patrick.net

tatupu70 says

I don’t understand your point here. To the seller, there is no more paperwork for a cash buyer or financed buyer. There is, however, risk that the deal will fall through–appraisal doesn’t make, loan is denied, etc. That’s why they take the cash.

I'm using the term paperwork a bit loosely here. Consider that an all cash buyer merely needs to show up with a check and/or some easily acquired proof-of-funds, and the seller just needs to cash the check (once it is written) order to close escrow. Contrast this process with the financed buyer's process. Even if the FB shows up with a pre-approval, the mortgage still needs to *actually* be written, which is not instantaneous and is far more involved than cutting a check. Sure, in some cases the financed deal may be straightforward, and nearly as easy as a all-cash transaction.

tatupu70 says

To me the answer is obvious–there is a non-zero risk that the deal will fall through. In a declining market, a deal that falls through has a definite cost.

This is part of what I meant by 'paperwork'. As you indicate, most banks will likely choose the path of least resistance (all-cash), with the highest probability of clearing quickly. Part of this is because there is ALWAYS a chance that a financing-dependent purchase may fall through due to the financing. And I would suggest that this chance of dumping is probably MUCH higher than the chances of an all-cash deal falling through.

terriDeaner says

And I would suggest that this chance of dumping is probably MUCH higher than the chances of an all-cash deal falling through.

Agreed. That's why I don't think it's a valueless transaction. The investor is assuming the risk for the bank.

tatupu70 says

So, the bank is transferring that risk to the “flipper” (I think that is a misuse of the term–investor is probably better). The investor is taking the risk and is therefore entitled to the potential reward (or loss).

Flippers are more like middlemen than investors. Sure, they are taking on risk, but in the end that risk is not the same in our current gamed market as it would be in a stable, supply-demand equilibrium 'freeish'-market. The government guarantees that with every low-interest loan it backs, and every other trick currently in place to keep inflated prices propped up.

If you don't believe me (and I suspect you won't), consider how much flipping activity has declined since the days of foolishly easy credit (sub-prime, alt-a, pick-a-pay, etc). Flipper risk during this period, up until the end, was ACTUALLY pretty low since increasingly crooked financial policy virtually guaranteed price inflation for an extended period of time. They were operating more like real estate brokers/agents who had to slap a coat of paint and redecorate a property between sales. The ones that didn't make money during the boom, or got caught with their pants down at the end of the fuckfest (and I do mean fuckfest) were probably shortsighted, stupid, or greedy or some combination of the three.

Sure, credit is tighter now and flipper activity is lower, but plenty of idiots can still get low-downpayment, high principle FHA loans, for example. Think about how demand for highly-priced flipped homes would deteriorate if these idiots couldn't get financing. And think about how this translates into ACTUAL investment risk on the part of the flipper.

tatupu70 says

Agreed. That’s why I don’t think it’s a valueless transaction. The investor is assuming the risk for the bank.

I have some more thoughts on this but I'll have to come back to it later...

bubblesitter says

terriDeaner says

klarek says

Essentially, this is a system which is introducing an unneeded middle-man. A person that’s able to pony up the front money, and take it right back (plus some) from the original buyers. What sort of efficiency is there in a system like that? More transactions, more realtor commissions, more tax and title fees?

EXACTLY.

+1. When credit system in deep trouble cash can be used to generate more cash.

That's my issue with it. Great, take advantage of the system, but at the cost to whom? Other buyers. The fact is that these investor flippers can buy with lower bids says how very wrong the system is.

tatupu70 says

The investor is assuming the risk for the bank.

If they bought it at $80k under "market value", excluding defects, what are the chances they're inheriting any real risks?

klarek says

That’s my issue with it. Great, take advantage of the system, but at the cost to whom? Other buyers. The fact is that these investor flippers can buy with lower bids says how very wrong the system is.
tatupu70 says
The investor is assuming the risk for the bank.
If they bought it at $80k under “market value”, excluding defects, what are the chances they’re inheriting any real risks?

Essentially you are saying that the banks are stupid and don't properly understand the risk of these loans not closing. Judging by their past performance, it's hard to argue with you.

It's not the systems fault though--it's just the seller's fault. The seller is leaving money on the table. Robert is right... Finally, if you are crying because you can't get a below market deal--shut up and save the money yourself! There is nothing stopping you from putting in an all cash offer...

tatupu70 says

It’s not the systems fault though–it’s just the seller’s fault. The seller is leaving money on the table. Robert is right… Finally, if you are crying because you can’t get a below market deal–shut up and save the money yourself! There is nothing stopping you from putting in an all cash offer…

Don't disagree at all. If one is to whine that it isn't "fair", they're not wrong, but the answer is of course to come to the table with more money. Just pointing out that the way this kind of system repeats itself, it sort of compounds this problem to where the only people who are compounding their available capital are the flippers.

I'm just looking at it as an economic inefficiency and why flippers don't deserve any sympathy.

klarek says

I’m just looking at it as an economic inefficiency and why flippers don’t deserve any sympathy

I agree too--I would definitely not have any sympathy for flippers...