The Real Deal Miami

SoFla cash sales down, bulk buyers flee in first quarter: report

Fewer distressed properties could be reason for decline

April 28, 2016 01:30PM
By Sean Stewart-Muniz

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Downtown Miami (Credit: Marc Averette)

Downtown Miami (Credit: Marc Averette)

As South Florida’s residential real estate market starts to downshift, a new report shows cash sales and bulk home purchases are beginning to thin out.

Cash deals, in which a buyer closes without using financing, were down to 53.9 percent of all sales in the first quarter, according a report from real estate analytics company RealtyTrac.

Though that ratio has only fallen by about 0.9 percentage points from the end of 2015, it’s dropped 6.6 percentage points year-over-year.

As recent reports have shown, South Florida’s shrinking supply of distressed properties plays a large part in this downward trend of cash deals. Foreclosures and short sales are typically among the most common properties for purchases without financing.

“While large institutional investors and other cash buyers continue to shrink as a share of U.S. home sales, these buyers still typically beat out traditional buyers using financing — in some cases even when they submit a lower offer for a home,” Daren Blomquist, senior vice president at RealtyTrac, wrote in the report. “Additionally, cash buyers are often willing to take on properties in poor condition that may not readily qualify for standard financing, another reason why cash purchases normally sell at a lower price per square foot.

South Florida is also seemingly being drained of its bulk buyers, defined by RealtyTrac as investors who pick up 10 or more residential properties at a time, whether they be single-family homes or condos.

Those types of buyers have never had a large market share in South Florida, even in hot years like 2015 when roughly 4 percent of the first quarter’s home sales were bulk purchases. The first quarter of 2016, however, saw only a bulk purchase market share of 2.5 percent.

Market-wide, bulk purchases came with a 19 percent price discount in South Florida during the first quarter, the report showed.

However, in certain neighborhoods like Surfside and North Beach, sellers in bulk condo deals have seen buyouts at much larger prices than what’s considered fair market value. Blomquist said in the report that those types of premium-priced deals can lead to an overheating of a neighborhood’s property values.

Nationwide, a similar shift in the market is underway. The country’s share of bulk purchases fell for the 11th consecutive quarter in the first portion of 2016, down from 3.4 percent to 2.6 percent.