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Hound Dog Real Estate - Digging in the Data

Should You Buy Your Home with Cash?

Should you pay cash for a home? Does it matter? According to the WSJ, buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or nearShould you pay cash for a house bottom and breathing life into some of the nation's most battered housing markets. Nationally, 28% of sales were all-cash transactions last year, according to the National Association of Realtors. The rate was 14% in October 2008, when the trade group began tracking the measure.

From the article - Some of the cash purchases reflect a tight lending environment, where even people with good credit and ample down payments are sometimes turned away for conventional borrowing. "The rates are great but the underwriting is brutal," said Henry Schlangen, an agent with real-estate firm Pacific Union International who buys and sells for clients, mainly in Napa Valley, Calif. "They hang these people upside down and shake them till they see what falls out of their pockets. So people are buying with cash and maybe they'll 'refi' later."

Things that I've experienced over the years regarding cash purchases (in no order) -

  • An obvious sense of confidence is felt by the seller, a cash offer will be well received because it avoids the mortgage process and is quicker to close.
  • That confidence typically comes from "actual sellers" - NOT banks, FNMA or other institution type owners.
  • Institutional sellers expect you to be qualified, cash is merely an option in their eyes just as a mortgage is. Including proof of funds in an offer is obviously required, but so is evidence of mortgage approval. They don't typically accept contingencies anyway and after the due diligence period, sellers are locked.
  • "Actual sellers" tend to be more receptive to negotiating sale price when dealing with a cash buyer. Institutions rely on ratios, research and often multiple opinions. How many times have you heard...."our data... our research shows" - never mind that the actual market is telling them the value is 30% less.
  • There is no set "cash discount"; everyone wants to sell but every situation is unique. Buyer's might score huge deals or might see little cash benefit.
  • Cash purchases or majority cash purchases are especially popular with second and investment homes - take the mortgage approval nonsense and triple it for second/investment homes. Also many investment homes won't meet underwriting guidelines and cash is the only viable route.
  • Many buyers that I've worked with started with cash and after study, took mortgages. Disciplined buyers can likely get a better rate on investing that money and taking advantage of historically low interest rates. For my cash buyers, I write contracts with clauses that allow my clients to choose cash or mortgages, this put my clients in the driver's seat on the deals while allowing them the option to change if they liked.

This Q & A from the WSJ touched on the issue as well.

The Combative Mortgage Process One thing any buyer and every agent can attest to is that the mortgage approval process is convoluted; cash avoids that nonsensical and invasive process. A new survey shows that Americans’ confusion over mortgage applications has become one of the most challenging aspects of buying a home today. Nearly one-third of respondents said that understanding the mortgage process was the most difficult step in buying a home in the survey, conducted by MortgageMatch.com, a unit of Move Inc. That was higher than the share of borrowers who said getting approved for the mortgage (23%) or negotiating the home purchase price (25%) was the most difficult step in buying a home.

Have regulators over corrected? Uh yes, just as everyone knew they would. CLICK HERE FOR A SHORT POD CAST on the issues and how regulators are killing ants with nukes. Is it really that complicated to determine if a buyer is qualified?

Here's a look at the increase in cash purchases as reported in the WSJ
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Hank Miller is an Associate Broker & Certified Appraiser working full time in real estate since 1989. He specializes in the north Atlanta real estate market which includes Alpharetta, Marietta, Roswell, Duluth, Kennesaw, Sandy Springs and surrounding areas. Visit the main site at www.hrmiller.com and reach Hank anytime at 678-428-8276 or EMAIL Hank

6:00 PM - Feb. 27, 2011 - comments {0} - post comment
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Hound Dog is led by Hank Miller of The Hank Miller Team. He is a licensed broker and certified real estate appraiser in the state of GA. Since 1989, real estate has been his full time occupation and Hank consistently ranks at the very top of Atlanta area agents in overall production. He is known as much for his attention to detail as he is for his candor. Direct - 678-428-8276

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