Data Cancer Due to Waivers

[J Grant]

We accept as a fact the talking point that the bubble from the last RE cycle was driven by the easy-financing and liar loans; and we accept that much of the slowdown from mid-year 2022 was the direct effect of the increase in interest rates. So yes, how these properties are underwritten and financed is of effect on the payments, which in turn is of effect on the pricing.

The question we're discussing here is whether or not the waiver program is adding to the pricing trends. Beyond what the cash buyers and appraisal-backed mortgages have been adding.

As long as they refuse to release the information in a format that is as easy to search as any other statistic, nobody can know and it will remain speculation, which suits them, since if they chose , FF could easily publish a weekly or monthly list of sold properties that got a WAIVER with the corresponding property addresses.

 

[Airstream]

Will appraisal waivers juice the market? Do cash sales juice the market? I remember a sale of a waterfront property that was a juiced cash sale. I never used it as a comparable sale because it was an outlier. Did it affect other market sales? No. The reason is there were enough other sales that informed buyers knew better. I have worked in a market where I would say 80% of the sales have been cash sales. No appraisals needed. It is a high-end waterfront market. Lots of wealthy paying cash. Did those sales “juice” the market? What I found is that they didn’t. I found that sales were pretty consistent. There were a few outlier sales. But they didn’t seem to jack everything else up. As to the podcast I would say that is interesting how after one sale other sales started going up. But what other factors in the market were apparent? We aren’t given that information. We aren’t given information as to the amount of supply for example or whether there was an increase in demand because of external market factors. Correlation, doesn’t necessarily mean causation.

 

[alebrewer]

Did those sales “juice” the market? What I found is that they didn’t.

Intuitively it would seem that cash sales should be somewhat lower than financed sales as the buyer isn't 'leveraging' OPM in the transactions...

Did a quick run of like sales in one of the more homogeneous neighborhoods around me. Surprisingly - the cash sales are a tad higher:

• Parameters: 1100-1800' GLA; built in 2020+; 0.3 acres and smaller; sold within the past 12 months
  • Cash Sales (17 observations) - medians: $280k; 50 DOM; $197/foot
  • Conv/FHA/VA sales (41 observations) - medians: $267k; 49 DOM; $196/foot

Based on that, it appears I should be making positive adjustments to bring financed properties to 'cash equivalency'...

 

[Airstream]

Intuitively it would seem that cash sales should be somewhat lower than financed sales as the buyer isn't 'leveraging' OPM in the transactions...

Did a quick run of like sales in one of the more homogeneous neighborhoods around me. Surprisingly - the cash sales are a tad higher:

• Parameters: 1100-1800' GLA; built in 2020+; 0.3 acres and smaller; sold within the past 12 months
  • Cash Sales (17 observations) - medians: $280k; 50 DOM; $197/foot
  • Conv/FHA/VA sales (41 observations) - medians: $267k; 49 DOM; $196/foot

Based on that, it appears I should be making positive adjustments to bring financed properties to 'cash equivalency'...

Interesting!!! I suppose that would depend upon the market and how loose people are with their money (the feeling of being rich.

 

[GWISC]

Interesting!!! I suppose that would depend upon the market and how loose people are with their money (the feeling of being rich.

I think it is more that cash buyers can outbid loan-backed buyers. Also, cash buyers may not always be the highest bidders, but because cash is king, the closing typically can be sooner. I know of a few instances where the cash sale was slightly lower than the highest bid. Cash closes quicker and usually without any bumps on the way to closing.

 

[alebrewer]

Another hypothesis is that, theoretically, cash buyers could be overpaying if there is no appraisal. Not sure how well that hypothesis would hold up in light of the accusation of anchor bias, though.

 

[Non Sequitur]

Another hypothesis is that, theoretically, cash buyers could be overpaying if there is no appraisal. Not sure how well that hypothesis would hold up in light of the accusation of anchor bias, though.

And I'll add another hypothesis, and something a close friend did. Many of those "cash" buyers are really financing through a loan from their retirement account. Put that together with the FOMO of the past few years and many current cash buyers aren't like cash buyers we're used to seeing. In the past a typical cash buyer used their position to leverage better pricing or terms, now many cash buyers are using that position for a quick close, waive inspections, etc. as opposed to negotiating a lower price.

 

[Surf Cat]

But the cash sales are labeled as such in the MLS.... as are probate sales, trust sales, standard sales.... the waiver transaction..... is a mystery. I'm assuming it's labeled as a standard sale in the MLS... but I don't know, no one does! And that's the problem.