Cash Sale Vs Conventional Financing

[Terrel L. Shields]

If that were the case I'd be reluctant to purchase from a builder who couldn't wait 2 mo

OK...so would you check on your own invoices before 60 days? I do.

 

[ucbruin]

OK...so would you check on your own invoices before 60 days? I do.

I don't understand this post...

 

[Terrel L. Shields]

I don't understand this post...

Some days sigh

 

[bnmappraisal]

If that were the case I'd be reluctant to purchase from a builder who couldn't wait 2 months (just an example of time saved) to get 100% of the money....

I'd rather have 100% of the CASH in hand right now (i.e. within 7 days) than wait (i.e. 30-60 days) for the financing

Therefore offer a 6% "discount" for CASH buyers

 

[bnmappraisal]

To the OP, it may take a little more digging. What are the motivations of the buyers of both types (CASH vs Financing)

 

[ucbruin]

I guess this builder makes more than 6% interest in 60 days.....

 

[Terrel L. Shields]

I guess this builder makes more than 6% interest in 60 days.....

Nope, but he also has the risk of the deal falling thru and interest rates for builders in short term money may be 10% or so...so the sooner that money is freed up the sooner they get the next project off the ground. Here the small banks do not let small builders start more than one or two houses at a time. They don't want stuck with a half dozen of them if the builder keels over dead or cannot sell and gives the keys back to the banker. You as a banker, never want the situation where the borrower - builder owes so much you cannot foreclose on him and just pray he works it out.

 

[ucbruin]

If that were the case I'd be reluctant to purchase from a builder who couldn't wait 2 months (just an example of time saved) to get 100% of the money....

TS
Probably all true....
But as I posted earlier....

 

[Terrel L. Shields]

TS
Probably all true....
But as I posted earlier....

Timing has a lot to do with the success of an Indian Rain Dance

If the builder has to wait a month to close, and cannot get more money from his line of credit, then he is building several fewer homes annually.

 

[Meandering]

All of the cash sales purchase prices are being sold at a discounted rate of an estimated 6% .

2018-2019 USPAP
Page 16

Standard 1c
iv
if the opinion of value is to be based on non-market financing or financing with unusual
conditions or incentives, the terms of such financing must be clearly identified and the
appraiser’s opinion of their contributions to or negative influence on value must be
developed by analysis of relevant market data;


Purchases with market typical financing are being charged a 6% premium higher than all cash purchases, hence, financed sales have higher sale prices than all cash sales.

Quote from URAR

DEFINITION OF MARKET VALUE:
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buy
er and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.


APPRAISAL INSTITUTE
the appraiser “ascertain whether the value is to be the most probable price: in terms of cash; or in terms of financial arrangements equivalent to cash;

https://www.appraisalinstitute.org/assets/1/7/guide-note-2.pdf



The financing is not equivalent to cash, or comparable to, because the prices are higher when financed.

Therefore a negative adjustment is warranted, for the financed sales, because the market value definition in the appraisal that requires the value as if the property sold in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto.

.