Why do home sellers prefer cash buyers?

[lindq]

Quote from wilburbear:

Just asking: How could it take months to work out? Can't I walk away at any time if they drag their feet?

It can, and often does, take months to work out because first, the seller needs to document that they're in deep shit and can't pay their creditors. The documents need to be prepared, submitted and approved by ALL creditors that have an interest in the property. 1st and 2nd mortgages, lien holders. etc. (Remember that in a short sale the seller/owner is asking, begging, for creditors to take losses on their loans to permit the home to be sold. And the creditors are in no rush to approve, because they're wrapped up in a hundred other requests.)

So you'll be caught up in all that mess. And if you sign a contract with a contingency for all of this to happen quickly, you're wasting your own time, and it is likely to be rejected. Understand that a seller can only be under contract one at a time. So signing a contract with someone like you who is likely to back away takes them off the market, and they're not likely to do it if they or their Realtor has any brains.

Yes, it is possible to find short sales where the paperwork has already been completed and the sale approved by creditors. But those are very rare. Typically none of that has been started.

Bank owned properties can be a cleaner deal, but forget about making offers below their listing price if is a decent home. Banks usually won't deal, and you'll be standing in line with other offers.

Again, I suggest that there are plenty of regular sales out there where you can get a good deal, especially someone who has cash or is completely solid with financing. Unless you are a very experienced investor and know the traps that are waiting for you, best to stick with a regular sale you can get with a good offer.

Investing in homes, as investing in the stock market, "Pigs get fed but hogs can get slaughtered."

 

[MattF]

A lot will boil down to your state/general area as Ed said.

Short sales may or may not disclose on the MLS (since part of the process is that the property needs to be listed) that it is a short sale, or that it's subject to third-party approval, etc. You can offer on it at any time (and offer lower; many I've seen in my area are listed to start STILL at "top dollar!"), but be prepared to wait a while depending on where in the negotiation process things are. Best time frame is either when the BPO is ordered or approved. At that point things are at least winding down and won't take as long if your offer is accepted and closing occurs. Many realtors still don't know how to deal with a short sale or do one...so that will make it tough if you don't want to wait forever and a day.

Bank-owned are the easiest overall..no one lives in it, they are usually listed cheaper, and you don't need a buyer's agent as you can offer right with the listing agent, or online if it's on there. But again may take some time for your offer to be accepted and you need a letter or proof showing you have the cash. You can always offer lower then the asking price (and should with cash), but I wouldn't grossly lowball...offer probably goes in the trash. Those also have price drops depending on price, area, condition, etc. after 1-3 months of being listed.

With both styles of properties you are buying as-is, so be prepared to have or know some contractors to get a good look at what your repairs may end up being...otherwise you'll get burned as a "good deal" suddenly doesn't turn into one.

As for a "discount" to protect yourself now the way things are going, I'd try to buy something 20-30% below its present value minimum....do research in your market to check how prices and sales have been as again, I didn't see where you were. Adjust as needed.

Most "regular listings" are likely sellers who are maxed out or owe too much...while you can offer lower, here we go again, you'll be waiting a while for acceptance, unless you can get them when they are nearing foreclosure or what have you.

That's where lots of people are getting burned...if you owe enough yet were going to stick around for a long time (15-20 years), then while you might pay some extra, by that point selling is a breeze because a huge amountof the note is paid down. It's selling in the <5 year range after where hardly anything has been paid down on the note (or on the refi'd note) where people are getting killed, whether they can afford the payments or not.

As for having a buyer's agent to maybe help you out, choose well..any of them can get you listed properties..heck more often then not you can do it yourself. Many are of course suffering and/or are living off of listing fees/buyer's commissions

 

[wilburbear]

Quote from MattF:

A lot will boil down to your state/general area as Ed said.

Short sales may or may not disclose on the MLS (since part of the process is that the property needs to be listed) that it is a short sale, or that it's subject to third-party approval, etc. You can offer on it at any time (and offer lower; many I've seen in my area are listed to start STILL at "top dollar!"), but be prepared to wait a while depending on where in the negotiation process things are. Best time frame is either when the BPO is ordered or approved. At that point things are at least winding down and won't take as long if your offer is accepted and closing occurs. Many realtors still don't know how to deal with a short sale or do one...so that will make it tough if you don't want to wait forever and a day.

Bank-owned are the easiest overall..no one lives in it, they are usually listed cheaper, and you don't need a buyer's agent as you can offer right with the listing agent, or online if it's on there. But again may take some time for your offer to be accepted and you need a letter or proof showing you have the cash. You can always offer lower then the asking price (and should with cash), but I wouldn't grossly lowball...offer probably goes in the trash. Those also have price drops depending on price, area, condition, etc. after 1-3 months of being listed.

With both styles of properties you are buying as-is, so be prepared to have or know some contractors to get a good look at what your repairs may end up being...otherwise you'll get burned as a "good deal" suddenly doesn't turn into one.

As for a "discount" to protect yourself now the way things are going, I'd try to buy something 20-30% below its present value minimum....do research in your market to check how prices and sales have been as again, I didn't see where you were. Adjust as needed.

Most "regular listings" are likely sellers who are maxed out or owe too much...while you can offer lower, here we go again, you'll be waiting a while for acceptance, unless you can get them when they are nearing foreclosure or what have you.

That's where lots of people are getting burned...if you owe enough yet were going to stick around for a long time (15-20 years), then while you might pay some extra, by that point selling is a breeze because a huge amountof the note is paid down. It's selling in the <5 year range after where hardly anything has been paid down on the note (or on the refi'd note) where people are getting killed, whether they can afford the payments or not.

As for having a buyer's agent to maybe help you out, choose well..any of them can get you listed properties..heck more often then not you can do it yourself. Many are of course suffering and/or are living off of listing fees/buyer's commissions

When you say buy 20 - 30 % below present value, I've heard those deals are out there because of the foreclosure glut, but do you mean 20 - 30% below appraisal?

 

[lindq]

Quote from wilburbear:

When you say buy 20 - 30 % below present value, I've heard those deals are out there because of the foreclosure glut, but do you mean 20 - 30% below appraisal?

An appraisal isn't usually done until you make an offer and a sales contract is completed. If a seller has a professional appraisal it is unlikely that they will discount a lot from that, because they'll be emotionally involved in it and will use it as a negotiating point.

Work with an experienced Realtor who can give you an estimate of value based on comparable sales in the subdivision and/or area. Then base your offer on that number, and discount whatever you think you can get. Look at how long the property has been on the market. See if you can determine if any other offers have been rejected, and what the seller's situation is. Again, here is where you need a good Realtor with experience in the specific area in which you're shopping.

It doesn't cost anything to make offers, and you don't pay a Realtor if you are a buyer. That fee has already been built into the price and negotiated between the seller and their agent.

 

[murray t turtle]

Quote from sprinter:

how would cash prevent any or most of those things you mention?

===================
Reasonable question, sprinter;
and as you imply ,cash does not automaticaly prevent any problems you mentioned..

In a buyers market like many areas are in;
not likely a seller would raise prices 5% or any percent.

In the event of another sellers market, sellers may raise prices more than that, but the wise ones would not try to change the deal already agreed on.Hogs get slaughtered.


Additional advantages of cash buying;
a] Its faster ,as was mentioned; that can be a deal maker/breaker sometimes.

b] Its more flexible, less people involved .

c] Cash can be cheaper, because a $300 or more appraisal is not required.However some FSBO [for sale by owners] also prefer a cash buyer because no way any certified appraiser would come close to thier asking price.

a2]Also its the same reason some home buyers also prefer[cash] ,no financing , or low financing ; less stress .

 

[MattF]

Quote from wilburbear:

When you say buy 20 - 30 % below present value, I've heard those deals are out there because of the foreclosure glut, but do you mean 20 - 30% below appraisal?

Assessment actually...debatable sure, but you have to use a set figure somewhere to get a starting value. Appraisal *can* be done if you feel it's lower than what's presently assessed...or if one happened to be done within the past 1-2 years by the seller. Even then with some markets plunging, that may not hold much water anymore. Watch your market when assessments are done; those that are not yearly/bi-yearly are going to or are getting hit now from the past results of things.

Solid, good homes are going usually 20-30% below on average. Older, and more junkier homes/needing good repairs 30-50%. Ghetto homes 50, 60, 75% off. (these being bank-owned and already foreclosed. Sellers in foreclosure/trouble/who still own their home it's all down to negotiation and what you can get them to take).

Buying 20-30% below the assessment gives you the equity spread for "refinancing" purposes. That's where people got burned over the years by maxing out, (homes will always go up!) but that's also how many investors are making good money namely in rentals...buy 1 nice and cheap enough, repair/refinance and pull out equity, use money into/for another place, rinse and repeat...as long as the place cash flows nicely after loan payments and money set aside for future repairs and you plan to hold for 5-10 years to ensure either almost all or the full note is paid off...and then fully flow and own free and clear if desired to continue. Idiots who don't calculate that don't at least break even even if fully rented out at market rent. That's using things as "good debt"...not whoring out your bathroom and kitchen thinking the property's going to shoot up in value immediately or blowing it on junk

But again, you need to seek out comparable homes sold around the area to see what you REALLY can pay. Comparable homes being: same bed/bath, +/- 10% of square feet of target property, within .5-1 mile radius (closer the better) and sold within the past 6 months (longer if only few sales made). This is only what has sold, not what's presently for sale. A Realtor can pull this information up off of the MLS in your area, or sites like Trulia can sometimes provide at least a reasonable amount of information to go by. If a nice home is surrounded by foreclosure sales...you don't pay a high price

A very basic formula that is touted for investor purposes is: ARV (after repaired/assessed/appraised value) * .7 (70%) - all repair costs needed - profit (if just flipping to someone else) = maximum offer. Since it would be cash (and you also pay the closing costs), that's also partially why it's a lower price then a traditional financing deal.

The 70% represents the equity spread and "drop protection", namely if property values continue to fall...check your market for historical data on that...it also makes a good negotiation tactic (i.e. "I can't buy high/full value because I'll get burned next year if property values continue to drop as history has indicated...")

I continue to chuckle at how many idiots out there are realizing when they sell they suddenly can't get "what the home is worth..." Maybe if you don't mind having it on the market for 2 years (or you have a moron for a Realtor...but that's another topic for another time)

 

[NKNY]

Quote from wilburbear:

Just a clarification, here. I've heard the price goes lower when you have cash. I meant, wouldn't the seller hold out for more money knowing the buyer has cash?

I doubt cash would bring the price down unless you can save the buyer some capital gaines tax and you make a deal under the table. Otherwise cash or no cash, it wouldnt make a difference...

I'm selling a house right now and people have offered cash to lower price... I told them I dont care if its cash or check, I have no incentive for cash as I wouldnt be paying cap gaines because I am under the 250 single or 500K married excemption..

The only reason I can see for prefering cash is that I wouldnt have to wait for buyer to get mortgage...

Nick