With demand coming back, but credit, while cheap, still incredibly hard to come by, New York’s real estate brokers are seeing more and more buyers offering cash outright—and getting sweeter deals as a result, and faster, than mortgage-backed offers. The Real Deal found that brokers are now doing 40 to 100 percent of their deals in cash, a marked difference from the market’s peak in 2007. One real estate attorney, for example, said that only 20 percent of his clients paid cash in 2007—compared to 50 percent this year.
The trend is not only due to the difficulty of obtaining a loan, however: some sellers, according to the Real Deal, are willing to slash a further 5 percent off the asking price and to pick up transfer taxes to boot on cash deals.
Furthermore, such deals can close within as little as 10 days, compared to the average two months when a mortgage needs to be arranged. According to the appraisal firm Miller Samuel, this is particularly true in the high-end market. Indeed, here at Elika, 75 percent of our clients have put down cash in 2009, including in a recent deal that Gea Elika closed at the Superior Ink building for $13.75 million. The low dollar value and the appeal of the New York City market, where prices are off 20 to 30 percent off their highs, have brought back investors and second-home buyers.
New condos, which are particularly receptive to cash buyers since new rules from Fannie Mae and Freddie Mac requiring them to be 70 percent sold for suitors to qualify for loans, are becoming as a result mostly available to cash buyers only. A Tamarking property at 456 W. 19th St., for example, has all four of its sales in the 22-unit building go for cash since going on market a year ago. At One York in Tribeca, JANI Real Estate took four out of six deals in cash in 10 months.
The ascendancy of cash is not relegated to the luxury market, however: even school teachers are doing it, as are many middle-class buyers. Where does all the cash come from, considering the havoc wreaked on the economy in the last 18 months? According to a Prudential Douglas Elliman managing director, a lot of it has to do with people pulling out of the stock market, which, despite impressive gains, appears too volatile to many who weathered the storm of seeing their portfolios dwindle to 2000 levels. Furthermore, the drop in real estate prices has attracted many buyers willing to bet they are coming in at prices not seen in years now, even if these prices could fall further yet.
Finally, while the low-interest rates mean cheaper mortgages, they also mean lower gains in a savings account, making an investment in real estate that more attractive comparatively. Some cash buyers, however, are apparently coming in expecting the moon, which developers are not always willing to deliver: while developers would avoid carrying costs, they can miss out on a city tax credit in the process. The sight of cash, though, still makes everyone more at ease.