Nearly 27% of San Diego County home sales were in cash in the third quarter, the highest in seven years.
Attom Data Solutions said cash purchases, 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 quickly secures cash for the home, while mortgages can be delayed – or fail – for a variety of reasons.
San Diego has already seen an increase in cash offers, said Attom 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 exited of the Great Recession. At the time, many loan programs were still on hold due to the housing crash, making cash sales more necessary. The last highest level for cash sales was in the third quarter of 2014, at 27.2%.
The difference now is that potential buyers face increased competition for a limited number of homes for sale and try to make the best deal possible, said Raylene Brundage, a Windermere agent who sells in several North County communities.
“If it’s not contingent on a loan, there’s less chance of it going 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, allowing a transaction to be stopped. Cash sales not only mean that money flows quickly into bank accounts, but inspections, which are required on loans, are often waived. A deal with a mortgage can take a month or more.
Brundage said he worked this year with two millennial couples who borrowed money from their parents so they could make cash offers. Both managed to get houses.
The majority of cash sales come from typical buyers, not investors. Attom said 7.9% of sales in the third quarter came from institutional investors.
Estate agents say buyers are feeling the pressure to come up with money because most homes get multiple offers and they have to stand out. There were about 4,100 homes for sale at the end of the third quarter, data center Redfin said. This was down from 5,300 in 2020, 7,900 in 2019 and 9,300 in 2018.
Median home prices continued to rise with competition. The median price reached $750,000 in November, a record and a 15.4% increase in one year.
A cash sale typically involves a buyer first presenting proof of funds (required in almost all types of sales) and then transferring funds from a bank account – or multiple bank accounts, especially if family is helping – to a seller. A buyer who shows up with a briefcase full of cash is not uncommon, but may raise money laundering concerns with federal investigators. Similarly, selling a home in bitcoin, or another cryptocurrency, is considered a cash sale and will likely come under more scrutiny.
The US Treasury announced in early December that it wanted new regulations for all cash sales – regardless of how the funds reach the seller – to reduce money laundering.
“Increasing transparency in the real estate industry will limit the ability of corrupt officials and criminals to launder the proceeds of their ill-gotten gains through the US housing 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 family, as well as institutions that have cash reserves to make a purchase easily. Without these options, first-time home buyers, active military personnel and veterans could be disadvantaged.
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 active service members. The VA says about 90% of its loans are made on a no-down payment basis.
With both loan types, buyers must obtain an appraisal of the property from a lender. If a bank, or whoever makes the loan, values the property at a lower price, it means a transaction could fail. That doesn’t happen much these days, says Brundage. However, this might still be on the minds of sellers who would like to opt for a cash sale to play it safe.
Buyers who use a typical 30-year fixed rate mortgage and put 20% down have more opportunities to make their offer attractive. In addition to less stringent appraisals, they can rule out contingencies — whereas FHA and VA loans require termite clearance 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 buyers’ credit reports and may feel less excited about a transaction if they have a low score.
“Cash sales just remove a lot of uncertainty for the seller,” he said.
It’s not always a guarantee that sellers will accept money. Brundage said she had an active 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 demanding about repairs and less enthusiastic about the idea. to live there than a first buyer.
San Diego County Institutional Advisors’ third-quarter sales 7.9 percent were lower than most of the country.
In Atlanta and Phoenix, investors account for 19.5% of sales; In Charlotte, 19.3%; In Jacksonville, Florida, 19.1%; and Tucson, Arizona, 18.4%. Parts of the South and Midwest are among the least interested in institutional investors. In Madison, Wis., investors accounted for 2.3% of sales.
Goldman said many institutional investors may pull out of the market because many have paid too much for homes. Zillow’s home-buying program, Zillow Offers, was suspended in November as the company recouped losses of more than half a billion dollars on the value of its remaining homes, the Wall Street Journal said. .
“They’re having their clocks cleaned up a bit,” Goldman said. “A lot of these guys, like Zillow, were paying too much for properties.”