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Real Estate Markets That Overpay for Home Cash Purchases

Posted by Staff Reporter on May 02, 2016 09:54 AM EDT
Miami Real Estate Continues Streak Of Monthly Sales And Price Increases more big
Construction cranes dot the skyline as work is done to build the $1.05 billion Brickell CityCentre complex on October 25, 2013 in Miami, Florida. The 5.4-million-square-foot mixed-use development will be an open-air design with high-end retail shops, a department store, a number of restaurants, a hotel, condos and office space. As the economic recovery takes hold in Miami there is a boom of construction near the Brickell CityCentre project there are eight residential buildings under construction. (Photo : Getty Images/Joe Raedle)

Typically, when paying in cash, a buyer would get a discount, some even as much as 23 percent on the price of a home. This is not the case so in 2016 according to data collated by RealtyTrac, as reported on MarketWatch.com.

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This was confirmed by Realty Trac Vice President Daren Blomquist, who said, "It is so competitive in these markets that cash buyers have to up the ante."

The prices start in these red hot markets at $1 million, where buyers bid against one another resulting in higher prices.

Blomquist added, "It's worrisome - to me that is a sign that these markets are getting caught up in the frenzy that may not be based on reality. Things are getting frothy in some of these markets."

The premiums paid per area are staggering. Buyers pay an additional 6.6 percent for properties in the Honolulu area while 5.2 percent is the average ante up for cash buyers in the Seattle, WA area. For San Francisco, a known hot spot, cash purchasers add on 5.2 percent to get the property.

In other markets, such as Naples, FL, the premium is at 3.9 percent while the San Diego area is at 2.5 percent. In San Jose, it's at 2.2 percent while the Los Angeles area is at 2.2 percent.

In another report from Yahoo Finance, the premiums paid do not mean buyers are being ripped off. This may mean that properties being sold would be worth more in the future. Another reason may be that lenders are cautious with purchase prices especially for homeowners with a mortgage.

Blomquist added that in the markets identified, the share of investors vis-à-vis buyers are down, as confirmed by Realty Trac data. Furthermore, San Francisco and Honolulu have become less affordable for residents in the area historically.

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