After seeing an article about how cash buyers have made a strong showing in residential real estate transactions I started wondering how many of them got appraisals on their purchases. Most of the time people think the only reason to get an appraisal is so you can borrow money from the bank. This is only part of the story though. The other reason is that you want to make sure that the property you are buying is truly worth what you are paying, and that it is a good investment. You may be paying less because of the market we are currently in, but you still need to make sure that it is worth what you are paying. You want to increase the chances that if you had to sell later that you could get your money back.
In the Birmingham, Alabama market cash sales made up about 10-13% of total sales from 2001-2007. Residential sales peaked in volume around November of 2006 when 1485 homes sold, according to the Alabama Center For Real Estate. Sales then started taking a nose dive. Right after that, the percentage of cash sales increased dramatically to around 17% in 2007-2008 and has steadily climbed to around 32% between November 2010-2011. This is very close to the national average of 38% for the nation as reported by Housing IntelligencePro. A lot of these are probably investors, but I am sure there are a good number of owner occupants as well. Banks will tell you they are still lending but the numbers contradict this. What I do not want to happen is for people to forgo the appraisal just because they are using their own money.
I will give you a real world example. Several weeks ago I got a call from an older lady who was interested in buying a home with inheritance money. She was looking at down sizing into a smaller garden home, but did not want to take out a mortgage. This was an older lady who was in her retirement years, and for whom every dollar she had counted. Her idea was that she wanted to be sure she was paying the right price because if she was paying more then it would take away from money she could be saving and/or investing since she was no longer working. It turned out that the home was over priced. She used the appraisal to make a counter offer to the sellers and they accepted it. This situation turned out well, however in the past I have seen the seller refuse the offer. In the short term this may be an inconvenience to the buyer but by looking long term it can help you make smart money decisions and make good investments. Are you considering a cash sale? Let me know if I can help answer any questions you may have.
If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.
Tom, you’re so right. And, as you saw in the article, we are seeing more purchasers using cash than any other means. You saved one of our cash buyers that Gwen McKenzie was helping. Her house appraised for $20,000 less than contract price. Thankfully, she hired you to assess the situation; even though she was paying cash. Thanks, Tom!
The cash purchase phenomenon is surprising but it makes sense. I know most people might not think of getting an appraisal if they are paying cash but it is a smart move. Like any other investment you make, you want to make sure it’s worth what you are paying for it. Thanks for your comments, and the referrals you send, you’re awesome!
Good point, Tom. There are out-of-town buyers in my area that tend to overpay at times too because they are coming from a market where prices are much higher. So it’s not a big deal to overpay by a bit because it seems like such a good deal.
I can see where that would be problem if they are use to higher prices. An appraisal is a small price to pay to assure the buyer they have made a good investment.
Good point, Tom, and one I suspect many people buying properties with cash don’t think about…
David, thanks for reading my blog. I hope by bringing this to peoples attention it will help them make better investment decisions.