"Generation Y" or what is more commonly known as "Millennials", people who are between 18-37 year old, has now surprisingly become one of the largest group of home buyers.
Why do you think these millennials are able to capture a large percentage of home buyers? What's their edge?
CASH OFFER: The weapon of Millennials in Bidding Wars
What they do is they ask their parents if they have any sort of equity in their house. What these parents tend to do is that they cash out this equity and hand it over to their kids. As the saying goes, in this business:
Cash is King.
Through this cash, they can create a competitive offer in the market.
This is an effective way to win biddings because sellers tend to be lenient to those who have cash offers. Cash offers are attractive because they get to close deals quicker and risks are lower so much so that cash offers win over higher offers that come with a mortgage attached.
For example, a house received 15 offers and the one that the seller chose to go with was a cash offer. Buyer then tends to ask for a 30 day settlement. You might be wondering what for? What's going to happen is that the buyer (the millennial) will pay the house in cash but they will try to get a loan to give that loan money back to their parents. If in the event that they weren't able to get a loan, they will still be paying the house in cash.
How does this all make sense for the parents?
Parents of these millennials are actually in it for investment. Some of them are actually looking in to the future and thinking about downsizing. What they've done is that they invested in their own future by buying or helping their kids buy these properties. At the back of their minds they think that someday, their children may buy a bigger house for themselves or for their families in the next couple of years. When these parents plan to downsize these are the places that they can go to.
It is clear that in today's situation, millenials are driving the market. The sellers are realizing that if these millenials are the ones purchasing these homes, they are losing out in multiple offers but there are so much advantage of having a cash offer like reduced contingencies or even waived all contingencies.
Tip: As a real estate agent, you might want to give advice to your millennial buyer that if they have additional cash reserves, before they submit an offer, they also do a pre-inspection.
Other Reasons Why Millennials are Driving the Real Estate Market
- Technology makes searching for and purchasing a home faster. Survey shows that millennials prefer to communicate over the phone, thru emails or SMS rather than personally meeting up with sellers and agents.
- High rent prices. It is a fact that rent payment are rising while the national income isn't growing as quickly which drives millennials who want to be near work and yet have a nomadic lifestyle decide to purchase their own homes.
- They are now financially cautious. These millennials at a very young age have witnessed some of the worst economical situations and are now reaping the benefits of how the nation has recovered. They come into their own and realized the importance of purchasing their own homes, being aware of the economy, etc.
The situation and the millennials today are definitely different than the millennials I talked to about 2 years ago. They've come a long way and will go further.
They will continue to drive the real estate market and having said all that, as a real estate agent, millennials should be one of the target market you want to prioritize, focus on and capture.
I'll see you tomorrow for another blog post!