Cash only deals

Doing an all-cash deal gives you some leverage in the price negotiating and is useful if the owners are in a rush to close. It's a time-saver and a sure thing if you can pass the board, for which you will need additional assets.

Speaking of this....anyone know why a condo would demand a specific sale be all cash? A comp used in the appraisal of my place seemed suspiciously low, and when I went to the original listing it said "accepting all-cash buyers only."

The condo is probably in a building with a lot of renters, and not a lot of owners. This means most banks (as of this particular moment in time, probably will change any minute) will not loan in that building. The seller knows this, and to save time, specifies all cash and builds in a discount in the price. It's stupid to advertise this though, as some buyers may have exceptionally good relationships with lenders and may not need all cash. The seller is assuming no one can finance the purchase. Dumb.

The all cash on a co-op depends on the seller. If the seller needs a quick close, it will be a big deal and your discount should match. Check liens on the property and see if the seller needs money fast. If the seller is fine, they won't really care about your cash. They don't care where the money comes from; bank or your pocket, all the same to them.

"The all cash on a co-op depends on the seller."

Not necessarily.

This is the policy of many buildings.

actually few of the many coops in nyc require all cash--those that do are typically the most expensive, oldest coops on Park and Fifth Aves--could be there are a few on cpw, wea, and rsd too--but very few

I am all cash and have bid on several apartments and it has made absolutely no difference as far as price leverage goes. We keep thinking it should, but it hasn't. Most sellers, if they get their price, could care less about how you get the money to pay them. This has been my experience.

I had two offers when i sold my apartment many years ago, one cash, one mortgage. I let the offer price do the talking as mortgage issues of today did not exist back then.

I would think even if i was selling now, I would not be offering a huge discount because the criteria should be who qualifies, especially when dealing with a coop. If the cash buyer was going to exhaust most of their cash, then the board is going to turn them down for not having enough reserves.

Other then a seller who may need to get out right away and the cash makes the deal go faster then okay. But I would think the Coop sale takes equally as long because you are still filing a board package, and are at the mercy of their meetings. For a condo sale it could be faster, but considering i just bought a new condo and between signing the contract and closing on the sale, with getting a mortgage, was 5 weeks, to me there is no advantage in that case over a all cash buyer.

mikev is right, "who is going to pass the board?" is going to be primary in a seller's mind, but beyond that, paying all cas should give you a small discount -- maybe on the order of 3% or so -- vs. a competing financed offer.

ali r
DG Neary Realty

so if you had two offers on your $2 million apartment both from qualified purchasers: one, all cash at $1,940,000 and one with 50% financing at $1,990,000, you would take the lower offer?

Ali i do not understand the logic.

Are you talking about mutually exclusive situation? I believe you mean if there is only one offer and it is all cash, a seller may take a 3% discount.

If you are saying a seller would choose a 3% discount even though they have two offers one cash, one mortgage and both qualify, then i disagree.

We are making the assumption that both buyers are eager to close as soon a possible and as my experience just proved by being preapproved by Wells Fargo i was able to sign my contract and get the information that was in my application to the bank at the same time and fly through underwriting to close within 5 weeks.

So i would not except less money just because someone was willing to pay cash if i had an equally qualified buyer with a mortgage

All things being equal(price) there is a distinct advantage to a seller for an all cash over one with a mortgage. Just the mortgage contingency alone.
Even Mikev's non mortgage issue period doesn't offer protection from a buyer who just gets cold feet and sabotage's the mortgage process to get out of the contract and get their deposit back.
Without a mortgage contingency, it's a lot harder for a buyer to back out without losing their deposit.

Depends on the mortgage contingency clause. The one i agreed to let me only back out if the bank refused to fund after i got a committment letter. If I sabotaged I lost my deposit.

So as long as the mortgage contingency is fair to both sides then I still maintain i would take the higher price.

ummm.. mortgage contingency clauses are quite standard, the only real negotiating points are what percentage down and dates. A mortgage contingency is beneficial to a buyer not a seller.

What you wrote makes no sense to me.
"The one I agreed to let me only back out if the bank refused to fund after i got a committment letter"
Unless you gave a provison that you would give the mortgage should the bank reject. "after a commitment letter" means after a mortgage is approved.

If we went into contract and I was friendly with my bank and during the process I change my mind and tell my loan officer, "listen you have to get me out of this" and Im a good customer....the bank could easily find a problem with comps, maybe salary, appraisal,etc.

This kind of stuff always went on in the rest of the world as manhattan was immune from even having mortgage contingencies in contracts, but that was so last decade(s).

actually most of the contingency clauses i have seen, including a coworkers when i was trying to understand wording, normally revolve around a committment from the bank that you need to get within a certain period of time. But included in that is the seller being allowed to ask for proof that you applied in good faith.

What i am trying to say is that when i was doing this and discussing with my attorney he told me a few stories of buyers deciding that they wanted out and trying to play games, well the seller was able to keep the deposit because of the buyer not following the clause.

While the clause is beneficial to the buyer, it offers the seller protection as it is not a get out of jail free card, it is a good faith exit.

The key phrase is "good faith" which then becomes the realm of attorneys, proving and not proving.

Your attorney's stories are fine abut "playing games" is another thing and quite vague.
If the deposit is in escrow and a bank does not come up with a mortgage commitment(with "good faith" hazy) on a contract that has a proper contingency clause, an attorney is returning the deposit, including your attorney.

Yes but normally the time to get that commitment letter is short 3-4 weeks after contract is signed. So unless you are getting cold feet after taking your time to actually sign the contract, most likely you will get that committment letter.

Ive never heard of anyone doing a mortgage contingency less than 30 days.
And that's because banks are unreliable to do it in 3 weeks.
By the time a mortgage contingency letter comes in, a buyer is 99% already fully intending on closing.

Well I had already gotten a pre approval letter when i was looking. After I made my offer, contacted the bank and gave them all the information and got them support. Last piece needed was the contract. they had already had underwriting review everything. Had my actual committment letter within 2 days of giving them the contract since underwriting had everything reviewed already.

I would say it has more to do with the individual and whether they are motivated to close as soon as possible. I needed to get it done so i had everthing in place and it was no issue.

Mike, I came up with 3% based on situations that I've seen (and the firm has seen) where there are two competing buyers, one offering cash and one needing financing, and watching the seller "choose."

Of course every seller is different, and some will take the highest price no matter what, but others will avoid the risk if they can.

What are the risks of accepting a financed offer?

* A buyer who is pre-approved for a mortgage may not get one;

* A bank may promise to hit certain processing deadlines, and then run late, causing inconvenience for the seller as closing rolls back. (underwriting to close within 5 weeks is great, but I can give you some 2009 examples of major banks that promised that and didn't hit it);

* As you saw from your contingency clause, a buyer who has a loan commitment from a bank might find that loan commitment doesn't get funded (an exceptionally rare problem, but it happened in the dark days of the credit crisis);

* Especially with HVCC, the new appraisal rules that allow appraisers from upstate to appraise in areas they don't know, property may not "appraise out";

* In these days where most mortgages have to comply with Fannie Mae guidelines, one of the guidelines may be something the building doesn't want to comply with. Example: buyer and seller agree on price, buyer gets mortgage, bank requires a certain level of fidelity bond insurance as a condition of closing, co-op board refuses to comply with buying the insurance, and buyer and seller are both left high and dry.

ali r.
DG Neary Realty

Ok now Im seeing some of the confusion I have with you.
Your first 2 posts has you clearly as SELLER and then after that sounds like your explaining when you were BUYER?

This is a totally different answer in a market that is rising versus a market that is falling. The value of the option changes.

Exactly SnS.
Pre Lehman, it was tough for a buyer to even get the clause period.
Today with the market the way it is, and bank flakiness the way it is, it is greatly undervalued (all cash) to some it appears.

sorry truth that is the case. I went from seller to buyer.

Ali while i understand what you are saying when you talk about what you have seen, have the two really been equal?

I agree 2009 was an awful year in the mortgage market in terms of getting things done, but from everything i have experienced and a few coworkers the process has started to loosen up again to make it flow a little quicker. Not sure what happens if the economy takes a big dive again, but for now i stand by the higher offer wins.

If I am putting 50% downpayment in cash, and I drew a home equity line against my current apartment to cover 50%, is it still considered a “cash deal”?

If you are covering all costs with cash outside of a mortgage on the new property it is considered an all cash deal. It does not matter whether you are taking out equity on another home or someone gifts you the cash to pay.

But remember you still have to have enough liquid assets on hand to pass a board after doing all of this.

Mike, it's going to depend so much on the individual seller, and what they've got going on on the other end.

sv, a "cash" deal is generally considered to be any deal where the financing contingency in the boilerplate contract is removed. So yes, the situation you've outlined would be a "cash" deal.

I'm assuming that the home equity line is pre-existing, because a good seller's atty. would set the clocks in the contract so that a buyer wouldn't necessarily have time to get a new home equity line preapproved.

ali r.
DG Neary Realty

Here is an example of what would not have happened with an all cash deal.

THread called "Appraisal came in low"
http://streeteasy.com/nyc/talk/discussion/22633-appraisal-came-in-low

Whether the appraisal legitimately came in low or the buyer got cold feet and told his bank get me out of this, the result is the same, 30 to 60 days wasted in a declining market

Current fannie mae guidelines prevent banks from loaning any amount of money in certain buildings. For example, right now this is occurring in buildings with a very high sponsor ownership. It does not matter how exceptional a relationship a bank and borrower may have with each other. In these situations it would be dumb for a seller to waste their time with a buyer seeking financing.

@msterio: what's considered high sponsor ownership?

Each bank has their own guidelines for sponsor ownership... I know (from trying a refi) that Chase only does buildings with 70% owner-occupancy. That's the highest I've heard of. A few others have their limits at 50% (I think Wells is at 50%).