Everyone loves cash. Nothing new there. But in this market, cash deals are even sweeter. In some cases, a onetime payment could even be the only way to close a sale, according to brokers, attorneys and developers. And discounts often await all-cash buyers.
There are other benefits: less paperwork and fewer delays in getting deals done. No long waits for banks to pore over buyers’ financial records, only to reject them on the eve of closing.
“Cash used to be king, but now it’s the emperor,” said Luigi Rosabianca, a real estate attorney who says 50 percent of his clients have paid cash so far this year versus 20 percent in 2007 at the market’s peak.
The exact number of cash deals is difficult to determine; property records on file with the city’s Department of Finance don’t specify how apartments are paid for. And the sheer number of cash deals doesn’t seem to be increasing, as the volume of all deals remains depressed.
But cash transactions are an increasing share of overall sales, according to real estate analysts. Indeed, real estate brokers interviewed said they have made up between 40 and 100 percent of their sales in the last few months.
Sellers nervous about deals being scuttled at the last minute are driving the trend, Rosabianca said. They’re offering to lop 5 percent off their prices — which are already down between 20 and 30 percent because of the downturn — and to pick up transfer taxes if buyers pay with cash.
Those cash closings can sometimes occur within a lighting-quick 10 days, versus two months if buyers need to secure a mortgage, he said.
The trend is prevalent on the high end (note the all-cash purchase at Superior Ink in the West Village for $25 million in October), according to Jonathan Miller, president of Miller Samuel, the appraisal firm.
But brokers say small-business owners, government workers and other middle-income buyers are also emptying their pockets to take advantage of depressed prices.
This fall, a schoolteacher plopped down $725,000 in cash for a one-bedroom co-op on the Upper East Side. She sold her apartment for $600,000 and tapped her savings for the difference after paying off the mortgage, said Lawrence Rich, a vice president with Prudential Douglas Elliman.
The all-cash deal put her ahead of comparable bids, even if it didn’t garner a big discount. This is typical, Rich said, particularly for resales.
While it may seem counterintuitive, some buyers actually have more cash on hand despite the economic freefall.
That’s because many New Yorkers who were invested in the stock market pulled out last spring, when the Dow Jones Industrial Average was cratering and expected to tumble further, said Andy Gerringer, a managing director with Elliman who’s currently marketing 15 new developments.
Some of those former investors think the stock market, which has seen values soar 60 percent in nine months in choppy trading, is too volatile and due for a fall again, Gerringer said.
While many predict real estate prices still have more room to fall here, others think it’s less risky. And believing they are entering the market at its nadir is enticing many to give homebuying a whirl, Gerringer explained.
In addition, interest rates remain low. While that may be good for people taking out loans, it’s not great for people with savings accounts, who would rather have their money parked in real estate, Gerringer said.
New developments particularly need cash buyers.
New condos must be 70 percent sold for buyers to qualify for loans under recently tightened rules from Fannie Mae and Freddie Mac, the quasi-public agencies that guarantee many mortgages.
“Right now, it’s only the people who have cash who are able to buy in new buildings,” said Alexa Lambert, a vice president with Stribling.
At 456 West 19th Street, a 22-unit new condo developed by Tamarkin Co., all four of the sales have been in cash since the building started selling a year ago. That represents a sharp increase, percentage-wise, over a similar Tamarkin property Lambert marketed a few years ago, she said.
Back then, Europeans were mostly the ones forking over cash, as they couldn’t produce the detailed financial records that banks require. Now, though, there’s an equal number of Americans, said Stan Perelman, the managing principal of JANI Real Estate, whose One York condo in Tribeca has seen four cash deals, out of six, in the last 10 months.
But those would-be cash buyers, he added, can have unrealistic expectations.
“There’s a perception that developers are hurting, and so buyers come in and say they have cash with such confidence, expecting something extra,” Perelman said.
A cash deal doesn’t always translate into savings for developers.
Yes, they avoid carrying costs, which can be $20,000 on a $1 million unit over two months. But they also potentially lose out on a key city mortgage tax credit.
Still, “with cash, you know they are serious,” he said, “which leads to peace of mind.”