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All-Cash Homebuyers Paid 23 Percent Less in Q1: Report

The latest RealtyTrac report shows all-cash homebuyers for single family homes and condos paid on average 23 percent less per square foot than all homebuyers nationwide. The Q1 2016 U.S. Cash & Institutional Investor Housing Market Report also reveals that nine percent of cash buyers in local housing markets paid a premium price per square foot.

“While large institutional investors and other cash buyers continue to shrink as a share of U.S. home sales, these buyers still typically beat out traditional buyers using financing — in some cases even when they submit a lower offer for a home,” said Daren Blomquist, senior vice president at RealtyTrac. “Additionally cash buyers are often willing to take on properties in poor condition that may not readily qualify for standard financing, another reason why cash purchases normally sell at a lower price per square foot.”

According to the RealtyTrac report, all-cash homebuyers who purchased single family homes and condos paid $91 a square foot nationwide — 23 percent below the $118 per square foot median for all home purchases.

“Markets where we see the opposite — with cash buyers actually paying a premium price per square foot — could be in danger of overheating,” said Blomquist. “In most markets, cash buyers act as an anchor for home values, but in these exceptions to the rule, cash buyers are acting as an oversized sail, catching more wind and pushing home price appreciation to a potentially precarious pace.”

Markets With Cash Buyer Discounts

According to the report, the market areas — at least 1,000 single family home and condo sales in the first quarter of 2016 — with the biggest cash buyer discounts included: Baltimore, Maryland (58.2 percent); Harrisburg, Pennsylvania (52.0 percent); Akron, Ohio (50.2 percent); Birmingham, Alabama (49.3 percent); and Columbia, South Carolina (48.3 percent).

“With low available home inventories across Ohio, we are seeing investors and retail home purchasers leveraging cash purchases to minimize price negotiations when making purchase offers in order to eliminate the potential of being forced into bidding wars in multiple offer situations,” said Michael Mahon, president at HER Realtors, which covers Cincinnati, Dayton and Columbus markets in Ohio.

“This, coupled with some agents and brokerages placing artificial restrictions on access to properties available for showing by utilizing such market concepts as ‘coming soon’ means the markets are becoming artificially manipulated, and buyers utilizing financing often have to pay greater than list price to secure a home purchase.”

Other markets to make the top 10 included: Knoxville, Tennessee (48.2 percent); Cleveland, Ohio (47.4 percent); Salisbury, Maryland (45.7 percent); Augusta, Georgia (44.9 percent); and Memphis, Tennessee (43.7 percent). Surprisingly, Florida did not make the list of top markets with cash buyer discounts.

“Due to a loosening of credit with more loan options, low interest rates, along with an increase in first home buyers, the share of cash sales dropped 10 percent in each of our three South Florida counties year over year,” said Mike Pappas, president and CEO at The Keyes Company.

“Even though the investor market has also diminished, cash investors are able to secure a 20 percent discount in purchase price over a traditional buyer in Broward County and a 15 percent discount in Palm Beach County, while the cash buyer discount in Miami-Dade County is at five percent.”

While cash buyers enjoyed a discount in some areas, in others they paid a premium. Among the 99 metro areas analyzed by RealtyTrac during the first quarter, all-cash homebuyers in nine of those markets paid a premium price per square foot. Markets with a premium included: Honolulu (6.6 percent); Seattle (5.2 percent); San Francisco (4.8 percent); Naples, Florida (3.9 percent); and San Diego (2.5 percent).

Further markets where a premium was paid for all-cash buyers included: San Jose, California (2.2 percent); Los Angeles (2.2 percent); Cape Coral-Fort Myers, Florida (1.5 percent); and Oxnard-Thousand Oaks-Ventura, California (0.2 percent).

Nine percent of markets where all-cash buyers paid a premium is up from five percent the previous year, according to the report.