Home buyers make cash offers in hot market

Size: px

Start display at page:

Download "Home buyers make cash offers in hot market"

Lilian Ball
8 years ago
Views:

6/7/13 Home buyers make cash offers in hot market - San Francisco Chronicle Real Estate Home buyers make cash offers in hot market Ordinary buyers find creative methods of funding purchases in

1 6/7/13 Home buyers make cash offers in hot market - San Francisco Chronicle Real Estate Home buyers make cash offers in hot market Ordinary buyers find creative methods of funding purchases in frenzied market Brant Ward, The Chronicle Kelly Boysen, with the help of her parents, was able to make a cash deal on a three bedroom condominium. By Carolyn Said June 7, 2013 In today's frenzied real estate market, some ordinary home buyers are taking extraordinary steps to 1/6

arm themselves with enough cash to compete against deep-pocketed investors. Being able to make an all-cash offer on a house is like having a superpower.

2 arm themselves with enough cash to compete against deep-pocketed investors. Being able to make an all-cash offer on a house is like having a superpower. Sellers vastly prefer cash offers, which close quickly and easily, skipping the buyer obstacles of qualifying for a mortgage and having an appraisal contingency. Pulling together several hundred thousand dollars in cash is no trivial task, but there are options. Some buyers may be lucky enough to have company stock, big retirement portfolios, or other assets that they can cash out or borrow against. People who already own a home can tap its equity through a second mortgage or other loan. Those who are willing to pay a premium for funds can go to a "hardmoney lender." For many others, the best source is often "the bank of Mom and Dad." "So many offers at every price point come to the table with all cash; this is a way that buyers try to have a leg up," said Jennifer Ames, an agent with Red Oak Realty in the East Bay. "I have a few clients who are first-time home buyers in the $600,000 range whose parents are refinancing, pulling money out from their own house to get their kids the funds to buy a house with all cash. Once the kids purchase the house, they can get their own mortgage (for 80 percent of the purchase price) and pay back their parents." Alternatively, sometimes the parents continue acting as the mortgage holder. Either way, mortgage professionals emphasize that preplanning is vital (see sidebar). "It's something you have to be very strategic about," said Dianne Crosby, senior vice president at RPM Mortgage in Orinda. "You need to leave yourself the ability to subsequently obtain a traditional mortgage." Now a bride? Frances Torrey, a psychotherapist who is downsizing from a San Leandro house, has been beat out 2/6

twice by all-cash offers, although she was selected as the backup in case they fell through (they didn't). On Friday she will make an all-cash offer on a Walnut Creek townhouse.

3 twice by all-cash offers, although she was selected as the backup in case they fell through (they didn't). On Friday she will make an all-cash offer on a Walnut Creek townhouse. "I'm like to stop being a bridesmaid and be a bride for a change," she said. "I'm hoping that having all cash will make that difference." To get the funds, she's tapping a line of credit that's backed by her stock holding. She plans to refinance within 90 days to pay off the credit line. Brant Ward, The Chronicle Kelly Boysen makes the mortgage payments on her three-bedroom condo directly to her parents. "It was my stockbroker who suggested it," she said. "He took a throwaway line in an I sent, and said, 'I can make you one of those cash buyers.' " Barbara Hendrickson, another agent with Red Oak Realty, is considering moving from her Kensington home to an Oakland townhouse to be closer to her granddaughter. She is acutely aware that all cash would make her offer stand out. "I was going to pull out all the stops and use my home equity line (of credit), cash and high-interest short-term cash from one of many sources so that my offer, with a five-day close and no other contingencies, would be worthy of a counter even if it wasn't the highest," she said. "I was going to start low and hope that the all-cashness of it would lead me into the winner's circle even if I wasn't 3/6

4 the highest to begin with." Easier slog Having home equity to tap is a definite plus. Laura Bergang, a retired college admissions assistant, wants to move from the two-bedroom Berkeley cottage she's owned for 27 years to something more affordable a little farther afield, such as Benicia or Richmond. "I have a reverse mortgage line of credit on the (Berkeley) house," she said. Hendrickson, her agent, said, "Why don't you use that to pay cash for the new house? Then when you sell your Berkeley house, which won't take long, you can pay it back," she recounted. Without that strategy, it would be a harder slog, she said. "Otherwise, I'd have to move temporarily while I sell my house to get the money to buy something, but that would be awfully cumbersome. This makes it much more doable." RPM Mortgage recently rolled out a bridge loan to help people buy a house without selling theirs first, said Julian Hebron, vice president at the San Francisco office. "It's a product we created specifically to address this problem that people want to pay cash on a new purchase," he said. "Some people have substantial equity in their existing home, and that's where the money for a new purchase resides. It's a common problem." The loan is structured as a mortgage at 2.99 percent with 2 points for a six-month term. Parental resources Calling on parents for help also is a tried-and-true approach. Kelly Boysen, 28, who works as a software company sales representative, was eager to buy now while prices are relatively reasonable. She lived with her parents in Concord while she looked. "I would find a place I liked, put in offers that were over the asking price and not get it," she said. "I was baffled until my Realtor told me that other people were offering all cash and that 'cash is king.' 4/6

5 She said most likely it would be hard for me to beat an all-cash offer. "After going to a few open houses that were packed with people who clearly weren't looking to live in the place, I looked at my parents and said, 'I'm never going to get a place. I'll be living with you forever.' " Her parents, who are retired, offered to cash out stocks to enable her to make an all-cash offer. She had the 20 percent down payment saved. Armed with cash, she had an offer accepted on a three-bedroom condo in Concord. She closed in March and is now happily living there with a roommate and making mortgage payments to her parents, who charge her reasonable interest. "In this market, I couldn't do it on my own," she said. Another source for funds is a hard-money lender. Most often that is "a high-net-worth individual or group that decides to invest in various real estate projects on a short-term basis with a relatively high interest rate," said Mark Biggins, an agent with Redfin in the East Bay. "Whereas a conventional lender would typically lend a maximum of 80 percent of the appraised value of a house with an interest rate in the high 3 to low 4 (percent) and a 30-year amortization, a hardmoney lender will lend a lower amount, often 65 to 70 percent of the home's value, at an interest rate from 7.5 to 10 percent - but only for one to three years, or even less. The underwriting standards are up to that individual." Many hard-money lenders advertise on the Internet or network through real estate professionals. "They have a sharky-type reputation. I'm not endorsing them," Biggins said. Cash sales From January 2010 to April 2013, more than a quarter of Bay Area homes and condos sold for all cash. The highest volume of cash sales was in the lowest-cost counties: Solano, Contra Costa and Sonoma. While many cash buyers are investors, a growing number of prospective owner-occupants pay cash to make their offers more competitive. 5/6

County Homes bought with cashsales done with all cash Alameda 14,364 25.5% Contra Costa 17,678 31.2 Marin 2,832 28.4 Napa 1,317 27.7 Santa Clara 15,652 24.6 San Francisco 4,955 25.

6 County Homes bought with cashsales done with all cash Alameda 14, % Contra Costa 17, Marin 2, Napa 1, Santa Clara 15, San Francisco 4, San Mateo 5, Solano 7, Sonoma 6, Bay Area 75, Source: DataQuick Carolyn Said is a San Francisco Chronicle staff writer. csaid@sfchronicle.com 2013 Hearst Communications Inc. 6/6

New loan helps seniors buy homes

New loan helps seniors buy homes June 7, 2009 By LESLIE BERKMAN The Press-Enterprise Shrinking nest eggs have retirees searching for ways to stretch their money. Some are discovering a new mortgage tool