Real Estate Companies Test Cash-Offer Programs

Opendoor Technologies, Redfin, Startups Front Homebuyers the Cash

Opendoor Technologies (OPEN), Redfin (RDFN), and startups including Knock, Ribbon, and HomeLight, are purchasing residential homes in all-cash transactions on behalf of buyers who are waiting for their mortgages to clear. These companies are doing this to help homebuyers who are at a disadvantage when competing against cash offers in the current red-hot real estate market. Sellers typically prefer all-cash offers because there is less risk that the deal could fall through or face delays because of financing problems.

Real estate companies offering to help buyers will either lend the buyers the cash or buy the house for them. These programs are geared toward homebuyers who need to purchase a home before they can sell their existing one.

Cash-Offer Services Growing

Opendoor Technologies, the home-flipping company which went public at the end of last year, unveiled its cash offer program in March while Redfin is currently testing its program in select markets. Startups flush with new rounds of cash are also moving full steam ahead in leveling the playing field for home buyers who need a mortgage.

These real estate companies make money by charging a fee or a commission. Some of the startups also serve as the buyer’s mortgage lender, increasing the money they make on the transaction. For the companies that charge a flat fee it is typically 1% to 3% of the home purchase price.

Risks Abound for Real Estate Companies

These cash-offer programs are not risk-free for the real estate companies. There is always the chance that the buyer could back out of the deal if the financing falls through, which would leave the company with a home to resell. Demand for these types of programs could also slow in a more normal real estate market.

For now, real estate companies do not seem to be losing sleep over those risks. They argue that demand for cash-offer services will remain high even as the real estate market cools off. Whether or not the real estate companies are right remains to be seen.

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