Why do auto dealerships balk at cash transactions, but real estate companies prefer them?
In: Economics
Modern car dealerships (minus the crazy post-COVID markups) don’t make a lot of money off the cars. The internet has given consumers the upper hand in comparing prices and as a result, the margins became narrow. So instead, they make much of their money by financing the car in-house. So basically they’re half dealership, half car-loan colonies. As a result, they don’t stand to make as much money if you buy the car in cash.
A real estate company doesn’t do that. A completely separate company writes the mortgage for the house if there is one. The real estate company has nothing to gain from the loan. What they do have to gain from is a quick and smooth escrow process. If you have a cash buyer, that’s much more likely to happen. If someone buying a house needs to get approved for a loan or the sale is conditional on the buyer selling their old house, these are all complications that could delay or jeopardize the sale. Escrow on a house usually lasts a month or more so if it falls through at the last minute, you’ve wasted weeks. So a cash buyer removes some of that jeopardy
Cars are terrible collateral so banks generally don’t want to deal with them.
Car dealerships often partner with finance providers who capitalise on this disparity by offering high interest loans by quoting only the repayment price.
If you buy a car on a loan, you can expect to pay at least twice the price unless you’re paying it all off in less than 2 years.
Real estate is the complete opposite, banks generally love real estate, and will happily provide “competitive” interest rates on a mortgage.
The real estate agent would much rather deal with direct money as they have no interest in facilitating the loan for the buyer, which would just add risk and delay to the transaction for them.
So I was at this Plano auto dealer and it came down to finance and my nephew had bad credit rating. So I said. I will pay cash. The guy got pissed and then the manager came and told me to get the fuck out of there. Brutal. Told me never to come back. What ever happened to the customer is always right. We got a good / infact better deal at Audi of Plano. With no insults. But it was a learning experience to someone who has worked in auto finance . Take away. Auto dealers and the devil comparison- The devil is an angel.
In essence, real estate agencies don’t make money on what you borrow. The car dealer does. A car dealer will make more money with a loan, where a realtor prefers cash because there’s no risk of the deal falling through
May I ask what country?
Real estate don’t care actually, they only care about not having conditions on your purchase like satisfactory financing. If you don’t have such a condition, real estate don’t give a shit
It’s normal last few years for real estate in certain high(er) demand markers where sellers want offers without conditions such as financing, in those circumstances, they really don’t care at all if you have the cash or whatever.
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