Sometimes Cash Is NOT King!

By
Real Estate Agent with Price & Company Realty

In my last post, we discussed how sometimes a foreclosure really isn’t a foreclosure. Today, we’re going to dispel another Myrtle Beach foreclosure myth.

This goes against the conventional wisdom of real estate, and it will probably annoy you. Are you sitting down?

Here it is: Most investors, especially Myrtle Beach real estate buyers, believe that making a cash offer on a foreclosed property will get them a better deal. I’m here to tell you that this is not true.

Here’s why: the bank does not want to own the property. The bank wants out, as quickly as possible, and with as much of its money as possible. Everyone – including the bank – knows that the asking price is below fair market value. The bank expects multiple offers, and you must remember that in Myrtle Beach, most of your competition is not first-time homebuyers… your competition is other investors!

So how do you gain an edge? Easy… you have to think like the bank!

Picture this: you are the bank, holding a worthless $200,000 mortgage on a property you’ve just foreclosed on. You list the property with a Myrtle Beach real estate broker, and you receive two offers on the property:

Offer 1: $110,000 cash, contingent upon acceptable property inspection, to close 60 days from today, $1,000 earnest money.

Offer 2: $120,000 with financing, 10-day due dilligence clause, buyer is approved for an 80% loan, to close 45 days from today, $5,000 earnest money.

Not all competing offers are this diverse, but my point should be clear. The bank will accept offer # 2 nine out of ten times for the following reasons:

1. Offer # 2 will net the bank more money against their now-worthless mortgage, and the stronger earnest money deposit screams “I’M SERIOUS!” The bottom line is always the most important to the bank.

2. Offer # 2 will put the money in the bank’s hands two weeks earlier. Two weeks might not seem like a big deal to you, but the bank has 20 more foreclosures to deal with right behind this one. Every minute counts!

3. Since Buyer # 2 has already been approved for a mortgage, and the bank knows that the property will appraise for the asking price (remember, the bank had an appraisal done prior to listing the property), both offers are on equal footing with respect to cash-versus-financing. Cash is not king here.

4. Both buyers intend to have the property fully inspected, but to the bank, the difference between an inspection contingency and a 10-day due-dilligence clause is night and day. The bank couldn’t care less about the property itself, and doesn’t want to deal with repairing or replacing anything. The bank doesn’t want to see any contingencies in your offer. The buyer either agrees to the bank’s bottom-line price or not. A 10-day due dilligence clause tells the bank that you accept their price and terms, but need a few days to make sure that the property is fully acceptable.

This is another example of how a qualified foreclosure specialist can help navigate through the quagmire of foreclosures and help you find the best deal – and then give you an edge over other buyers. And that edge is exactly what you need.

In my next blog post, we’ll talk about more strategies to increase your edge over other buyers.

Comments (4)

Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

Good post why does a "cash offer" need 60 days to close???

May 30, 2010 09:20 AM
Ernie Steele
Berkshire Hathaway HomeServices Homesale Realty - Lebanon, PA
Call me, let's get started!!! 717-304-2912

Nice post Richard...As a long time Myrtle Beach visitor (every year except 2 since 1986) I've often wanted to buy there...Will the banks consider refinancing with them on a property they've foreclosed on?...In other words, good credit, less than 20% down etc...Just wondering...Enjoy the day.

May 30, 2010 09:21 AM
Coach KC™
Prosperitor LLC dba Secured Futures - Baldwin, NY
Marketing • Productivity • Revenue • Development

Hi Richard,

Excellent post! Thanks for sharing this valuable information. Looking forward to subsequent posts, keep 'em coming!

Coach KC

May 30, 2010 09:30 AM
Richard M. Sander
Price & Company Realty - Myrtle Beach, SC
Your Myrtle Beach Real Estate Expert

Joe - sometimes they need MORE than that. Often they will market a foreclosed property before the foreclosure deed has been recorded. I've had several REO properties under contract for more than 60 days while the bank, attorney and Master-In-Equity's office played hot potato with the deed. This is especially true with Myrtle Beach oceanfront condos, where the HOA dues are sometimes ridiculously high and the longer the bank waits to record the deed, the less money they have to shell out to the HOA. Sad but true.

 

Ernie - fast-tracking an approval -- or offerring an incentive to borrow from them -- for a loan from the foreclosing bank to purchase their property would make sense, which is exactly why they don't do it. The banks just can't seem to get out of their own way. Some banks will insist that you be preapproved BY THEM before accepting an offer on their foreclosed property... but then they don't give you any special dispensation to choose a loan from them vs. someone else.

May 30, 2010 02:09 PM