The number of Napa homes purchased with all cash reached almost 40 percent in 2012, the result of high investor interest, a difficult mortgage environment and perceived higher returns on investment, a real estate information service reported.
In 2011, 354 Napa County properties were bought with all cash. In 2012 that number reached 490, San Diego-based DataQuick reported earlier this year. That’s a 38.4 percent increase.
Halfway through 2013, those involved with the local real estate industry report that all-cash offers are still common but aren’t always required to make a successful offer.
Many buyers think “cash is king,” but according to Randy Gularte of Heritage Sotheby’s International Realty, that’s not always the case. He’s seen a slight decrease in all-cash buyers over the past six months, from an estimated 35 percent to about 25 percent.
When dealing with homes priced at around $800,000 and below, “I’m seeing less cash buyers,” Gularte said.
“We’ve swung back to a seller’s market,” explained Gularte. Instead of being forced to sell to get out from under a bad loan or avoid foreclosure, today’s sellers are saying “I want the best price,” Gularte said. With home values on the rise, “they are willing to wait to get the extra money” — all cash or not, he said.
“They aren’t desperate” like during the foreclosure crisis. “Sellers can say, ‘I don’t need to jump at the first deal,’” said Gularte.
“We still have a strong presence of all-cash buyers in the market,” said Giselle Lampe, Realtor associate with Coldwell Banker Brokers of the Valley. About 30 to 40 percent of her buyers are looking to buy with all cash.
However, a seller that is presented with multiple offers can cherry-pick from the offers and what best meets his or her particular needs, whether that is a quick close or perhaps fewer or no contingencies, Lampe said.
“Yes, the seller wants to go with highest offer but also strongest offer and cleanest offer,” she said. That may not always be the all-cash buyer.
The Realtor said the all-cash buyer typically gets the money from a variety of sources, including parents, investments and savings. “Sometimes parents buy the property and transfer title” to the son or daughter, she said.
Lampe noted that even all-cash buyers will sometimes decide to take on some financing after their all-cash offer has been accepted. In that case, the original purchase contract must then be changed and an appraisal required. “It can be done if the seller allows it,” she said.
Rich Blanton, a financial adviser at Wells Fargo Advisors in Napa, said that his advice for a buyer considering paying all cash for a home depends on individual circumstances.
“Borrowing money from family or friends can sometimes change the relationships with those people,” Blanton said. There are also tax and other financial implications when it comes to taking money out of a tax-qualified account like a 401(k) or for those gifting money to the buyer.
Considering today’s low interest rates, Blanton said one question he would ask his clients considering paying all cash for a home is, “Why would you want to have that cash locked away and not be able to take that money and do other things with it?”
Blanton said he would recommend making enough of a down payment, usually 20 percent, to avoid having to pay mortgage insurance premiums against the loan.
Chris Salese, a mortgage banker with Del Sur Mortgage, said some all-cash buyers close on the home and immediately turn around and taken a loan out on the property. There used to be restrictions on how soon you could do a so-called “cash out refinance” on a property purchased with all cash, Salese noted, but those rules changed in 2011.
With home values accelerating again, “people are digging deep to become a homeowner and if it requires that they present themselves as an all-cash buyer, home buyers are doing everything they can to do that,” Salese said.
“It’s clear that a lot of today’s housing market recovery is being fueled by people putting their own money into homes. Some cash buying is part of a normal housing market, but we’re at twice that normal rate,” said John Walsh, DataQuick president.
“There are always some rich people, also buyers from abroad, but in a normal market the biggest single category would be retirees and empty-nesters who are downsizing. Today, a lot of buyers are chasing what they view as the deal of a lifetime,” Walsh said.
Cash purchases accounted for a record 32.4 percent of California’s overall home sales last year, up from 30.4 percent in 2011 and more than double the annual average of 15.6 percent since 1991, when DataQuick’s cash statistics begin.