In bidding wars, cash really is the king

Redfin has come to the not very surprising conclusion that anyone who is able to make an all-cash offer on a home is far more likely to win out in bidding wars against other buyers who’re unable to do so.

Buyers who offered an all-cash transaction were four times more likely to win in a competitive offer situation than those who didn’t in 2021, according to a new report from Redfin. All-cash offers were found to be significantly more successful than other strategies that are commonly used in bidding wars, such as waiving the financing contingency or a pre-inspection.

Bidding wars have grown more common in today’s marketplace as buyers rush to compete for a limited stock of homes for sale. There were about four offers for every home sold in January, according to the National Association of Realtors’ Confidence Index Survey from January 2022.

According to Redfin’s analysis, the strategies that were the most effective in competitive offer situations were all cash offers, which improved the likelihood of an offer being accepted by a stunning 334%. The second-most effective strategy was waiving the financing contingency, though it was a lot less so, as it only improved a buyer’s chances by 31%. Another tactic that helped in bidding wars was pre-inspection, which improved a buyer’s chances by 25%.

Some bidders used other strategies too, such a waiving inspection contingencies and including an escalation clause in their offer, but Redfin’s analysis shows that these efforts had little impact on a bidder’s chances of success. So, in other words, it’s probably better not to make such an offer.

Refind reminded buyers that while cash is king, it is still possible to succeed when relying on financing. Amanda Peterson, a Fort Worth, Texas, real estate professional with Redfin, said she advises her buyers to be financially prepared before submitting an offer and to know how much they’re willing to spend over their offer for a house they truly want.

“We have detailed conversations about how much over asking price they’re willing to go and which contingencies they can waive,” Peterson said. “If a buyer has a low down payment or another scenario that doesn’t typically win a bidding war, I’ve had success explaining buyers’ unique situations to the listing agent and making it clear that their finances are reliable and the deal will close.”