Investors With Cash Place Downward Pressure on Home Prices

By
Real Estate Agent with RE/MAX 4000

Homebuyers with enough cash in hand to cover their offer price in full are able to bid significantly lower on properties and according to a new industry report released Monday, because they offer a shorter and more reliable closing timeline without the impediments of a mortgage, appaisal, underwriting time, they often win out with that lower bid.

A study found that this low-bid-winning dynamic is particularly true for distressed properties because mortgage servicers selling foreclosed or REO homes generally prefer transactions that can close within 30 days.

The total share of distressed properties in the housing market in December, as represented by the HousingPulse Distressed Property Index (DPI), continued at a high level of 47.2 percent, based on a three month moving average. December marked the 24th month in a row that the DPI has been above 40 percent.

Cash buyers, many of them investors, are putting downward pressure on home prices across the board, according to the HousingPulse Survey.

In December 2011, date collected for the survey shows that the overall proportion of cash buyers in the housing market surged to a record 33.2% up from 29.6% a year earlier.

Among investor homebuyers, however, the proportion of cash buyers was much higher, with 74 percent of investors laying down the money to purchase homes outright last month.

The latest survey results indicate investors accounted for 22.8percent of all home purchase transactions in December 2011, up from 22.2 percent a month earlier.

Despite their relatively small share among homebuyers, investors have an outsize effect on home values because their bids bring down market prices, according to the survey report.

While investor bids may not be the first offers accepted, the report notes that they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems.

Investors usually offer 10%-20% below list up to a price of $250K. First time homebuyers are offering close to list price as are current homeowners. Investors want a 2-4 week close of escrow. Financing buyers end up with 6-8 weeks plus.

In competitive offer situations, cash offers prevail for the most part because of the common knowledge of lender closing issues. Cash sales can close in 21-30 days. FHA sales close 45 to 60 days.

 

Article by Carrie Bay DSNEWS.com

Posted by

Sandra Mathewson

CRS ABR GRI SFR CDPE

RE/MAX 4000 Inc.

call or text (970) 261-1686

I am Sandra Mathewson, a full-time Realtor working both as a listing agent and a buyer's agent. I love using the internet to meet people and keep in touch with friends and clients. I write this blog to show you why Grand Junction, Fruita, Palisade and surrounding real estate is truly something to be desired.

Visit my GrandJunctionHomesGuide.com website if you are considering buying or selling. You will find it as your best online source of information. How is the market doing? I'll keep you posted with the most current MLS reports. You can also search for homes for sale in Grand Junction (including Fruita, Palisade and surrounding areas). Read about the communities, events and things to do in this great Grand Junction, Colorado Lifestyle.

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Rainer
23,839
dave bothell
NATIONAL REALTY CENTERS - Westland, MI

i love the investor they have saved my bottom line over the last 5 years:) they buy alot of homes that would sit on the market for over 6 months to over a year also many of theese homes are not able to get a mortgage in there present condition and sit on the market and bring the value of other properties down way below the market! i love investors!!!

Jan 25, 2012 03:29 PM #1
Rainmaker
1,675,919
Winston Heverly
Winston Realty, Inc. - Atlantis, FL
GRI, ABR, SFR, CDPE, CIAS, PA

With over 50% of the buyers paying cash and are investors, I don't think this trend is going to change soon. Here in S. Florida, it's not so much about price and downward pressure as it is in the lack of inventory believe it or not.

Jan 25, 2012 03:38 PM #2
Rainmaker
177,562
Erv Fleishman
Realty Associates - Boca Raton, FL
Luxury Prop Specialist Realty Associates

Cash is king. I agree with the lack of inventory comment. People do not really understand that. It seems counter intuitive.

Jan 25, 2012 03:51 PM #3
Rainmaker
458,731
Sandra Mathewson
RE/MAX 4000 - Grand Junction, CO
CRS,ABR,SRES,GRI,CDPE RE/MAX

Dave,

There is a group of investors here locally that began slowly with buying homes on the court house steps.  They put in new carpet, paint or whatever was needed and flipped the homes. They did so well that they now have a huge market share. The homes are priced competiitively and usually are under contract the first week.  They are generous with closing cost credit, repairs and more.  They now have the #1 market share for their investement model.   I have sold several, and yes, they have saved my bottom line too. 

Thanks for the comment!

Jan 26, 2012 01:44 AM #4
Rainmaker
458,731
Sandra Mathewson
RE/MAX 4000 - Grand Junction, CO
CRS,ABR,SRES,GRI,CDPE RE/MAX

Winston and Erv,

Thank you for your comments.

Seems to be the trend in your markets as well.  Since Nevada has so many foreclosures, many are sold by cash and our inventory is now balanced, but could trend to a seller's market if this continues.

Sandra

Jan 26, 2012 01:47 AM #5
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Rainmaker
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Sandra Mathewson

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