The Problems With Cash Investors in Sacramento

I’ve had investors call to ask if I was an “investor friendly” real estate agent. That seems to be such an odd question. You’ve got to wonder why an investor would ask such a thing. Because a Sacramento real estate agent is happy to list or sell a home for any type of person. It doesn’t matter if the person is a corporation, an owner occupant or a celebrity. We’ll do it because that’s our business. So, if a person is asking if we are “investor friendly,” you wonder what that means. I suspect it means they want something out of the ordinary.

When an investor is deliberately seeking out and talking to a Sacramento real estate agent who primarily handles listing — like this Sacramento real estate agent — it means the cash investors in Sacramento expect priority over other offers, and that’s just not gonna happen. To give an investor priority would mean I was breaking my fiduciary with my primary — my seller — and I won’t do it. It doesn’t mean other agents won’t, though, which is why investors ask. Sorry business this is sometimes.

But there are other problems with offers from cash investors in Sacramento. First, when I am representing the seller, and I see an offer from an investor, I look at the agent who delivered the offer. There are agents who are wholly intimidated by investors and the investors can push them around. Maybe it’s because the investors have more money than the agent or perhaps even more experience. Hard to say. But it’s not like the agent is most likely able to sit down and reason with the investor as an agent might do with an owner occupant. Lots of times the investor calls the shots 100% and is in control.

Second, sometimes the offers are written as all-cash and presented as all-cash offers and they are not. I question whether that’s legal. I don’t think it is. But it doesn’t stop them from doing it. Nobody gives a dang what I think. But a cash offer is an offer in which the seller presents proof of funds and those are the proof of funds the investor intends to use to purchase the property. It’s not supposed to be a smoke screen while the investor trots off and acquires a hard-money loan. A hard money loan is not cash. It doesn’t matter that there is no appraisal, it’s not cash. It doesn’t matter that the hard-money lender has always performed in the past for the investor, it’s not cash. Stop presenting hard money loans as cash offers, you guys. It’s a lie. It’s deceiving.

If you want to present an offer that looks like cash but is not, it is much better to reserve the right to obtain a hard-money loan. Otherwise, present the offer as cash only if you have the cash and intend to use it. This “reserving the right” works very well on short sales. If an investor presents the offer the other way around, as a hard-money loan with the right to pay all-cash, it weakens the offer in the eyes of the short sale bank. So, an investor can write an all-cash offer, present proof of funds for that cash, and then put a line in the offer that says he or she reserves the right to obtain a hard-money loan. Then, you’ve got disclosure, in my opinion. But I’m not a lawyer and this is not legal advice.

The third problem with all-cash offers from investors is sometimes the investors are writing a bunch of offers at one time, although they can only buy one or two properties. I advise my sellers not to get all excited when we receive an offer from cash investors in Sacramento, especially when the buyer’s agent says he will need the full 72-hours to get us an answer back. If he needs 3 days, he could be buying time for the other offers to respond so he can pick among them.

Which brings me to the fourth problem with all-cash offers. The home inspection. Every home inspection will disclose defects. A cash investor will say he or she is buying the home in its “as is” condition, but as soon as the home inspection is delivered, he or she might comb through it and pull out a number of items, assign a dollar figure, and then ask for a price reduction. Because investors don’t care; it’s just a business transaction to them.

You might read this and wonder why anybody would sell to an investor or that I am dead-set against investors, and that’s not true. I work with investors. Just sayin’, beware.