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2 in 3 Bank Owned Homes Under $100k Sold to Cash Buyers

2010 1h 100k or less lender owned resize 2 in 3 Bank Owned Homes Under $100k Sold to Cash Buyers

During the first 6 months of 2010, 63% of all the bank owned homes under $100,000 were purchased with cash.  Why is this?

  1. Banks LOVE cash
    Banks that have foreclosure inventory on their books want to sell those homes quickly and they want to be sure that if they accept an offer that the buyer will be able to close on the property. Cash offers can close quickly and also eliminate concerns about appraisals and the buyer’s lender approvals so the seller has higher confidence it will close.  All things being equal, banks will take a cash offer every time.  I have seen banks take offers 15% plus percent less simply because they were cash offers.
  2. Cheap foreclosed houses almost always have condition issues that make financing tough
    While the repairs may be straightforward to complete, lenders today are much less lenient on condition and many foreclosures are in such bad shape that they need to be purchased with “renovation financing” or straight out cash.  Renovation loans are more difficult and time consuming to get and also have higher finance charges.
  3. Many home buyers are scared of home repairs required
    Many buyers who would purchase with a loan do not go after houses at these prices because the work required to bring them up to standards is something they are afraid to take on as a project.
  4. Investors are very active in this market
    Property flipping has come back in vogue – though this time the increased home price on resale is due to the repairs the rehabbers made versus just time passing like it was in the boom years.  We also have investors who are buying homes for rental properties since many homes for sale will easily cash flow even after extensive repairs.
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4 comments
Aaron Dickinson
Aaron Dickinson

The problem is that most banks will evict the occupant at the end of the sheriff sale and prior to the house being listed for sale, so it's hard work that. However, maybe you could get someone who is losing their house down the block to move in????

ryanl
ryanl

I want to meet the guy that's living in the house for 900 hundred that he used to pay a 1700 mortgage on. Can that be done? can you look over the rolls for sheriff sales say I'll buy your house for X when you lose it and rent it back to you at Y. You won't even have to move really?

Aaron Dickinson
Aaron Dickinson

Well if you think about it, people have to live somewhere. Some people who lose their house to foreclosure are moving in with friends, relatives, strangers, etc. but many others will end up as renters. What would be interesting to see is how much total housing vacancy there is right now across all types of housing and how does that compare to say 2006?

ryanl
ryanl

Lots of houses for rent coming online eh? Could mean dwindling returns for 3 BR apartment leases and rental townhomes.

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  1. [...] cities will continue to encourage the selling of houses, especially those foreclosed on, which were bought with cash nearly 2 out of 3 times (Bank held properties valued at <$100,000). In the end,  Dickinson reminds readers [...]

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This website is a service of Aaron Dickinson of Edina Realty, a broker Participant of the Regional Multiple Listing Service of Minnesota, Inc.