THE EFFECTS OF CASH ON CHANGES IN HOME PRICE: A STUDY OF CASH OFFERS ON RESIDENTIAL REAL ESTATE IN JUPITER FLORIDA

Real estate transactions are fraught with risks and costs. Transaction delay and failure are risks directly linked to loan approval. Real estate sellers tend to prefer the proceeds from the sale of their home with immediacy and surety rather than with a delay but waiting for loan approval causes such a delay. Using an ordinary least squares regression analysis, I assess whether home sellers are willing to concede discounts to buyers who offer to pay cash, to avoid the risks of transaction failure and delay of payment. I claim that, in contrast to a loan, a cash offer reduces the risk of a failed transaction, and this reduced risk is reflected as a discount on the price of the house greater than any discounts for loan-based transactions. This paper will also assess the magnitude of any discounts as a percentage of the home’s last list price on the market.