Real Estate

Cash homebuyers threaten to overheat some markets

Nationwide, cash homebuyers receive an average discount of 23%

While it's typical for buyers to score a discount on a home if they pay in cash, in approximately 9% of markets nationwide, cash buyers actually paid a premium, raising questions about the health of those specific markets, according to RealtyTrac’s Q1 2016 Cash Buyers & Institutional Investors Report.

“Markets where we see the opposite, with cash buyers actually paying a premium price per square foot, could be in danger of overheating,” RealtyTrac Senior Vice President Daren Blomquist said. “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.”

Nationwide all-cash buyers purchased single-family homes and condos for a median $91 a square foot in the first quarter of 2016, a discount of 23% below the median $118 per square foot for all home purchases, the report found. 

“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,” Blomquist said.

“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,” Blomquist said.

Among 99 metropolitan areas with at least 1,000 single-family home and condo sales in the first quarter of 2016, these were the top ones that paid a premium:

  • Honolulu: 6.6% premium
  • Seattle: 5.2% premium
  • San Francisco: 4.8% premium
  • Naples, Florida: 3.9% premium
  • San Diego: 2.5% premium

On the other hand, out of those same 99 metropolitan areas, these were the ones with the largest discounts for cash buyers:

  • Baltimore: 58.2% discount
  • Akron, Ohio: 50.2% discount
  • Harrisburg, Pennsylvania: 52% discount
  • Birmingham, Alabama: 49.3% discount
  • Columbia, South Carolina: 48.3% discount

Click to Enlarge

Cash Buyers

(Source: RealtyTrac) 

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