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Priced out? Ordinary buyers squeezed by cash investors

Posted by Scott Van Voorhis December 13, 2012 07:08 AM

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"Jane" as we will call her here has a big problem, one she never expected to have in our still recovering real estate market. Both professionals, she and her husband have the income to buy a house - and even spend more than half a million - but are finding themselves getting outbid by cash investors.

Jane and her husband are looking for a place in the Somerville/Medford area, clearly a hot market, but have found the $400,000 to $450,000 range blanketed by cash toting real estate speculators. The couple is now looking at more expensive homes in the half million range and up in hopes of seeing less competition from investors, but so far that hasn't worked every well either.

After reading my post on how Somerville and Cambridge have become sellers' markets, Jane had this to say.

"If you can tell, I am a little sore about losing the house this past weekend," Jane writes. "Seems ridiculous that two working professionals with the ability to buy a 1/2 a million dollar home can't because people are paying cash for a 1/2 a million dollar home. We can't compete."

Will cash investors, who have helped bring back the real estate market, end up killing it for ordinary buyers? It is certainly an increasingly serious question with everyone from hedge funds to mom and pop operators snapping up homes and condos while the buying is still good.

Here's the email I found from Jane in my inbox yesterday.

I agree with it being a seller's market in Somerville. My husband and I have been looking for a multi-family home in Somerville-Medford since May. We have seen all of the houses in our price range which was 400-450. We put offers on 7 houses in that range. Each house, we went to an open house on a Saturday or Sunday, the offer letters were usually due by Monday night and usually we would find out within 24 hours if we got the house. Most of the houses we were #2 in the running and always lost to a cash investor. Because cash is king. Even if our offer was 100K above the cash investors offer, they still would win out. There were 2 houses which we didn't lose to a cash investor, but the selling agent, a Prudential agent created a bidding war between us and one of his own buyers. He was using our counter offers to raise the offer price of a buyer he had. Since we have a buying agent, he would have had to split his commission.

We thought we might have escaped the cash investors as now we are looking in a higher price range. Under 550K. We looked at a house on Saurday, put the offer in Sunday by noon, and found out on Monday we lost to a cash investor. Granted there were only 5 offers, where the other houses had up to 22 offers we were competing with.

If you can tell, I am a little sore about losing the house this past weekend. Seems ridiculous that two working professionals with the ability to buy a 1/2 a million dollar home can't because people are paying cash for a 1/2 a million dollar home. We can't compete.

There have been less offers now that the weather is turning, but also less houses. We are hoping to get lucky on someone trying to sell in the dead of winter.


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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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