Coming with Cash to a Real Estate Transaction
Cash is king. Right?
I think everyone can agree that a person carrying a fistful of cash is probably going to have an edge over someone who has to get a loan. It’s a “bird in the hand” sort of thing. We assume that sellers will likely favor the cash buyer with not only first dibs but with discounts as well.
In the world of real estate, that should seem doubly true. But is it? Do sellers appreciate the cash buyer so much that they are willing to offer a steep discount? One thing I can tell you from experience is that the buyer sure seems to think so.
But let’s take a look at this from the seller’s perspective. What does a cash buyer offer over other buyers? First, they are a better bet. There is less chance of falling out of escrow over appraisal discrepancies. And closing is faster since the buyer does not have to wait for the lender to do its due diligence. So, time and risk level are on the side of the cash buyer. That’s something. But is it enough to warrant taking a lot less money for the property?
We decided to take a random sampling in our market to answer that question with numbers instead of conjecture.
Our sampling includes the Island of Hawaii, fee simple, residential properties that fell in the price range of $200,000-700,000 in 2015.
Here’s what we found:
Cash buyers have a slight edge over borrowers; meaning that sellers are, in fact willing to make concessions to the cash buyer in exchange for the “sure thing.”
But not much.
On average, sellers on the Big Island, get 97% of their asking price from buyers who are borrowing money. By comparison, they generally accept 95.8% of asking when a cash buyer comes knocking. If you are talking about a $450,000 home, it would mean that a cash buyer would receive a $5400 discount over the borrower. While not insignificant, it’s not exactly the huge discount that cash buyers seem to think they will get.
So, the moral of the story is that if you are lucky enough to have cash to buy property, you are right to think you are in a good position to negotiate a better price. But as we’ve shown, it’s not going to be an astronomically better price. Think reasonable.