Cash Sale as a comp

[Pat Butler]

Cash sales rule in my market. Ever heard of appraisal or underwriting problems? Agents sure have.

Ever heard of closings getting delayed because of financing problems? Agents sure have.

Ever heard of a buyer wanting to back out of a transaction and they use the financing contingency clause as an excuse; or end up charging a few thousand on a credit card so that they don't get approved? Agents sure have.

Ever heard of a buyer walking away from a transaction after it underappraises by a few thousand? Agents sure have.

Ever heard of a buyer who uses the information in the appraisal to attempt to get the seller to pay for repairs listed in the appraisal as part of the repair clause even though the repair clause is supposed to be tied into the home inspection? Agents sure have.

Ever heard of a buyer getting financing who is unable to commit to a hard closing date because their financing approval takes longer than what the lender promised, and that screws up the seller's moving plans (moving truck already committed and paid for)? Agents sure have.

Do you think maybe that real estate agents would convince their sellers that a cash buyer is much more favorable than a buyer trying to secure financing, and that perhaps it's worth coming down a little more on the price? Yep.

I can't believe that anyone would not see an advantage of a cash buyer. Try selling real estate for a few years.

 

[Caterina Platt]

I've certainly seen cash deals get a bit of a lower contract price at times. Not always, but sometimes. I've also noticed some VA sales being the higher end of the value range from time to time. Again, not always, but once in a while. Is there anything creative or atypical about the deals? No. Is there a concession involved? No.

Is it a trend? No, it's simply an anomoly here and there. My preferred method of handling the situation is to reflect the sale, and let it adjust where it may based on the other characteristics. I'll also have my mid range and higher range sale(s) in the mix. In the sales comments I discuss the high, mid and lower range adjusted sales, and the reasons why they fell where they did. I will verify with the parties involved, but unless we have a particular market trend (and I mean this high/low situation happens more often than once in a while), I'm not 'dorking' an adjustment per se. I reconcile on the adjusted values as deemed appropriate. Maybe that cash sale is a low example, and maybe it's just not as likely to happen again and again, so I'm wieghting my other comparables more heavily. I discuss this and move forward.

Consider the example of a sacrifice sale, divorce sale, or relocation sale where it just simply reflects a bit of atypical motivation. It's one of only a few comparables and you have to use it. Do you come up with a 'distress' adjustment? I certainly hope not. It's a lower contract price, and here's why and this is why I didn't give it equal wieght in my final reconciliation.

 

[Fred]

I can't believe that anyone would not see an advantage of a cash buyer.

I don't think that is the issue.

It doesn't affect cash price that the seller waked with was borrowed or not. Cash is cash. Cash equivalency adjustments would arise when the seller receives IOU's instead of cash.

 

[incognito]

No one has mentioned this one VERY pertinent point:
FNMA does not allow positive financing/conditions of sale adjustments...

If you determine the cash sale was discounted due to divorce/relocation/lost job, than it is not a "cash" issue, it is a "distressed sale" issue, and is not an arms length sale.

 

[Szal US]

The definition of market value is "cash" so if there is a "discount" for a cash sale then every comp in your market with financing needs an adj for cash equivalency, not the other way around!
If cash is better, ie: specifically reflecting a change in sale prices, then this is why we all learned how to do the points and interest rate equivalency adj in basic appraisal classes...if your market reflects financing costs more (higher sale price) then you need to be making a market condition adjustment (which would be negative). FNMA does not allow a + financing adj because the measure (equalizer) is already cash and there cannot ever be a + financing adj, it would ALWAYS be negative!
Read the certification...definition of market value items 4 and 5: terms in cash or cash equivalent...

 

[David Beasley]

Some agents, through ignorance or laziness or just plain obtusiveness, will mark in MLS that the terms of sale was CASH. Check public records. 9 times out of 10 you will find there is a mortgage on the property.

Great observation and comment Mike. Often, an MLS will *say* CASH, OWNER, LA (loan assumption) or some weird something or another...and then when you pull up the deed, there - big as day - is the VA or FHA rider ("This loan is not assumable without going through the VA/FHA"...blah blah) or a deed of trust naming some local Mortgage Co as the trustee or beneficiary. Usually I follow up this sort of discovery with a call to the agent and find that the financing entry in the MLS was wrong...Go figure. And thank goodness for decent online public records in my neck o'the woods. Makes finding these snafus easier.

 

[Dennis J. Black ASA IFAS]

I think part of the confusion is so many people today look at financing as being something that approachs 100%. People with a descent credit score and a DOWN PAYMENT don't have a problem securing financing.

 

[incognito]

A cash sale can still have seller paid closing costs, pre-paids, seller paid concessions like pre-paid HOA fees, etc. So a cash sale still has to be looked at closely. Additionally, a cash buyer may still want an appraisal, and a home inspection, and a seller disclosure, and HOA review, etc., so being a cash buyer does not mean the sale is not without contingencies.

I sold a house once, to a cash buyer. He showed up to closing with a personal check. Closing was delayed for 3 days, for the check to be converted into certified funds. He actually had the cash in his personal checking account! But cash is not always CASH.

I think a pre-approved well qualified buyer with a sufficient down payment is every bit as good as a cash buyer in most situations, in the eyes of a seller.

 

[incognito]

double post... sorry

 

[Mr Rex]

cog, FWIW, the percentage of cash buyers that get home inspections is about 10x that of buyers using financing. Anecdotally, the more financially qualified folks getting a mortgage also do more due diligence. It offers insight into the current mess, the folks that have more invested of their own money are more concerned up front. Things that make you go hmmm.