Diane Hymer, in her most recent article, New Rules May Be Cutting Home Values, notes the sinking effect all cash offers can have on home prices. Now that the word on the HVCC disaster is out, sellers prefer all cash offers over offers with financing contingencies, even if the cash price offered is as much as $50,000 less than the offer with bank financing. That’s what fear can do to this marketplace.
Of course this is a is a self-perpetuating sinkhole of real estate value, as the accepted cash offers set the new comps that will be used on the next home sale.
Why the sinkhole? Normally, (under simple Econ 101 principles), the price a buyer is willing to pay sets the fair market value of real estate. However, under the new all cash scenario, the price a reading, willing and able buyer is willing to pay is ignored, and an artificially low “all cash” price is embraced. That in turn affects the next attempted sale at fair market price.
Yes, there will be bumps along the way as our market sorts itself out, but there are real victims here, and some of them may end up in short sales or foreclosures through no fault of their own.
Tags: all cash, Diane Hymer, fair market value, financing contingency, price
