Controversy Over All-Cash Home Offers

Posted by: Chris Palmeri on July 6, 2009

Perusing some of the reader forums at the online real estate brokerage site Redfin.com I came across an interesting debate. Many investors are snapping up bank-owned homes with all-cash offers. Banks like all-cash offers because they are less risky than waiting for a buyer who needs a loan. The loan may not be approved. Or in the case of Federal Housing Administration (FHA) loans, the property may need repairs before the buyer can qualify.

In a string titled “All Cash offers can go to hell!!!” a reader named Westfoe had this to say:

“I’ve been looking for a house for the past 3 months. I’m approved Fha with 20% down. Almost every house that we think is about to go thru or that we are the highest bidder, there some cash only a-hole that snakes it from us!!! Am I the only one???

How about the Family’s that actually want to live at the house not rent it out for profit?”

Are investors who have the resources to pay cash being fair to families that just want to buy their own home? Is selling to investors in the best interest of the community? The term ‘pride of ownership’ gets used a lot in real estate circles. It means home owners take much better care of properties than tenants.

Elsewhere in the same string a reader argues that investors are playing a key role in getting us out of this crisis. They are getting problem assets off of bank balance sheets—freeing the banks up to make more loans. Demand from investors is also driving up home prices—critical to a recovery.

What do you think?

Reader Comments

Fazal Majid

July 6, 2009 6:57 PM

It's a free (buyers') market, and I have little sympathy for those who can't handle the heat. There is one set of circumstances that could change my mind, however, if banks are leaking offers from the likes of Westfoe to potential investors, sparing them the expensive and time-consuming chore of finding bargain-priced houses that are not wrecks.

It's very unlikely, since the last couple of years have amply demonstrated to investors that banks lie through their teeth and any claims they make have to be taken with extreme prejudice.

Chris Ainsley

July 6, 2009 7:06 PM

I totally agree that speculating on bricks and mortar is immoral and there should be controls on how many homes an individual can own (I would say maximum of 2).

But, I think you are forgetting that a lot of the cash-only buyers are not investors at all. They are savers like myself who recognized the bubble years and saved throughout the years rather speculate as so many did. Saving is short-term pain, long-term gain.

I am planning to buy a house shortly. I have rented for the last 15 years and saved every penny I could so that I could avoid a mortgage.

I could have rented better places but I was focused on saving as much as I could and had faith that one day the bubble would burst.

Heff Tellington

July 6, 2009 8:49 PM

I can understand the frustration. I had the exact opposite situation in 2002-2007.

I tried to purchase homes in cash from 2002-2007. It was nearly impossible. By winter of 2007, an agent didn't care or need to know how much money i qualified for, just as long as I had the cash for the house.

jkimball

July 6, 2009 8:55 PM

And what about all the rich/broke idiots who drove prices up to the stratosphere to begin with? Why was that OK but buying cash today is not?

I watched houses in the neighbourhood we like soar from 150's to 500's in basically three years. By the time we had raised our 35,000 in cash for a 20% downpayment on 150K, we had no chance. And people were buying them at 500k and tearing them down to build gigantic 950,000 houses!

Where was the outrage then?

We've been locked out for years, are sitting on over 120k right now and can't *wait* to pay cash! Finally!

vm

July 6, 2009 10:24 PM

Article says a commenter said: "I’ve been looking for a house for the past 3 months. I’m approved Fha with 20% down. Almost every house that we think is about to go thru or that we are the highest bidder, there some cash only a-hole that snakes it from us!!! Am I the only one???

20% down with an FHA loan? Doesn't that defeat the main purpose of getting the FHA loan when all that is required is 3.5%?

James Y.

July 6, 2009 11:23 PM

in the same sense...i have no remorse whatsoever for the millions of fat, obese and overeating Americans who have diabetes and suffer heart attacks. i plan on living for a long time, therefore, my whole life i have watched what i eat, exercise daily and do not drink or smoke or do illegal drugs. All of this disciplined work and suffering over the years so that i can avoid diabetes, cancer and heart disease. i could have eaten big macs and whoppers the past 15 years but i chose not because one day i knew it would all catch up to me.

Courtney

July 7, 2009 12:18 AM

Yes, I would be interested to know how many of these cash buyers are investors and how many were simply smart with their money.

My sister just bought her first home with cash. She has been saving for the last few years and recognized that now is the time to buy - and that tight credit markets gave cash additional leverage. Many buyers may have been sitting on their cash until the markets made home ownership attainable, and are just now coming out of the woodwork with cash in hand.

Randy

July 7, 2009 2:14 AM

If you have the money, and you aren't any risk to the bank, then why shouldn't you get the house.

How is speculation when you are buying homes to rent out to make money any worse than buying stocks to make money?

How rediculous to think an individual should only own two homes!!! Where in the constitution does it state "2 homes only"....

Gene D.

July 7, 2009 3:38 AM

An investor wouldn't pay cash for a house, that would be foolish. They would buy a rental for as little down as possible and use leverage to buy more houses.

The folks who are paying cash are those who either saved their money or are bankrolled by their parents.

In a few instances, they are contractors and flippers, but they're doing the community a favor by buying trashed houses and fixing them up and re-selling them to families.

Westfoe is just a silly whiner.

If he's using a Redfin agent, he can't buy a house because he's using an inexperienced and unmotivated agent who gets paid whether he gets a house or not. Go with a commission-based sales agent and I bet you'll see some results.

lou

July 7, 2009 8:52 AM

FREE MARKET

Kevin P.

July 7, 2009 11:55 AM

"speculating on bricks and mortar is immoral and there should be controls on how many homes an individual can own (I would say maximum of 2)."

If this was put into practice, you would never have been able to find a place to rent the last 15 years.

This totally ignores the other discussion as to why "speculating" is immoral, or how you define speculating vs. investing.

vanessa clark

July 7, 2009 2:14 PM

Yes. There are some "savers" out there...but for the most part cash offers especially on the real estate deals out there right now are from investors. They are stealing the "deals" away from the first time home buyer who is looking to get a great deal on a starter home. Hey but at least somone is buying them to stimulate the economy. There has never been a better time to invest in real estate than right now Real Estate Courses

Chris Greco

July 7, 2009 2:24 PM

You're kidding right? You don't really believe this....

"I totally agree that speculating on bricks and mortar is immoral and there should be controls on how many homes an individual can own (I would say maximum of 2)."

Apartment buildings, seasonal, vacation, condotels, timeshares, motor homes how about just plain old land.

I'm not sure anyone should have more than two kids, three cars and clearly we need a limit on family pets.

Guess I come from another time and place... my only hope is that some US State succeeds from the union and I can go hide there for my remaining time. BTW I'll be happy to pay my own health insurance along the way.

Becky

July 13, 2009 8:17 PM

Yes, many of us have heard too many times "the much lower cash offer from the investor got the home". We're also told at a high rate that it is a foreign investor. Our tax dollars are at work provided investors with cheap investments.

Kelly

July 23, 2009 5:55 PM

The sharks are praying on the fish as has been the case since the beginning of time. The trick is to be a shark.. Or be eaten. To fix this situation. Every person who bids on a property should bid 90 k less than asking price. drive the market down, let the sharks eat , and when the coast is clear. jump on the carcass.

misty

August 31, 2009 9:20 PM


ok..well i'm the opposite of all of you, i'm trying to sell my house and I received 2 offers one is a cash offer, the other is a loan offer..now what I need to know is how long does it take a loan offer to get paid..as the loan offer is more then the cash offer and i'm in no hurry to sell..what to do?

Judy

November 19, 2009 4:19 PM

I had the same problem...20% down conventional...offering $40,000.00 over asking and still losing out to a cash offer less than what I offered. I want it for my primary residence in Southern California. On short sales you don't hear for months if your offer was accepted or not then months later it it a ''no''. On one property, a repo I was told that it looked like I had the house, then I was told no a cash offer had it..then I got another call to give my best and final....I upped the bid $20,000.00...told mine was the best office...then weeks later I was advised I lost out to a last minute cash offer....there were 25 offers on this property. I stopped looking.....

Ashley Parker

November 24, 2009 2:03 PM

My husband and I have been having a the same problem. We want to start our family and have made 10 offers on homes in Los Angeles that all were stolen from us by all cash offers. We did everything right. We have saved 20% down and are approved for a FHA Loan and we have excellent credit. One house we offered 20,000 dollars over asking, but to no avail! It is frustrating. America is supposed to be about giving people opportunities, but all I am seeing is opportunity being given to corporations. We just want a little old house to call our own, somewhere to raise our family and have a small slice of the "American Dream". It seems impossible for us. It is a fundamental flaw in the system when young families have no chance of home ownership.

Nathan F.

January 1, 2010 1:52 PM

I'm in the same boat. My wife and I are newlyweds have been looking at houses for the past few months. So far, every house that we have loved has been snatched up by all cash offers at the last minute. We feel like giving up at this point and staying in our apartment indefinitely.

Joe Davis

March 10, 2010 11:12 AM

I have bid on 9 houses in Las Vegas in 10 months and lost 5 of the 9 to cash investors (at least i know for sure 5 were lost to cash). I have good credit, I have my down payment and closing costs ($35-40K) and on the last house (last week) the house had not had an offer since December. I went back and forth with counter offers until I was a full $35k above the list and just when i though i finally had this one, I'm told that another offer came in. I wanted to call their bluff but did not want to risk losing it so I raised my offer to $35k above list and I pay closing. Five hours after the counter offer i was told I lost the house and later that day I found out they took a cash offer for $10k above list. THIS IS CRAZY! My realtor had a Russian investor purchase 4 homes last month cash. The month before and Arabian investnent group bought 7 houses cash. There needs to a policy that says if your a bank that took federal bail out money that your foreclosed homes need to be offered to conventional and FHA buyers for 30 to 60 days before cash investors. These investors dont live here, dont want to live here, and the people who really want the houses are getting screwed left and right.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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