Fierce Competition Leading to More All-Cash Offers and Creative Ways to Make Them
The Florida Keys real estate market, along with markets all across the country, is facing some of the most fierce competition for properties ever seen. With a drastically limited supply of homes available, building restrictions throughout Monroe County, and an influx of people wanting to move into South Florida, competition is strong and properties move more quickly than ever. In a seller’s market like this, buyers face bidding wars where the strongest and most attractive deal usually wins out. Not many factors are more attractive to a seller than an all-cash offer. Not only does this eliminate a mortgage contingency that could make a financing deal fall through, but it typically leads to a much quicker closing than with a buyer that has to wait it out through the mortgage approval process. The problem for the buyer, is that the majority of Americans do not have the purchasing power to pay cash for a home, so this type of market generally favors older generations who have decades of equity built up, investors, and the affluent. In this market, analysts are seeing that 33% of all real estate transactions are cash deals, an incredible number up from just 19% two years ago.
First time home buyers, younger generations and middle class Americans tend to be at a detriment in markets like these because they do not have the cash on hand to compete. Additionally, many previous homeowners are reliant upon the sale of their current house to be able to make a down payment or cash payment on the next one. Throughout the country, buyers in this situation are coming up with creative ways to get the cash necessary to be able to compete in this competitive market. One way that they are doing this is by taking out a bridge loan. This is a type of short term loan offered by banks and private investors to “bridge the gap” between the sale of a home and the purchasing of another. This can help buyers to make a more attractive offer that they would not have been able to without it. The problem? Bridge loans only typically last for six months to 1 year, so the sale of an existing house needs to take place within that amount of time. Additionally, the interest rate on a bridge loan is much higher than on a traditional mortgage - usually between 6% and 10%,making them more expensive for buyers.
A relatively new player in this field, largely popping up in the past two years, are “power buyer companies.” These companies operate as intermediaries for buyers, making an all-cash offer on their behalf. There are a variety of ways that they can work, but usually they purchase the house on a buyer’s behalf, charge anywhere between 1% and 3% or half of the typical commission, and then rent the home back to the buyer for up to a certain amount of time while they await the sale of their previous home or for financing to come through from a traditional mortgage lender. At that point in time, they sell it back to the buyer for the price they initially paid. There are several companies nationwide specializing in this type of “power buyer” transaction. While many remain skeptical, others see it as an opportunity to compete when they otherwise would not have been able to.
As we move through 2022, the market for Florida Keys homes for sale continues to remain competitive. These types of transactions may become more popular as the year goes on.
