The sound of a gunshot ringing out at 2 a.m. Was the last straw for Laurie and Tim. After seven years in their Oakland home, they decided in mid-2021 to head north to Portland, Ore., for a safer neighborhood for their children and a slower pace of living.
The couple, who asked to go by their first names to protect their privacy, learned quickly that the housing market in 2021 hardly resembled the one they remembered from 2014. After monitoring the Portland market for a few months, they decided they had to offer all cash.
Luckily, the 44-year-olds were able to use money from the sale of their house in Oakland as well as savings and a small inheritance to forgo the traditional mortgage process and pay for their new home in full. They put in two offers that got rejected before they were able to close on their current home in February for $852,000, around $100,000 over the asking price.
Given that they have another $50,000 in untouched savings, Laurie and Tim are a lot like the rest of the near-millionaires reshaping the housing market. They might own a housing asset worth seven figures but they had to liquidate most of their investments and savings to buy it, and they feel so “cash-poor” they had to take out a loan after the fact just to get some spending power back. Such is the housing market of the 2020s pandemic era.
All-cash offers are increasingly preferred: They accounted for 28% of home purchases in 2020 and 32% in 2021, according to Zillow’s Consumer Housing Trends Report. They have, however, fallen slightly this year, making up a quarter of total purchases nationwide in February, according to the National Association of Realtors.
Cash buyers use different strategies
Tim, who works in marketing at a tech company, and Laurie, who is a photographer, say they feel lucky they were able to find a home that checked off all their boxes, but “it doesn’t feel good to be cash poor,” Laurie adds. They plan to apply for a home loan soon, a strategy known as delayed financing, which will essentially loan them back some of the cash they spent on their home.
Once Laurie and Tim found the home and put in an offer, the sale went quickly. Laurie recalls being paranoid about getting the number exactly right on the check she wrote after combining funds from disparate accounts.
“I was worried it was going to blow away or something,” she jokes. “That was definitely the biggest check I’ve ever held.”
Cash buyers like Laurie and Tim aren’t showing up to open houses pushing wheelbarrows full of cash, real estate agents say, and they don’t necessarily have $1 million sitting in a checking account. But they are able to easily liquidate an investment account or sell other assets to get the money necessary to close, says Scott Durkin, CEO of Douglas Elliman Real Estate.
“Sometimes the money, it’s still crisp. It’s been transferred from a recent home sale or closing, or cashing in of stock options,” Durkin says.
The main types of all-cash buyers include second-time buyers with equity to spend , like Laurie and Tim; wealthy foreign buyers; or someone with access to family money, Durkin says. Then there are real estate investors who pay all cash to build up their portfolio.
Rising mortgage interest rates aren’t necessarily a deterrent for these groups; they’re not financing their purchases anyway. That said, like Laurie and Tim, many leverage cash to close on a property in a competitive market, and then finance after the fact.
The market matters
All-cash offers became more common across the country during the coronavirus pandemic, but they are especially prevalent in more expensive markets like Aspen, Boston, Houston, Miami, New York, and San Francisco. In Palm Beach, Fla., 55.4% of closed sales were all cash in February 2022, according to the Miami Association of Realtors.
“In Los Angeles, we’re seeing all-cash buyers even north of $2.5 million, and even in some of the most expensive areas, from Woodland Hills to Beverly Hills,” says Mark Rutstein, a Los Angeles–based Compass agent.
These buyers aren’t necessarily boomers and Gen Xers. Some millennials and even older Gen Z workers in high-paying fields like tech were able to save money throughout 2020 and 2021 while watching their investment balances balloon, Durkin says. They might have the cash from liquidity events like an IPO or even crypto gains.
“There’s so much more cash out there than we’ve ever seen before,” Durkin notes. “A lot of people stayed home and made money during the pandemic with their stock investments and their portfolios.”
Another group of all-cash buyers: high-net-worth individuals leaving high-tax states like New York and California for financial oases like Florida, says Neda Navab, president of brokerage operations at Compass.
It’s also possible that buyers are getting help with all-cash offers from companies like Better Real Estate, HomeLight, Opendoor, or Ribbon Home, which make all-cash offers on buyers’ behalf. Then the buyer pays back the company. Fees, rules, and market availability vary.
In a seller’s market, an all-cash offer is the most attractive thing a buyer can provide, according to Zillow. A recent Redfin report found buyers who offered all cash were 400% more likely to get the home. They’re so attractive, sellers may even opt for a lower all-cash offer than a higher offer that requires a loan.
It’s often prudent for sellers to close their property sooner rather than later to eliminate as many negative factors as possible, says Neal Ward, a San Francisco–based real estate agent for Compass. “Especially in today’s world where all is changing daily.”
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