Almost 27 percent of San Diego County home sales were in cash in the third quarter – its highest level in seven years.
Attom Data Solutions said purchases of cash, instead of loans, were up from 15.4% in the same period last year.
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Sellers generally prefer cash buyers because it secures money for the home quickly, while mortgages can be delayed – or fail – for a variety of reasons.
San Diego has already seen an increase in cash offers, Attom said records dating back to 2000. The real estate data provider said 36.2% of homes were purchased with cash in the first quarter of 2013, as the region moved out. of the Great Recession. At the time, many loan programs were still on hold due to the real estate crash, making cash sales more necessary.
The difference now is that potential buyers face increased competition for a limited number of homes for sale and are trying to make the best possible deal, said Raylene Brundage, a Windermere agent who sells in several North County communities.
“If it’s not contingent on a loan, there are fewer issues that can go wrong,” she said.
Brundage said sellers often opt for cash sales over other types of loans designed for first-time buyers and the military. These types of loans require appraisals and inspections, which helps stop a transaction. Cash sales not only mean that money is rushing into bank accounts, but the inspections, which are necessary for loans, are often waived. A mortgage deal can take a month or more.
Brundage said she worked with two millennial couples this year who borrowed money from relatives so they could make cash offers. Both were successful in securing homes.
The majority of cash sales come from typical buyers, not investors. Attom said 7.9% of third-quarter sales came from institutional investors.
Realtors say buyers are feeling the pressure to find money because most homes get multiple offers and they need to stand out. There were about 4,100 homes for sale at the end of the third quarter, the Redfin Data Center said. This was down from 5,300 in 2020, 7,900 in 2019 and 9,300 in 2018.
The median price of homes continued to rise with the competition. The median price hit $ 750,000 in November, a record high and an increase of 15.4% in one year.
A cash sale typically involves a buyer showing proof of funds first (required in almost all types of sales) and then transferring funds from one bank account – or multiple bank accounts, especially if the family help – to a seller. It’s not uncommon for a buyer to show up with a briefcase full of cash, but can raise money laundering concerns with federal investigators. Likewise, selling a house in bitcoin or other cryptocurrency is considered a cash sale and will likely come under increased scrutiny.
The US Treasury announced in early December that it wanted new regulations for all cash sales – regardless of how funds get to the seller – to reduce money laundering.
“Increased transparency in the real estate industry will reduce the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains in the US real estate market,” said Himamauli Das, acting director of the Treasury Financial Crimes Enforcement Network . in a press release.
Cash sales can come from buyers who get loans from their families, as well as from institutions that have cash reserves to make a purchase easily. Without these options, first-time buyers, serving members and veterans could be at a disadvantage.
FHA loans (for first time buyers) require a minimum of 3.5% down payment and VA loans, guaranteed by the US Department of Veterans Affairs, generally do not require a down payment. It can be used by veterans and serving members of the service. The VA says about 90% of its loans are made without a down payment.
With both types of loan, buyers must obtain an appraisal of the property from a lender. If a bank, or the person giving the loan, appraises the property at a lower price, it means that a deal could fail. That doesn’t happen a lot these days, Brundage says. However, that might still be on the minds of sellers who would like to go for a cash sale to play it safe.
Buyers who use a 30-year fixed rate mortgage and have put down 20% less have more options to make their offer attractive. In addition to less stringent assessments, they can rule out the unexpected – while FHA and VA loans require termite removal and other inspections. Yet even large loans for luxury properties, called jumbo mortgages, are often not as attractive to sellers as cash.
Another advantage of a cash sale is that you don’t need a credit check, said Mark Goldman, real estate analyst at C2 Financial Corp. It may seem like a minor factor, he said, but sellers have access to potential credit reports. buyers and may feel less excited about a transaction if they have a low score.
“Cash sales just take a lot of guesswork out of the seller,” he said.
This is not always a guarantee that the sellers will take the cash. Brundage said she had an active duty buyer, using a VA loan, to secure a single family home in Escondido a few years ago over other offers because the seller wanted to support the military. Jan Ryan, a Ramona-based RE / MAX agent, said she recommends her sellers avoid cash offers because those buyers tend to be more picky about repairs and are less keen on the idea. to live there as a first buyer.
San Diego County’s 7.9 percent third-quarter sales for institutional advisors were lower than most countries.
In Atlanta and Phoenix, investors account for 19.5% of sales; In Charlotte, 19.3%; In Jacksonville, Florida, 19.1%; and Tucson, 18.4 percent. Parts of the South and Midwest are attracting interest from institutional investors. In Madison, Wisc., Investors accounted for 2.3% of sales.
Goldman said many institutional investors could pull out of the market because many have overpaid for their homes. Zillow’s home buying program, Zillow Offers, was suspended in November as the company wrote off losses of more than half a billion dollars on the value of its remaining homes, the Wall Street Journal said. .
“They’re cleaning their clocks a bit,” Goldman said. “A lot of these guys, like Zillow, were paying too much for properties.”