Service to Facilitate Cash Offers for Houses

NPR had an interesting story on a trend where companies enable consumers to make cash offers for houses, rather than having a mortgage-approval contingency. This makes their offer more appealing to the seller, since it reduces risk. Even with a pre-approval, many things can go wrong. My mother was a real estate agent, and as a youth, hearing her stories of deals falling through due to a buyer's buyer's buyer failing to qualify for a mortgage, I often wondered that the whole system didn't wind up in gridlock. Cash offers do eliminate that problem.

I'm not sure what to think. When I evaluate a new business process innovation, I want it to make the overall system more efficient. Usually, that means taking cost out of the system. For instance, mortgage securitization adds an extra step in the process (packaging the loans), but those transaction costs are outweighed by the efficiency of capital allocation (no geographic disconnects between mortgage demand, and funds available to lend).

The question the interviewer should have asked, but didn't, is what is the net additional cost to the buyer, to get the backing of the company that "fronts" them the cash?

I can think of ways this might add efficiency. One source of efficiency is simply compressing the time-to-closing (another benefit of cash offers). The longer the time-to-closing, it could be more likely there are inefficiencies such as temporary housing, temporary storage, or the pending sale house standing empty. It's not completely obvious though--closing too fast could bring complications of its own. Of course, just because you make a cash offer doesn't mean you have to close fast--the cash buyer could offer the seller flexibility, fast or slow, whatever they want. So it seems like there is surely some efficiency there.

 The existing mortgage underwriting process is cumbersome and time-consuming. So maybe there is some efficiency through vertical integration and better sharing of information? Maybe the cash sponsor is adding value as a trusted advisor (that part in the NPR story about not letting the customer offer more than they think the house is worth).