In 1837, Hans Christian Andersen had a little story published titled ” The Emperor’s New Clothes”. It was one of many tales that Anderson crafted for the delight of children. His skill was in penning a story for young and old alike. Rather than recreate the wheel, I thought his story provided the framework for one of the current trends in real estate transactions.
Follow closely now boys and girls, I will attempt to connect the dots from here to there and back again. I double checked some reference points using the on-line encyclopedia www.britannica.com and the always reliable dictionary site http://m-w.com/ .
Cash is KING !
An emperor by any name is a king. Right now, most markets are proclaiming that cash is KING. Investors are swooping in and taking advantage of close to bottom prices and buying up inventory across the country. In some areas, this is seen as a good thing because the investors are not leveraging purchases. They are putting up cold hard cash and winning multiple offer battles. The typical home buyer is saddled with financial contingencies, inspection contingencies, appraisal contingencies and less of their own money in the deal. When investors offer all cash, they are putting the most valuable skin in the game since Jesus of Nazareth’s briss.
In a rush to compete, agents representing buyers are suggesting that they find a way to pay all cash as well. In many cases, buyers are being told to offer all cash…no contingencies. It is almost as if there is something in the water coolers that erase all the memories of a few years ago. In some markets, behavior that has been proven STUPID, has reared its ugly head. (note…there was a post when I mentioned that the winnowing down of the number of agents in any market did not guarantee that the wisest would survive. Transactions are like acorns and even a blind squirrel can stumble across an acorn.)
OK….the Emperor is King, Cash is King…………….the Emperor has no clothes…The King is NAKED!
Failure to exercise caution and good judgement is akin to inviting the grim reaper to your housewarming party. Investors are not playing on the same field and they certainly are not facing the same challenges. Oh, did I mention, they do not have the same goal as the average home buyer. There re-entry into the market is a wonderful sign. But, it only indicates that they see a value in real estate. At the end of the day, each of those investors goes home and crawls beneath the covers in their own home. They are not home buyers… the are asset purchasers.
They may proclaim that Cash is King. Seller’s eyes may glaze over when presented with an all cash offer. REO sales may fall at the feet of the cash cow. It may seem like we have to go back to the “to hell with common sense” style of purchasing.
I DON’T THINK SO…I DON’T BELIEVE SO
THE KING IS NAKED
Strip away the illusion. Peel back the layers of subterfuge. Remove the rose-colored glasses and see what an all cash, non-contingent offer really represents. If you are the buyer, you are walking into the room with a wheel barrow full of cash asking the seller to please take your money and let you have the house. In most cases, if your pile of money is sufficient, you will get the house. Title will pass and it will be your property.
It may never become your home.
Failure to do a home inspection will have put you in the position of purchasing a home that may not be structurally sound. There are so many things that can be wrong with the structure that are not evident to the unpracticed eye, I can not believe anyone would forgo a rudimentary home inspection by a licensed inspector before committing to purchase a home. Failure to require and pay for an appraisal is mind-boggling. It is absolutely ludicrous to buy a home without knowing the market value of the purchase. There are many contingencies available to a buyer. To exercise none of them is just plain silly. To advise a client not to exercise them should be criminal.
A word of caution to home buyers. Don’t get caught up in the feeling that you are competing with investors. You are seeking a home. It is not a black and white world. There are ways to craft an offer that will be accepted. There are protections that should be used to safeguard your resources.
I learned long ago, housing is shelter and there is very little shelter when you are “buck nekid”. If you are in the market and would like advice how you can avoid the pitfalls of becoming a follower of the Naked King, give me a call or drop me a line. I may be old-fashioned, but every client I have represented woke up this morning in the last house I helped them buy. Cash may be King….Wisdom is priceless. My name is John MacArthur and my partner Lourdes Tudela and I welcome anyone to contact us … The MacArthur Group…Experience the Difference!