The banks are hurting themselves and hindering market recovery

As most buyer's agents know, the bank selling a home in foreclosure will often take a cash offer that is less than an offer which contains a financing contingency. That may make sense, and may seem harmless enough, but let's look at it in more detail.

By taking a cash offer, you can see how a lot of the peripheral businesses involved in real estate are also hurt:

1. There is no new loan, so no bank or loan officer is able to generate new business
2. There is no title insurance policy on the buyer's side, so one of the key support businesses in the housing industry is not generating as much revenue
3. An appraisal is no longer necessary, so appraisers are not getting new business
4. No termite clearance is required, so the termite companies have less work
5. By taking a lower price, the home is not sold at true market value and will continue to influence future valuations in the neighborhood.

This last point can be really significant. For example, a bank owned home last month in Encinitas was listed at $500,000 and the bank sold it for $480,000 to a cash buyer even though there were two offers at $560,000. Why? Because it was a cash offer, and it came in a day or two before the others and they had already made up their mind. I'm convinced in many cases if a bank would keep a home on the market for two weeks before accepting an offer, we could see at least a 3% increase in the average sales price.

Instead, by continuing to price new listings significantly below market price, and not taking the highest offers on the table, the banks are forcing market prices down more than it should from supply and demand alone. Which really is just hurting themselves because the majority of sales involve a bank either through an REO or a short sale.