait anxiously for the buyer’s lender to OK the transaction; the transaction will fund the moment the buyer and seller want it to. The unfair advantages of being a cash buyer are hidden in plain sight: cash buyers are up to 4X more likely to win the bid than buyers who need a mortgage, get discounts off the home price, and can close faster. This unfair advantage bestowed on those buyers capable of paying all-cash began to exclude the everyday buyer from competing on desirable homes, which doesn’t seem right. Buying a home is one of the biggest transactions of anyone’s life. It’s a crucial part of creating good towns, communities, schools and a society where people can thrive. So, we created a new kind of lender that facilitates cash purchases on behalf of buyers that qualify for a mortgage. We invest in evaluating the buyer upfront -before they even identify a home- and approve them for our cash offer program. Once the buyer finds a home they love, we purchase the home all-cash at the price the buyer and their agent negotiate. We hold onto the home until their mortgage with us is ready to close and sell it to the buyer at the exact same price we bought it for. Sellers and agents can close in days instead of months, and any buyer who can qualify for a mortgage can put their best foot forward with an Accept.inc cash offer. Because we make money off the loan like ordinary banks and don’t commission our loan officers, we don’t need to charge buyers, sellers, or agents any additional cost to upgrade their offer to a cash offer. Nick (left) and me(right) celebrating the first ever Accept.inc (then Board) cash offer, which closed hours before YC demo day in March, 2019. Even as the company has grown and the roles have become more specialized, I still find myself asking about different individual buyers and their experiences with us. I guess you could say it’s my way of staying close to the product, but it’s more about reminding myself about the real-world impact Accept.inc has. One of my favorite success stories was from when we helped a teacher who had been struggling to win a home for 4+ years. The condo she wanted to purchase was popular with home flippers and the seller would only accept cash. She applied with Accept.inc (then called Board) and won – on her first offer! A lot has changed since we started out in 2016: we’ve transacted hundreds of millions of dollars' worth of homes, grown the team to over 90 amazing people, and helped thousands of buyers, sellers, and agents. But one thing will always endure: our commitment to ensuring everyone has an equal shot at homeownership. As we announce our $90 million that we raised over the past year to get us closer to this goal, to keep adding new markets and to hire more people, I want to say a big thank you to the buyers, sellers, agents, investors, and of course employees who have supported and believed in us. We still have so much to do, but we could not have gone this far without you. Oh and Nick, thanks for that gin and tonic 😉
Adam Pollack | Jun 24, 2021
Cash Offers Are Quickly Becoming the New Normal
Why All-Cash Offers Have Become a Crucial Part of a Winning Strategy If you didn’t catch our last blog post on the two reasons that mortgage offers with pre-approval letters aren’t winning, you can get caught up here. To quickly summarize, two main reasons that mortgage offers with pre-approval letters are struggling more than ever to compete in today’s market: a hypercompetitive seller’s market and the obstacles that arise from relying solely on the traditional mortgage process. In today’s blog, we look at the two reasons all-cash offers continue to be the most competitive way to win on a home. Cash is King If there’s one term that has always been music to sellers’ and real estate agents’ ears, it’s “all-cash”. While all-cash deals have always been the unicorn of real estate offers, they are starting to feel like the new standard as they now make up about 36% of the housing market according to a recent report from CNBC. How did we get here? In 2020, real estate took a dramatic turn in the way homes are bought and sold. The housing market was already struggling with a noticeable lack of supply. Then came the pandemic, which fueled a desire for homeownership like we haven't seen in a long time...or arguably, ever. This unprecedented demand resulted in fierce bidding wars. Multiple offers being presented on the first day of a home being listed became the new normal. These bidding wars combined with wealthy out-of-state buyers relocating from other markets set the stakes even higher for competition, triggering a flood of all-cash offers across the country. Now, as we enter 2021, sellers are positioned to be pickier than ever as they review offers. What is the cream that’s rising to the proverbial top of every seller’s consideration list? The title of this blog probably gave it away, but it’s all-cash offers. Everyone knows that cash is king in real estate, but why? Well, it all comes down to two things: speed and certainty. Sellers Want Certainty Most buyers secure financing by borrowing from a bank which brings with it several handicaps. These handicaps are known as contingencies. Sellers naturally want to deal with buyers who face the least number of contingencies. Buyers who submit traditional mortgage offers may attach a pre-approval letter to the offer as evidence they can close the deal. All-cash offers, however, attach documentation of proof of funds with today’s date. Proof of funds are exactly what they sound like. They are tangible proof that a buyer has the cash to back up an offer. Proof of funds is money in the bank, versus a pre-approval letter, which vaguely indicates “There might or might not be money in an escrow account a month from now”. While It may seem obvious, sellers will always prefer the certainty of cash at the closing table. If certainty is a desired factor in the seller’s decision-making during normal market conditions, how much more prevalent is it in a tight seller’s market? An all-cash offer is synonymous with proof of a buyer’s funds in black and white. There is no waiting and guessing with a cash offer to see if the buyer is going to qualify for a loan with the bank. Instead, cash offers give immediate certainty and peace of mind. Although nothing is completely guaranteed in real estate, an all-cash offer is the closest bridge to a done deal. Sellers Want Speed In a real estate offer, time is of the essence. Cash speeds up the closing timeline. A mortgage offer with a financing contingency can delay a transaction or even cause it to fall apart. In fact, according to Realtor.com, the average closing time for an offer with a mortgage is 50 days...and that’s the average! Cash, on the other hand, can close in as little as 72 hours. Cash gets to the closing table faster, because there is no need to wait on contingencies that need to be cleared. Mortgage contingencies must be cleared one by one to satisfy the lender’s requirements. These requirements range from appraisals to various aspects of underwriting (employment/income verification, debt-to-income ratio and more). Every one of these contingencies is, at best, an inflection point that has the potential to slow down or destroy the path ahead, adding even more potential for a deal to go sideways or collapse altogether. But an all-cash offer removes every one of those roadblocks making the road ahead clear to close. This means the seller gets to move on with life, take the money and run. When the “cash” box is checked on an offer, the conversation between the seller and the listing agent immediately changes from “are they able?” to “how soon can they close?”. P.S.. …...Buyers get a better deal when they can put their money where their mouth is Cash offers move buyers to the front of the line, while providing them more leverage in their negotiations. This upper hand can be used to negotiate a discount off the asking price or ask for other terms and conditions that are favorable or important to them. Perhaps they need certain repairs done prior to closing or would like a little extra time to close. With cash, buyers become much more empowered to creatively strategize with their agents for terms and conditions that meet their needs. Cash is a Win-Win-Win Cash is a Win-Win for sellers and buyers, but it is also a win for real estate agents. Realtors appreciate a cash deal for the same reasons sellers do: the speed and certainty. For a real estate agent, cash ensures a much faster and reliable payout of their commission. Well, if a cash offer is clearly the smoothest and most certain transaction, then why aren’t all real estate offers all-cash? Clearly, not all homebuyers have access to that kind of money or liquidity. This is why Accept.inc was founded: to give everyday people the same speed and certainty that a cash offer brings, but with the ability to pay it off over time like a mortgage. Accept.inc believes anyone who can qualify for a mortgage deserves a fighting chance at homeownership and should be able to submit a cash offer. We offer homebuyers who qualify for a mortgage the ability to make all-cash offers on a home at no extra cost. This gives sellers the speed and certainty they seek, while giving buyers the strongest chance of winning. If you want to start making the strongest offers in real estate, Get Cash Approved™ today!
Jennifer Shapiro | Feb 15, 2021