San Diego Housing Bubble News and Analysis

Does anyone know what difference a cash offer makes to the escrow process? Does it speed it up?

Why would a bank approval be necessary with a cash offer?

For a short sale, I don't know. It's new to me. But I'll find out.

I don't know if your buddy should be bragging about his deal here.. he saved a whole 10% off peak prices just a year and a half into the (probably largest RE) crash in a place you call 4closure ranch. Surely this trend is just starting.

I don't know if your buddy should be bragging about his deal here.. he saved a whole 10% off peak prices just a year and a half into the (probably largest RE) crash in a place you call 4closure ranch. Surely this trend is just starting.

He's wasn't bragging about the deal. He "needs" a home for his family, doesn't want to rent for $2500/month, and isn't cash strapped with a mortgage. He merely asked me for my opinion (of which I told him the hemmorage is just starting). He was more surprised about these screwed sellers would let things get out of hand like this. Like I said, he's probably going to back out of the deal because (1) he wants a home soon (2) doesn't want to wait for the bank approval process for a short sale (they are telling him it will be weeks) (3) doesn't think 4sranch is a good area in hindsight. I think he has his eyes on Carmel Valley now.

He "needs" a home for his family, doesn't want to rent for $2500/month

Um, $920,000 earning 8% at a 40% tax bracket leaves $44,000 after taxes.

Rent at $2500/month only requires $30,000.

A 6% mortgage on $920K after taxes runs about $5000/month when property tax and mellow roos are include.

If he need a home, there's a slew of them to rent.

"Apparently he said it wasn't that hard to negotiate with these folks in 4closure ranch"

This is because, in a short sale situation, the seller just want to walk away from the property. Effectively, it's the lender that's deciding whether to accept the offer.

Currently, most sellers in 4S (who are not in financial trouble) are still in denial about the value of their properties. This is not surprising. The builders know this and are using this fact to undercut the resellers by offering lower prices.

debs

Of course it was not difficult to negotiate...The bank will probadly fall all over themselves to approve this one. Yikes!

The builders know this and are using this fact to undercut the resellers by offering lower prices.

Actually, the builders are using it to get much higher prices for their smaller build out.

A home that is 15-20% below resales looks like a deal. When resales come down 15% to match, the builder will move another 15% down.

Rinse, repeat.

I am surprised that anyone reading the articles on this site would consider buying now or anytime soon. I realize that I am handicapped being a CPA so I place most emphasis on the financial side of the transaction. However, it is pretty obvious that the housing market in San Diego is going down for the forseeable future so your investment is/will be shrinking. Unless you can afford a six figure loss or can wait 10 or more years, you are taking a huge risk with your financial future if you have to sell when the market is down. In the 1990's the San Diego market went down steadily for 7 years and we have a much bigger bubble this time.

My second point is that if you are considering rent vs. buy consider the entire amount you are paying out in a purchase situation. First, your house interest payment is $500 a month per $100,000 of principal at 6%. Most people will wind up paying more interest; 7% is almost $600 per month. After this you have property taxes, insurance, HOA fees, maintenance, etc. Consequently, a $500,000 home will cost you at least $3,000 a month. There is a tax deduction for the interest and taxes, but for most people this is less than 20% of what you pay out. For those of you buying larger houses there is the AMT (alternative minimum tax)to worry about if Congress "forgets" to approve their annual correction. So if you are optimistic use $500 a month per $100,000 for the after tax REAL cost of any purchase (regardless of how you finance it) when comparing rent vs. buy. Consequently a $920,000 home will have a REAL cost of at least $4,600 a month and you take the risk of a reduction in the home's value because it isn't going up anytime soon.

$1.05M may not be accurate because of the scandalous "cash-back" deals which are happening quite often. Sometimes the seller gives back tons of cash as part of the agreement after the sale closes. I've seen it for up to 9% of the closing price (a home lists as being sold for $700k but the seller gave back $60k so actually it sold for $640k). Just because the records say that place closed for $1.05M doesn't mean it actually did. I wouldn't be surprised if they actually got it for around $900k. Please tell your friend to ask to see the previous sales contract before he buys based on the assumption he's getting a deal by comparison.

$2500 a month rent or 920k purchase is so far out of whack I can't even criticize it for fear of violating the persons with disablities act. Using those numbers a 460k house would rent for $1250 and a 300k condo would rent for $800. If 300k condos rented for $800, nobody would buy them, I don't mean less people I mean not a single one.

If someone wants to throw down almost a mil for what they can rent for 2500, have at it and could the bartender please me whatever that person is drinking.

Critter -

Yes a cash deal is always faster because there is no financing involved. Buyer does not need to have a loan application, no underwriting, no loan approval... etc.... no loan contingency best of all.

In a short sale the lender has final approval no matter what sort of financing or cash the buyer is using because the lender is eating the difference between the loan amount and the sale price.

SD Realtor

He Could have done much better in 6 months to a year later....

SD Realtor,

"Yes a cash deal is always faster because there is no financing involved"

In a typical (i.e. non-short sale) situation, when a buyer makes an all cash offer, what kind of discount (i.e. under the market value) can he expect (since an all-cash offer is a very strong offer) ?

The lender holds all the cards... I forgot the posters name that commented on a thread last week who worked in the loss mitigation group for a loan servicing organization. He was really helpful.

My guess is as follows. First off it depends on how far down the seller is in the hole. If the home is already NOD status and a date has been set for the trustee sale, the lender would probably not negotiate much and simply follow through with the foreclosure unless the short sale amount was significantly more then the opening bid.

I think that the psychology of these darn lenders still needs to get battered some more. The fact that we are seeing short sales on the market for months and months indicates these lenders are still out in space. So all things being equal a cash offer will be much more attractive to a lender then a financed offer. However I don't think I can answer your question which is, "What sort of premium is my cash offer worth?" 5% better then a financed offer? 10% better? Not sure...I gave up trying to figure out these lenders long ago...

SD Realtor

SD Realtor,

If you have a client who wants to buy a resale house (whose owner is NOT in any financial trouble). Your client wants to make an all cash offer. What sort of premium is that all-cash offer worth ?

you can't rent squat for $800/month..not even here in Temecula.

up here where things are "cheaper"... a 900 sq ft apartment will run you $1400-1500/month.

It cannot hurt to try for at least 5% less then you would offer if you were going for conventional financing. If the seller is not in trouble, and is not that motivated then there is not much you can do about it.

The true reality of the situation would be to put yourself in the sellers shoes. Say you are selling a home for 500k and one offer comes in at 485k (20% down) and another at 460k all cash. What would you do if you were in no rush, but you had already been on the market for 75 days or so? The 20% down guy had a 700 score, and a steady job... You see what I am saying? It would be hard to pass up that 25k for the all cash offer. Basically both buyers have the same contingency period duration. Yes the all cash offer doesn't have a loan contingency and will most likely waive the appraisal but still... Now the more shaky the financing gets the more likely you are to get the seller to bite... However I am sure you know all of this.

The motivation of the seller really has alot to do with it. So maybe start with an assumption that the all cash offer can be discounted by a few % and try it, (it never hurts to try) and if they don't take it, raise the offer a bit or walk and hit them up a couple weeks later.

So I guess the main point is that yes having all cash is great and helps you out. However the desperation factor of the seller carries much more weight at least in this market because financing is still notoriously easy to get... Now if interest rates are a few points higher... that is another story. Credit is still way to easy for cash to command a great discount. Let's see if that holds in a few years.

SD Realtor