All-cash sales driving down prices

VIA MSN REAL ESTATE

Nearly one-third of home sales are to cash buyers, who often command a significant discount off list price. In turn, the seller gets a quicker closing.

As home sales increase and inventory shrinks, we're continuing to experience a decline in median home prices in many cities.

One reason for that, according to the new Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, is the influence of investors who are paying cash for homes. Those cash sales are driving down prices.

 "Investors are very aggressive and expect to see 15% to 20% off list. They will close in 30 days or less and most are cash buyers," one California real-estate agent said to the surveyers.

All-cash sales accounted for 33.2% of sales in December, up from 29.5% a year earlier, according to the Campbell/Inside Mortgage Finance statistics. Among investors, 74% paid all cash.

• First-time buyers competing with investors for homes

Although sales to investors made up only 22.8% of the market in December, they have a greater effect on prices because those lower prices drive down appraisals — a significant issue for buyers seeking mortgages — and thereby, all prices.

As inventory declines, and competition arises for the best properties, investors have even greater leverage.

 If sellers have a choice between selling to an investor for cash or to a buyer who plans to seek a mortgage, the investor is a safer choice, even if that means a lower sale price.

• Would turning foreclosures into rentals help?

Cash buyers can close more quickly, usually in less than 30 days, which is attractive to lenders selling off real-estate-owned properties. Buyers seeking a mortgage usually need 45 to 60 days to close, even when everything goes well.

• Prediction: 3 times more investors than owner-occupants

Cash buyers don't have to deal withbank-ordered appraisals that come in lower than asking price. In a cash deal, the price is what the buyer and seller agree upon, regardless of appraisal.

The report noted:

While investor bids may not be the first offers accepted, they often end up winning properties after other homebuyers are eliminated because of mortgage approval or timeline problems. Appraisals below the contracted price are a common reason for mortgage denials. Most mortgage financing timelines are now in excess of 30 days.

The percentage of all-cash deals is higher than 33% in many areas. In Miami-Dade County, for example, cash sales accounted for 63% of closings in December.