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Institutional Investors, All-Cash Buyers Enjoy Larger Average Discounts

Institutional Investors [1]All-cash buyers and institutional investors were able to purchase residential homes at a larger discount rate from the average market value at the time of purchase than the average rate for all U.S. homebuyers in the third quarter, according to RealtyTrac [2]'s U.S. Institutional Investors & Cash Sales Report [3] for Q3 2014.

RealtyTrac reported that the average price paid for homes by institutional investors, which are defined as entities that purchase at least 10 properties in a year, was at $159,389 in Q3 – a discount of 15 percent from the average market value at purchase of $187,637. Cash buyers enjoyed nearly a 10 percent discount in Q3, with an average purchase price of $227,905 paid for a home, according to RealtyTrac. The average market value at the time of purchase for cash buyers was $252,640 in Q3.

Both discounts for institutional investors and all-cash buyers were well below the average rate for all buyers, according to RealtyTrac. All buyers paid an average price of $278,040 for a home in Q3, a discount of only 4.3 percent from the average market value at purchase price of $290,531.

All-cash home sales in the third quarter represented a large share of distressed sales, making up 54.6 percent of transactions involving homes currently bank-owned or in the process of foreclosure.

Overall, all-cash sales accounted for 33.9 percent of single-family and condo sales in Q3, a decline from 36.9 percent in Q2 and unchanged from the same period a year ago. RealtyTrac reported that cash sales were concentrated at the lowest and highest extremes of the housing market, accounting for 64 percent of home purchases made under $100,000 and 41 percent of purchases made above $2 million.

The share of single-family and condo sales made to institutional investors dropped to a four-year low of 4.3 percent in Q3, down from 5.0 percent in Q2 and 5.3 percent in Q3 2013, according to RealtyTrac.