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All-Cash Real Estate Purchases on the Rise

 

SANDY GROOVER

August 21, 2014

Smith Marketing Inc. with Allen Tate Realtors is pleased to announce the addition of Karen Kimrey to their team.

Karen Kimrey

 

• • •

Coldwell Banker Triad, Realtors (CBTR) has announced its most recent graduating class of new sales associates who have completed the FastStart and e-FastStart classes conducted by CBTR COO Jodi Tate.   Coldwell Banker has been recognized for the fifth straight year as one of the top 20 companies nationally in any industry for learning and leadership development.

The new graduates are Crystal Shores and Linda Alexander from the Greensboro branch, Kathy Keller from the Kernersville branch and Alex Straus with the Winston-Salem branch.

Crystal

Shores

Linda

Alexander

Kathy

Keller

Alex

Straus

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The seasonally adjusted average home price in Guilford County in May 2014 went up nearly 4 percent, to $175,157, over May 2013’s average of $168,982, according to Jud & Associates.  Existing home prices bottomed in July 2012 and have since risen 11 percent.  In May 2014, the time on market (TOM) was 100.8 days, 5.1 percent more than it was in May 2013.   Over the past 12 months the TOM has risen, but the spread, which shows the ratio of selling to listing prices, has also risen, indicating somewhat less discounting in the market.  Sales of existing, single-family homes in Guilford County decreased slightly during last month compared to the previous month.  A total of 340 units sold in Guilford County in May 2014 and 351 sold in April 2014.  The inventory/sales ratio, which indicates the number of months to clear the current inventory of homes on the market, was 7.6 months, up from 7.2 months in April 2014.

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Although a home is often the biggest purchase a person makes in their lifetime, nationwide, as well as in Greensboro, all-cash home sales hit a new high in the first quarter of 2014.

 

According to the Q1 2014 US Institutional Investor & Cash Sales Report by RealtyTrac, 42.7 percent of homes purchased in the US during the first quarter of 2014 were all-cash purchases.  (RealtyTrac has been tracking this information since 2011.)

 

RealtyTrac’s data also indicates that the number of all-cash purchases in the Greensboro area is on the rise, making up more than 50 percent of home purchases in the first quarter of 2014.  That number was only 21.2 percent during the same time period in 2013.  RealyTrac cited stricter lending standards as part of the reason all-cash purchases are increasing.

 

While stricter lending standards are certainly a reality of today’s real estate market, are all-cash real estate purchases really that influential in Greensboro?

 

Real estate experts around the city aren’t buying the influence of this so-called trend.  David Nishan, branch manager at McLean Mortgage Corporation, said the use of cash in real estate purchases depends on the kind of purchase being made.

 

“We see it a lot more on investment properties under $60,000 – a lot of the lower-end homes that are being sold at auction or are in foreclosure,” he said.  “Those purchases require cash.  We are seeing a lot more all-cash purchases with these kind of investment properties.”  Nishan said he sees no evidence of all-cash purchases when it comes to first-time homebuyers but that a lot of people are looking for minimum or no-down payment loans, because people continue to find it difficult to put money away for a down payment.

 

Nishan said that others who are making all-cash real estate purchases in the Greensboro area fall either into the category of self-employed individuals who are having problems qualifying for a home loan with today’s stricter standards and people who are cashing in 401K plans or investment portfolios to decrease or eliminate having a home loan at all.

 

In a related note, Nishan said that some buyers of homes over $417,000, who would require a jumbo loan, will bring enough cash to the table to bring the price under that amount.  “A jumbo loan can require six to 12 months of reserves in the bank,” he explained.  By adding a very large cash payment it makes it easier for buyers to not only pay down the loan amount to that of a conventional loan, but also allows them to eliminate the need for the required reserves.

 

Nikole McClanahan, broker with the RE/MAX Collection, said she also hasn’t seen evidence of a large increase in all-cash purchases from previous years.  However, she said she has found that many of the all-cash purchases she has seen are coming from empty nesters cashing in their retirement nest eggs.

 

“When I think on who are past all-cash buyers, one or both have been recently retired people who take their nest egg from a previous property,” she explained.  Often she finds these individuals or couples are looking to downsize, which helps them be able to afford an all-cash purchase.  McClanahan added that the incentive for the empty nesters is to be free of a mortgage payment.  “One or both are in retirement, and they’ve become more conservative with their income and want to reduce payments.”

 

Rich Dumas, president of R&K Custom Homes, agreeed that all-cash purchases are not incredibly common in Greensboro and the surrounding area, but that it does happen.  “There aren’t too many that pay with straight cash, but we are talking to one right now,” he said.  “It’s not the usual, and we probably won’t have that many.  We may get one out of 20 buyers.”

 

Dumas, however, said he sees an all-cash purchase as an advantage for a buyer if they have the money.  “Why spend the money on interest and other fees?” he asked.

 

McClanahan cited some other advantages to an all-cash home purchase.  She said that sellers view all-cash purchases as less risky because there’s no lender involved.  “Sometimes when buyers pay cash, the seller doesn’t even spend money on an appraisal,” she said.  Also, an all-cash purchase offers much more flexibility on how quickly a home sale can close.

 

But there can also be downsides to buying a home with cash.  “It used to be people didn’t want to use their cash,” Nishan said.  In his eyes, one negative of an all-cash real estate purchase is that when buyers need cash for an emergency – job loss, health issues, etc. – they can’t get it.  “Money is cheap right now, mortgage rates are low – you could pay cash, but you don’t want to because rates are in the low 4’s on a 30-year-fixed loan.  I think you can make more than 4 percent on investments, so I would rather borrow the money and get the tax reduction.”  He concluded, “You’re better off putting that money in an investment portfolio.”

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