Retail Cash Sales

[Shaun Reilly]

I was reading an article and there were some hypothetical situations and one of the things ended up being a pretty clean cash offer at ~$200K for a rehabbed house.

What I could not get past is that I just can't imagine that this comes up very much. $200K is a LOT of cash to spend on anything. I kind of figure someone with that much money would fall into a couple different categories.

1) Someone that is still in the process of building wealth and would get a mortgage to take advantage of the cheap money and use that cash to get into other investments.

2) Someone that has saved and lived well within their means to accumulate a nice sum of money. They are fugal and aren't going to be allured into paying the top of the market because the kitchen has granite and cute little pendant lights over the island.

3) Someone that maybe just has a great JOB and even though they have accumulated that much cash they are not necessarily all that investment savvy and would be more likely to use that as a big downpayment on a $600-800K+ house.

4) Someone who has so much money that $200K is a drop in the bucket and will buy a much more expensive home either with financing or a lot more cash.

Part of my "bias" is that $200K is actually a lower end price point in MA. In middling communities you can get into a decent starter home. In nicer towns you are lucky to get into a 2/1 700sqft condo. So my experience at that price point are people having a hard time getting an FHA downpayment as opposed to throwing bags of money at ya.

What do other people see in their markets? Just in my mind I feel that owner occupant cash sales are going to cluster a lot on the very low end like under $50-60K since it is hard to finance them or on the very high end like getting into the million dollar and up area, since the people getting those usually are the really rich.

[Shaun Reilly]

Originally posted by J Scott:

Originally posted by Shaun Reilly:

I was asking about retail sales.

Like how many of your rehabs do you get clean $225K cash offers on that you had listed at $209K with the highest sold comp (Which was not quite as nice as your house) being $220K?

That is more the situation that the author of the article I'm talking about seemed to indicate isn't uncommon.

There are a few things at play here:

1. The cash offer

2. The offer above list price

3. The offer above market value

#1 is fairly common in my experience. In some cases, people have equity from previous house sales (downgrading houses), in some cases they came into an inheritance or lawsuit settlement, in some cases they've saved for a long time, and then some people just have a lot of disposable income.

#2 is less common, but in markets like we have today in many parts of the country, there is a lot of competition for good houses, and many people realize that making offers at list price or below means a bidding war that they may or may not win -- so they offer over list price to separate themselves from the competition. So, seeing this doesn't really surprise me very much.

#3 is the part that's not very common in my experience. Cash buyers generally have a reasonable indication of market value, and while they may pay over list price, there aren't too many buyers who are happy to pay more than a house is worth. I haven't read the article yet, but if the author is saying that this is a common experience, either his experience is a lot different than mine (which, of course, is quite possible -- I've only worked in a few lower-end markets) or he's just using hyperbole to create a good story/article.

Just my experience...

Yeah so I know that #1 happens, and will happen at any price point. I still believe it will be more common at the low points and the much higher ones, but still will happen at all of them.

I can also believe an above asking price one in the right situation. In the one I had (and the ones that the article I mention had) the list was below a not as nice market comp, so there was still value there.

So it is definitely point #3 where I think the hypothetical situation breaks down. I do think that even retail buyers often realize there is value in a cash offer and don't overpay because of that. In the article the price differences were actually bigger than what I laid out there. The offer was a full 10% over list and 3.3% above that highest sold comp.

BTW don't know if the guy works in other markets too, but he definitely works in the Atlanta area so your comments leads me to believe that point was thrown into the story overly sensationalized things to make his point.