Through a series of mishaps, I have been driving rental cars for the past four weeks while my fancy station wagon is undergoing repairs. As a result, I have become very familiar with Sirius radio, and specifically with channel 72; a station that celebrates my first love - Broadway!
(Sing it with me . . .)
"Cash for the merchandise, cash for the button hooks,"
"Cash for the cotton goods, cash for the hard goods,"
"Cash for the fancy goods,"
"Cash for the noggins and the piggins and the frikins,"
"Cash for the hoghead, cask and demijohn. Cash for the crackers and the prickles and the flypaper."
"Look whatayatalk, whatayatalk, whatayatalk, whatayatalk?"
"Ya can talk, ya can talk, ya can bicker, ya can talk, ya can bicker, bicker, bicker, ya can talk all ya want but it's different than it was"
"No it ain't, no it ain't, but ya gotta know the territory!"
These traveling salesmen, from Meredith Wilson's "The Music Man," certainly understood what drives a "free market economy" (which is to say that it ain't exactly "free"). I don't know what a 'piggin' or a 'frikin' is, but I do know that there's been a huge influx of cash buyers to our market as of late, and in a competitive marketplace - and one that's also fraught with misconceptions - it certainly helps to "know the territory!"
One extremely, architecturally intriguing, GRUBB Co. listing in neighboring Berkeley, received seven offers last week and three of them were "ALL CASH!" That's quite telling. But what's more important to note, is that "All Cash" purchases now make up approximately 30% of ALL housing sales. Whatayatalk, whatayatalk, wheredayagitit, whatayatalk?
While it's true that the advantage of these "All Cash" sales are originating from investors speculating on bank owned (REO's) and short sale properties - with the goal of flipping them for a quick profit - there are a growing number of home acquisitions that are increasingly taking place in the high-end marketplace as well.
Whatayatalk, whatayatalk, wheredayagitit, whatayatalk?
To be fair to the majority of us mere mortals who rely on lending institutions to fund our home purchasing dreams (thus making them home realities) EVERY home sale is essentially "All Cash" once funds are received in escrow. However, the truth remains, that Cash IS King - in this or any other marketplace.
Why? Because "All Cash" offers completely bypass any and all lending requirements and thereby remove the appraisal and underwriting conditions that banks rely upon. As such, "CASH" purchases remove the uncertainty Buyers and Sellers have with respect to making "value," especially when heavy competition has pushed the "market value" well beyond the actual, "appraised value" a home might easily support.
Moreover, cash purchases can typically close in as little as a week. With NO lending process with which to weigh them down, closing can be as simple as ordering a title search, clearing the check, and recording the deed! Whatayatalk, whatayatalk, wheredayagitit, whatayatalk?
Even so, there are clever Buyers who write "all cash" offers, with the intention of putting a loan in place after acceptance. In theory, it's not a bad strategy IF you have confidence in your lender's ability to deliver a timely product. But be forewarned, IF your lender cannot perform in the time specified by the contract, you can (and will) in all likelihood, be held to the financial obligation you initially spelled out in the purchase agreement to begin with. In other words, "Show me the money!"
Remember, your ratified agreement is a bonafide contract and as such, you are legally obligated to meet the terms and timelines set forth. Moreover, there is nothing that compels the Seller to wait while you change conditions and put more favorable financing in place on your end. (Ditto for those of you who "shop" interest rates and switch lenders after ratification.) Buyers, tread carefully before employing such "bait and switch" tactics, as your perceived gain could ultimately cost you the home altogether! Whatayatalk, whatayatalk, wheredayagitit, whatayatalk?
Finally, "cash out" acquisitions (purchases where equity is recovered AFTER the close of escrow) tend to have a higher interest rate than initial purchase money, require higher reserve ratios, and when jumbo money is involved (sums greater than $625,750) max out at $500,000. In short, you won't be able to borrow as much as you would have, had you put the loan in place - prior to the close of escrow. Got it? (Good.)
(Note to Buyers: Bank of America has suspended funding "cash out" refinancing nationwide until further notice. Will other banks follow suit?)
So for those of you lucky individuals with cash to spare (Can you say: "in-your-Facebook?") your "ALL CASH" offer is, indeed, likely to move you to the head of the pack AND it's more than welcome by anxious Sellers who love seeing those "All Cash" offers come their way . . .
But ya gotta know the territory!
(With thanks to John Glynn of LaSalle Financial who began the "cash out" conversation at last' week's Grubb staff meeting. John can be reached at firstname.lastname@example.org or at 510-339-4300/ext.123).
Julie Gardner, has been writing The Perspective for 15 years and has published more than 600 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.