Homebuyers get a steep discount with cash offers
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Homebuyers who pay cash for a property can spend 10% less on average than those who take out a mortgage, new research from UC San Diego's Rady School of Management suggests.
Why it matters: The discount gives cash buyers another advantage in a competitive and expensive real estate market, where they're already favored over mortgage borrowers.
Between the lines: Sellers prefer cash, even when it means leaving money on the table, because the deals are quicker and less risky than a mortgage offer.
- A mortgage deal requires lender approval and faces more potential barriers in appraisals and inspections, according to UCSD finance professor Michael Reher, who co-authored the study.
State of play: About one-third of home purchases are paid in cash — the highest share in nearly a decade.
- The upward trend comes as more investors are in the housing market and first-time homebuyers struggle to get their foot in the door.
Mortgage borrowers spend more on principal and are saddled with paying thousands more in interest over time.
Zoom in: In San Diego, where the median home price is $935,000, those taking out a mortgage will pay $93,500 more than cash buyers for a typical home.
- With 20% down on a 30-year loan, the monthly payment is about $5,200 (principal plus interest). So, they end up paying more than $1.87 million for that same home over the life of the loan.
The fine print: The researchers analyzed county and Redfin data from millions of home sales and offers nationwide from 1980 to 2021.
- They also conducted an experimental survey asking homeowners to consider competing offers from all-cash and mortgage buyers.