Cash vs. Loan from Bank's Perspective
February 21, 2011 4:51 PM   Subscribe

I'm looking at some foreclosed homes in the front-range area of Colorado. There is no shortage of "bank owned" homes in this area, and I happen to have a pretty good chunk of cash and I want to buy a home "outright" with cash, no loan. I was wondering if I could low-ball the asking price of the house, and what would be a reasonable, realistic amount to offer.

I'm basically curious to know if a bank would generally prefer a cash sale, and how much off the asking price would it be fair or "worth it" in their eyes.
posted by rougy to Home & Garden (10 answers total) 2 users marked this as a favorite
 
The owners of the property (the banks) don't care how you come up with the money, whether it be cash or through a mortgage. They see cash on their end either way, so if you go belly-up on the mortgage, they don't care.
posted by geoff. at 5:09 PM on February 21, 2011


I'm basically curious to know if a bank would generally prefer a cash sale

I don't think so. The bank makes its money on the interest. And most won't even negotiate lower prices in bad markets because accepting your low-ball offer makes the losses on their books real.
posted by Civil_Disobedient at 5:19 PM on February 21, 2011


On the other hand, if you have no loan requiring approval, you may be able to accelerate the process, thus getting them their cash earlier, which could matter to them, especially if the home is sitting vacant.
posted by dersins at 5:21 PM on February 21, 2011


Yes, in a competitive bidding situation, banks will prefer cash because that is one less reason the deal will fall through, and one less set of delays. You can likely lowball it.
posted by salvia at 5:39 PM on February 21, 2011 [1 favorite]


Definitely low-ball the asking price. A friend in Virginia low-balled a foreclosed property and the bank accepted 20% less then the asking price.
posted by meta87 at 6:11 PM on February 21, 2011 [1 favorite]


I have bought and sold real estate for much of my life. I am buying big time right now - bought 5 duplexs in 2010. They were all fore-closures. We tried low balling the banks. It didn't work. In my experience, the bank does not really care about the fore-closed home. It is a line in the ledger book, not an actual house.

Trying to get them to take a low ball offer requires someone at the bank to actually think about the property. That someone is likely to be one of the bank's lawyers. They have better things to do, and like I said, they do not care.

The bank has thousands of these homes on their books. They are not interested in actually dealing with any of them. They hired a realtor who will move them, and if he can't do it they will hire someone else. That realtor set the price, and the bank will go down 10% maybe 15% - but, at least in my dealings, no more than that.

I wanted one quadraplex, but it was over-priced. The bank rejected my offer. Months later it was still on the market. Now it had the AC stolen, cooper stolen out the electrical panel, windows were busted in, and druggies were hanging out inside. I wrote a new offer to the bank - the realtor almost refused to submit the offer, until I threatened to report him to the state Realtors board (they are required by law to present all offers). I gave the bank comps, documented the new damage, explained that I was a contractor and still interested because I could do the repairs. The bank still refused - they still want the original price, even with the new damage. It is still on the market. The house is owned by JPM Chase, they just do not care about that piece of property.

I am in Florida, where there are tons of foreclosures selling dirt cheap. But I think my experience may be the same all over. Why would JPM Chase care any more for a house in Colorado versus a house in Florida?
posted by Flood at 6:15 PM on February 21, 2011 [4 favorites]


Thank you, all.

Meta87, that's kind of what I was thinking. Offer 75% and see if I could get them to settle around 80% of asking price.

I know it will vary from house to house and bank to bank, but the houses that I'm looking at are vacant and have been vacant for quite some time.
posted by rougy at 6:18 PM on February 21, 2011


Flood,

That was a wealth of information you just shared with me. Thank you.
posted by rougy at 6:20 PM on February 21, 2011


I'm in Florida and bought my current home as a short sale in 2009 for 60% of the asking price. The bank took 6 months to finally approve and then wanted to close in 21 days. They didn't care if we were cash paying or not. I say that it doesn't hurt to low ball, the worst that happens is that they ignore your bid. We talked to a title processor who gave us some insight on what banks were generally accepting at that time.
posted by PorcineWithMe at 7:19 PM on February 21, 2011 [1 favorite]


I live in the region (Fort Collins) and know a couple of folks who have purchased recently. One family was bargain-hunting at the low-medium end of the market, and they couldn't seem to put offers down fast enough - somebody else always got there first. They did eventually close on a place, but took a lot of looking. I hear that further up the market things are a bit slower.

Also, it will depend somewhat on your exact location. Fort Collins and Boulder are college towns driven pretty substantially by the rental market; the market will behave differently in other towns that have less investment potential.

Finally, a little food for thought: mortgage rates are at historic lows. It may be to your advantage to finance even though you can afford to pay cash, because that money might earn more for you invested elsewhere than it would save you to not have a mortgage. Maybe there's a sweet spot with low mortgage payments that leaves a portion of your cash available for other investments?
posted by richyoung at 9:48 PM on February 21, 2011 [1 favorite]


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