So I am considering buying a house for cash to rehab. I have the cash needed to buy a house in my local area and I have heard that currently many sellers will take lower cash offers on their properties. I know that a certain percentage (probably around 2%) is saved by eliminating the lenders fees, appraisal fee, lender title policy, etc… But what I want to know is what percentage below the highest offer will sellers go if you come in with all cash and the other offers are fha or conventional loans? By the way I’m looking to buy, fix, and sell in a relatively short period of time (3 to 8 months).
Hi,
First although it may be and probable is all clear please use title or escrow at closing and pay your buyers closing cost's. Seller generally pays title insurance so take advantage and don't leave a huge potential liability open to you!
Second tell me you were writing and created a typo of 3 to 8 months? I hope you mean’t 3 to 8 weeks as although your paying “All Cash” you ruin your cash on cash returns not moving as quickly as possible! And you know your cash is worth something every month?
You can potentially get 3 to 5 percent more of a discount paying cash; over and above a financing offer with contingencies! You can also offer to move to close in 7 to 10 days!
GR
If the properties you are considering will really require 3 - 8 months of rehab (mine usually take around 6 months or so) it means they are in such bad shape that most buyers will not even consider them and many banks will not mortgage them. This means there is much less competition from other buyers and you should be able to negotiate prices much lower than what might be considered “normal”.
If you are not embarrassed because the the first offer you float was so low, your offer was too high.
md_forest
I expect to get a 10% reduction for all cash, not off of list price, but off what a financed buyer would pay.
However, it depends upon the seller and it depends upon the property, the asking price, and how long its been on the market.
I have even paid over the asking price for a very under-priced property and then I was the one who bought it, even though there were 5 full price offers withing 24 hours, because I was the one with no financing or sale-of-property contingencies on my offer.
Offer a bit lower than you expect them to accept and expect to negotiate up a bit before you agree on a price.
Also, amateur homeowners tend to look at the dollar amount of the reduction, not the percentage. It’s harder for them to drop $20,000 from the price of a $200k home than it is to drop $500 from the price of a $5k home.
Thanks for all of the answers guys. I am pretty new at this so I didn’t know how long the total rehab process would take so hopefully that will be shorter. The 3 to 8 months includes time on the market when I sell it after it’s fixed up. I will also make sure to use escrow and use title insurance. My intention is to do this as safely as possible.
All you need to do is negotiate. It depends on the seller’s motive to sell. For some of them cash deal is great ( and less people will do that ) if they need cash urgently or need to invest in something, however, for some of them it may not sound good because of inflation , means the value of money become lower. A friend of mine bought a triplex from a motivated seller ( cash) at about 15% lower ( that’s a considerable amount ), that’s it .
It really does depend on the area and how many offers typically come into like properties nearby.
The biggest advantage I have found is working the selling agent, I’ll throw things out there first like, “You can represent me as the buyer also, get a double commission” , or “I’m thinking of offering 40k on this property, you think I’m in the ballpark?”, “oh, ok, maybe 45k ?”
The biggest advantage I have found with buying with cash is no carrying costs other than Property taxes, utilities, etc. This allows you to do the rehab at your pace, make less mistakes and therefore costing you less. I’ve brought investors in and they want you to work on it non stop until it’s finished.
If you really want to save, as a cash buyer you owe it to yourself to loon into the REO market. It’s quite common for banks for accept all-cash offers that are significantly lower than offers made by buyers that will rely upon mortgage financing. The reason is that an all-cash offer is a sure thing.
rzillowman;
Not in my area! I’ve made around 20 all cash no contingency offers over the past 2 years for REOs at about 30% - 40% less than the current offering price (because that, in my opinion, was what they were worth) and not a single offer was accepted. I followed several of the properties I was most interested in and watched as the new investors struggled to rehab and sell for ANY profit.
In my area at least, the banks are not negotiating.
jmd_forest
Let the seller know, in no uncertain terms:
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The real estate bubble burst a few years back and we are witnessing one of the worst economic down turns involving real estate in our lifetimes.
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Preach to the seller just how difficult it will be to tie-up your cash and how much extra time and effort it will take to make a “small profit” on his property in these troubled times.
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Let the seller know that you are doing him a favor by taking his property off his hands. “Create an urgency”! (As we need to remind these sellers, that they are “motivated sellers” and as such, they need to consider your offer as a fair and sound offer. AND ACCEPT IT! LOL!).
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Remember the olde, “…I can close with all cash quickly” thing. You can add to this: seller pay all closing costs, an extra 2% discount if we can close fast, or some other benefit to you (the buyer!).
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As long as the seller is willing to talk with you, keep working on him, until he says, yes to your demands (or he says get lost!).
Always try to work with “motivated sellers”. Be their gurus, their knights in shining armour, solve their problems, and you’ll get those deals done! (one can hope! LOL!)
RD