Why do home sellers prefer cash buyers?

Discussion in 'Economics' started by wilburbear, Apr 20, 2010.

  1. There are almost no buyers.
    Much less buyers with cash.

    Only a moron will hike the price, if he's willing to sell.
     
    #41     Apr 21, 2010
  2. Anyone foolish enough to dump their cash for unstable RE assist is drinking way too much NAR Kool-Aid.


    Seems the only ones calling a bottom are the ones whose income is tied to it. Here is a idea for all you RE up cheerleaders: start a fund and have your army of cheerleader realtors contribute to it, then go out and buy all your so called great deals , if your analysts is right you will have a huge profit but if wrong ?


    good luck..
     
    #42     Apr 21, 2010
  3. volente_00

    volente_00



    Even a cash buyer will probably want a title insurance on the property to CTA. That takes some time right there to do the search. Most will still want an inspection unless the propery is just a steal.

    Most underwriting is automated so why should it take 4 weeks to close a loan unless the surveyer, inspector, title insurance issuer, lawyer drawing it up, and lender are dragging their feet ?
     
    #43     Apr 21, 2010
  4. Ed Breen

    Ed Breen

    The main thing to understand about real estate is that it is all local, each house, condo, coop, neighborhood, state, city and price range is different.

    When leverage ratio's on houses were about 100% and dozens of banks and mortgage companies were competing for the right to fund your mortgage the risk that you would not be financed was very small. This was before the crash, when prices were still going up. In the rare event that someone couldn't get a mortgage, there was faith that another buyer would soon show up and might even pay more. In that market a seller would not discount the price to a cash buyer. There was no need to insure a quick closing. Today its completely different in most cases.

    Many deals are now falliing apart because of financing. Buyers need to put anwhere from 30% to 50% down to get a bank mortgage that is not within FNMA guidelines (Less than $730,000 or even lower depending on part of country). The big problem is that the lender's appraisal may come in less than the agreed purchase price the and buyer may get spooked or lack the personal funds to make up the difference. In this market the seller wants to know he has a deal so given the choice of a cash buyer and one who needs to finance they are often selling to the cash buyer in order to insure the closing, and they may take a discount of even 10% in some areas.

    Here is a situation I have personal knowledge of that just happenen within the past month. Someone I know made an offer to buy a 1BR Coop in Greenwhich Villiage, NY. The seller was asking $1.25M. The buyer offered 1.15M. The buyer was prequalified for a maximum FNMA loan of $.730M and planned to put up the remaining $.420M in cash. Before the Seller could accept he got a cash offer of $1M. So, the Seller had two offers, one cash at $1M and a second at $1.15M contingent on a mortgage they were already approved for of $.730M...but $150,000 more money to the Seller. The Seller contacted the higher offer and disclosed he had the $1M cash offer also. He asked the finance offeree to assure he would put up whatever extra money might be required if the Apt. did not appraise for the contract price, state differently to agree they would not back out and that they would put up more equity to bridge any gap in maximum financinig. The finance purchase said they would do that but not at the agreed price $1.15M, but only at $1.1M and if the apartment appraised for the agreed $1.15M they would pay the agreed amount. The sellere took the cash offer...effectively insuring the closing for 15% of the agreed price, $150,000.

    Now, this situation is a little different becuase he buyer still had to pass coop reviewe board, but they were over qualified for the loan and the value of the apartment was well established in comparables.

    So, you can get a discount now for a cash offer, expecially if there is any question about whether the finance appraisal will be high enough. This is a fact many economic theorist don't get...coverage ratio is greater limit on credit expansion that interest rate is, and coverage ratio has a greater impact on asset value than interest rate does.
     
    #44     Apr 21, 2010
  5. Good points:

    True about title insurance and property inspections.

    As for the appraiser, attorney, title co, surveyor, etc... don't forget - if they are successful at what they do - that means they work volume. Sure, your transaction is very important to you - but to them, you are a number. Your file at one point, is at the "bottom of the pile" so to speak. Yours is not the only one. But they will get to it - just not in a timeframe that most prefer. A nd you can't blame those people. To earn a living, they need to work many transactions/inspections a month.
     
    #45     Apr 21, 2010
  6. Dudes-

    Thanks for all the answers on this thread. Chicago is crashing. Unbelievably good stuff that everybody is trying to get out of at the same time.

    Now, i just saw what seems to be a good deal on a short sale, but somebody got there first, and the listing says "under contract". Can I get ahead of this buyer in any way with cash, or do i absolutely have to wait for the buyer to do what he's gonna do?

    Thx.
     
    #46     Apr 21, 2010
  7. Ed Breen

    Ed Breen

    Depending on local law and practice, you can present a back up offer on an all cash basis that the seller may prefer. You really should get some local advice from a realtor or a lawer. Don't try to squeeze every penny of savings, you will make a mistake that will cost you more than you can save.
     
    #47     Apr 22, 2010
  8. lindq

    lindq

    You can't get "ahead" of a buyer under contract. But you can put in a backup cash offer in case his doesn't work out.

    Just be aware of the pitfalls of short sales. Many are listed as short sales, but in fact haven't been approved by the sellers lenders. So you can get tied up in that mess and it can take months to work out.

    Get yourself a good Realtor who has experience in short sales, and only deal with the listings that have already been approved by the creditors.

    Personally, if you have cash, I'd stay away from them completely, as there are plenty of other straight listings out there that can be had for a good price.
     
    #48     Apr 22, 2010
  9. Just asking: How could it take months to work out? Can't I walk away at any time if they drag their feet?
     
    #49     Apr 22, 2010
  10. Ed Breen

    Ed Breen

    I agree with Indq, and reitierate that you need a professional to help you.

    The opportunity in this market is buy property that is usually never for sale...that is not typically in the short sales, and if it is you should buy it quickly. You should be looking for a deal on a 'blue chip' property that has some locational or other unique 'hook.'

    Real estate practice changes from state to state and town to town. In NYC, a property can be 'sold' but not under contract for a couple of seeks. I have noticed that in the sale of prime apartments the cash buyers seem to show up just after the verbal agreement and before the contract is agreed to by the buyer's and sellers attorneys.
     
    #50     Apr 22, 2010