Home Buying in Detroit>Question Details

Chris, Home Buyer in Royal Oak, MI

Dp, your answer doesn't compute. Please explain.

Asked by Chris, Royal Oak, MI Fri Feb 27, 2009

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3
I think DP did a nice job on this.
I have a few clients I would deem as "hardcore" investors.
They are able to routinely underbid others but pay less than other offers. WHY?

Well, cash buyers offer a bank many advantages:

1) They can close tomorrow, not the 30-40 days you may need to obtain the loan. That's 30-40 days of potential off market time a bank can't recoup if your deal doesn't pan out.
2) They don't have appraisal issues...as they don't need one. Banks don't want to have to revise offers if they can avoid it.
3) They don't do an inspection. Banks prefer someone that knows the home needs a ton of work and won't cancel the deal if they find minor issues.
4) Cash always qualifies. Many homes aren't in condition to be FHA insured. Some may qualify for a 203 rehab FHA loan, but very few lenders are able to do this style of loan in today's market.
1 vote Thank Flag Link Sun Mar 1, 2009
Chris,

I think the wording of your Buyer's Agency question simply confused some resonders.

BTW, You can respond to your own question rather than submitted more. Some members will not see the new ones, but receive emails to new answers for those they answer.
1 vote Thank Flag Link Sat Feb 28, 2009
No problem.

First, I'll warn you in advanced that that I'm an investor, so my perspective(s) will differ from a lot of what you've already heard--especially from many of the agents.

Second, you'll need to understand the following portion of Brittany Simone's answer: "To answer your question-no the seller may not always take the highest offer for reasons listed below. A clean offer (no contingencies) closing sooner than everyone else could be the difference even if the price is lower." Some sellers are investors who are in the business of purchasing ugly homes, rehabbing them into market-ready ones, and flipping them to other buyers. Some investors finance their properties with "hard money" (loans for rehabs made near--or sometimes above--credit card interest rates); many of these investors figure out to the penny how much it will cost to hold onto a house until it sells. Many flippers look to be in and out of a property within 30-90 days. Naturally, the sooner they sell, the more profit they'll earn on each deal. FHA inspectors are notoriously picky, and some investors have gotten burned in the past trying to get their properties to pass a FHA inspection--only for the buyer to not close on the property for one reason or another.

Third, you need to understand that every offer--whether you're a normal retail buyer or an investor--consists of 2 parts: 1) the price, and 2) the terms. Some sellers want as much cash as they can get; others want a steady source of payments--and prefer to offer seller financing because they'll get a higher return on their money than if they were to take the cash proceeds and deposit it into a savings account or invest it in stocks. You never know . . . the seller might be trying to sell multiple properties, and that buyer might have agreed to purchase several properties from the seller with a volume discount.

I hope this explanation helps you to see that there's a lot more to making and accepting offers than you might have realized earlier.
1 vote Thank Flag Link Fri Feb 27, 2009
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