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For Santa Clarita Real Estate, Is Cash Not King Anymore?

Cash talks, loans walk…right?

In today’s real estate market, cash is supposed to be king.  It’s what allows investors to snatch up great real estate properties better than anyone else.  In most cases, they can buy the real estate “as-is”, close escrow quickly, and rehab the property far quicker than most buyers with a conventional or FHA loan.

For the past three years, these cash buyers have clearly had an advantage when compared to similar buyers bidding for the same properties.

REOs

Bank owned real estate typically loves dealing with cash buyers.  The deals are less complicated, and the buyers will accept the property in its “as-is” state.  A huge advantage that cash buyers and investors enjoy in purchasing REOs is that they can submit low-ball offers (far under what the loan buyers or primary home buyers would offer for the same property) and the banks would often accept the all-cash offer over any loan.  Accepting a loan offer means that there is added risk to the bank in having the buyer not secure financing and/or having the property not appraise for more than the purchase price.  In most cases, banks prefer cash transactions that guarantee closings.

This is starting to change…

Auctions

This is the one place where the cash buyer or investor has much stiffer competition.  At an auction, one is required to have a cashier’s check or provide all-cash within 24 hours of winning a purchase.  So everyone here has cash.  And there used to be more than enough deals for everyone to share.

This too is starting to change…

I have been working closely with a flipper in the Santa Clarita Valley for the past few months.  This investor likes to buy REO homes with cash.  Then he rehabs them, and sells them at retail on the market.  Lately, our system is not working like it once did.

The main culprit is actually the banks.  You see, now that the real estate market has firmed up a bit and there is very low inventory for sale, the banks are starting to place their REOs at higher list prices onto the market.  These prices are much closer to comparable standard sale properties (even if they need a bunch of work).  Because of supply and demand, the banks are artificially raising prices (and their profits on each sale).  This is sort of how I imagined this market behaving in a previous blog: Conspiracy Theory Causing the Housing Shortage?

On the auction side, close to 65% of all homes that come up for bid are cancelled or returned to the bank.  Two things are happening with this: 1) the decent properties are being bought by the bank to place on the retail market because they will make more money in the real estate market than at an auction, and 2) the steep discounts that cash investors used to get are withering away.

We are finding the real estate market start to firm up in most areas of the Santa Clarita Valley.  The market might not provide as large an advantage for the cash buyer or investor as it once did, but an improved real estate market is better for everyone in the long run.

Are you a home buyer or investor in today’s real estate market?  Are you experiencing any of these issues? Please feel free to comment about it below.

If we can be of any assistance to you in buying or selling your home throughout the Santa Clarita Valley, please contact us.