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