Flushing out the Flakey Cash Home Buyer

money talks“They say money talks.  All mine ever says is goodbye.”Red Skelton

My father-in-law is an excellent negotiator.  He expects a deal wherever goods and services are exchanged.  This includes Best Buy, although I’m told they don’t negotiate prices.  From his Ford Expedition to the tux I wore at my wedding he will always ask for, and usually get an excellent deal.

Many of the cash buyers entering the Phoenix real estate market remind me of my father-in-law:  skillful, tough and flush with cash from years of careful saving and planning.  I actually enjoy negotiating with these buyers.  I appreciate their financial prowess.  So-called industry experts label these all-cash buyers as speculators.  They warn of more bubbles bursting and market implosions.  The reality is these are sophisticated investors that recognize two things:

  1. Real estate is a hedge against inflation, which could be imminent because of the government’s involvement in the banking industry.
  2. The cash-on-cash return from rental income earned on a median priced single-family residence exceeds the stock market.

But not all cash home buyers are created equal.  Just this week I received two cash offers from out-of-state investors.  Even though both offer prices were very reasonable and their agents were pros, early on my hunch was that these buyers were not very serious or sophisticated.  How?  Both asked for a 30-day closing.  This could mean that they don’t have the cash on hand or they really aren’t sure about the home and need plenty of time to back out.

So how do you find out if they are for real?  Counter, counter, counter.  In this case we countered the purchase price ($2,000 more), closing date (from 30 days to 16) and current proof of funds (printed from an online source with today’s date.)  If the buyer really wants the home they will pay a little more, close a little early and will have access to online banking.  If they don’t they’ll take the time to get it.

However, in this case neither buyer was serious.  One agent sent me the counter back rejected and the other called to say “no deal.”  At least we didn’t have to wait 30 days to find out.

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3 Comments

Filed under Homeownership, Investing

3 responses to “Flushing out the Flakey Cash Home Buyer

  1. I am a hard-money lender that caters to the real estate investor trade and small business loans in the Dallas/Ft.Worth, Texas area.

    I have investors get a “subject to” loan pre-approval from me and then they bring me an executed ‘all cash” purchase contract. I have coached them that it is “NOT” an all cash offer because they are actually obtaining a loan from me to purchase the property and the loan is subject to inspections, title work, survey, appraisal and underwriting of the property.

    When will they ever learn????

  2. freerealestateeducation

    Ray,

    Here’s how the dictionary defines cash – money or an equivalent, as a check, paid at the time of making a purchase. It doesn’t get much clearer than that. Maybe we need to include this definition in the purchase contract to avoid confusion.

    Thanks for the comment!

    Marty

  3. I agree with Ray. Cash is cash. I have worked with investors who pay cash and the proof is what is shown on their bank statement at the time of submitting the contract offer. We look at closing as early as possible. Unfortunately too often, it’s the banks that do not make a decision in a timely fashion for foreclosures or shortsales!!!

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