Cash buyers drive down prices

Until now, the arena of cash buyers has been dominated by big investors, both foreign and domestic.  Enter the current homeowner.

Despite historically low interest rates, the percentage of all-cash sales increased nationwide from 30.8% of all sales in October 2011 to 34.1% in January 2012. During this period, cash purchases by investors and first-time homebuyers remained flat, meaning the increase in cash purchases resulted from current homeowners.

The average cash buyer receives a 10% discount off the asking price. Sellers frequently prefer cash buyers as all-cash transactions do not contain buyer-financing contingencies, and are favored by lenders in a shortsale and real estate owned (REO) situation trying to unload properties quickly. In both circumstances, cash offers are frequently accepted over finance-contingency offers even if the amount offered is less than the listed price.

Additionally, for properties owned by Fannie Mae and Freddie Mac, cash offers made by buyer-occupants are favored over investors who will not actually occupy the home.

While an influx of cash offers is a good thing for bloated inventories, all-cash deals are a double-edged sword. All-cash offers drive prices down across the board, as they do not provide any upward pricing momentum. These discounted prices cause appraisal comps to fall, thus making home values languish at best, and continue in their downward spin at worst.

TIP: To make an offer as attractive as possible, stay away from unnecessary contingencies and offer a quick closing date (30 to 35 days). Buyers requiring purchase-assist financing should also be pre-qualified for a mortgage to be able to show the seller their lender paperwork and demonstrate a serious intent to purchase.

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