A cash offer refers to an offer made to purchase real estate submitted by purchasers who do not require any financing since they do not require a mortgage. The purchase is referred to as an "all-cash buyer." Such a buyer may also waive the appraisal, although not necessarily, since the contingency may exist to test or ensure the property's market value. The term "cash offer" is typically applied to contracts in which both of these contingencies do not appear. Cash offers are common in markets like Denver, Colorado, Seattle, Los Angeles, and are compounded by the limited supply of homes. The pervasive use of cash offers in these markets are said to be the result of and exacerbating inequality.
Cash offers account for over 28% of all home sales as of 2018 according to the WSJ. Because of the absence of one or more contingencies in cash offers, they are preferred by sellers who perceive risks in delays, the execution of underwriting, or in the application of appraisal valuation models. Sellers may reject financed offers in preference to cash offers, even when net proceeds would be lower, because of these perceived risks. This problem is all the more acute for first time homebuyers who do not yet have the funds to submit for a significant downpayment let alone an all cash offer.
Board Cash Offer (also known as a BCO), a type of cash offer, is a term applied to a real estate contract in which a mortgaged buyer has waived both mortgage and appraisal contingencies by prior special arrangement with Board Private Bank, the lender who coined the term. A Board Cash Offer also waives both contingencies and as such appears to the seller as transactionally equivalent to a cash offer. The buyer, in contrast to one with unfinanced available cash, has waived the contingencies because both underwriting and appraisal has already been completed by their lender, as opposed to being waived because they are unnecessary. This financed cash offer is obligated to a property, not a buyer, which means it cannot be placed on multiple properties at once. The Private Bank's stated goal is to help "level the playing field" between mortgaged and wealthy, "all-cash" buyers though its financing program.
Other lenders assist mortgage buyers compete against cash offers. For example, a mortgage company may provide a buyer a commitment prior to identifying a home. This differs from a pre-approval letter, which is a formal estimate of what a buyer can afford - not an obligation. A commitment, however, does not account for the appraisal contingency, which can adversely effect the strength of a mortgage offer in competitive markets.
Video Cash offer
References
Source of the article : Wikipedia
0 Comments