Many people are shocked when I tell them the vast majority of the sales I did last year were cash sales. In fact 85% of my sales in 2010 were cash sales. Of course I'm happy about it. Financing can be tough these days. It also says a couple of other things that may surprise you. The discount you think you will get with a cash offer might not be as big as you expected. It also means that there is a lot of cash out there waiting to be spent. I was inspired to write on this subject because of some recent examples of buyers making some very aggressive offers. Some as much as 40% below asking. I think they were even a little insulted that I didn't want to waste our time even writing it up. Making an aggressive offer is fine by me but once you are more than 20% off the asking price the possibility of even getting a counter offer is pretty slim. And foreclosures rarely go for less than 10% below asking unless complications like permit or code issues arise. Actually foreclosures are mostly, but not always, priced below market and then get bid up in multiple offer situations.
I took a closer look at two areas I am very familiar with. First are the oceanfront condos near my office. These typically are vacation homes for the owner. I already knew most of these sold for cash because there are so few short sales and foreclosures in the area. Even I was surprised when I looked at what sold last month in December 2010. There were 37 condo sales total on the ocean in Pompano Beach. Cash sales accounted for 32 of the units or 86%, with prices as high as $770,000. Another area I looked at was Palm Aire, which is 4 miles away from the beach and is surrounded by four golf courses. There the percentage of cash sales was even higher. Of the 40 units sold in December 2010, 36 or 90% were cash sales.
Neither of those two areas see many first time homebuyers. If I picked areas where first-time homebuyers are buying this wouldn't be the case. But it is not uncommon for investors, who typical pay with cash or hard money, to be buying in those same areas as well. Despite a rough economy, cash sales are far more common than most people think. So how much of a discount can a cash buyer expect? I would say in there is very little difference in the two areas I used as examples.
Tom Day, RE/MAX in Motion
www.TomDayProperties.com