Cash Buyers Can Retrieve Their Money

While it’s admirable that some buyers have enough money — cash, savings and/or investments — that they don’t have to worry about the cost of borrowing, do all-cash buyers really want to tie that much to a single asset, one that doesn’t always rise in value over time?

Sure the stock market hasn’t performed that well, mostly because the Federal Reserve Board has driven up interest rates to control inflation. And yes, earnings on savings accounts or even CDs aren’t what they used to be.

But eventually, inflation will be tamed and the stock market should take off on the back of an otherwise strong economy. Banks may never pay as much as they once did. But it’s important to have some cash set aside — some financial experts suggest six months’ worth of your total monthly expenses — in case of an emergency.

It’s a conundrum, all right. But there is a way for buyers to pay cash and then finance their purchases later. The little known technique is called a “delayed finance exception” that is offered through both Fannie Mae and Freddie Mac. For the exception to work, though, the cash sale must adhere to the GSE’s rules.

Under Fannie’s guidelines, for example, the sale has to be an arm’s length transaction. Then, the borrower must meet all of the GSE’s borrower eligibility requirements, including a good credit score, a manageable debtto-income ratio and an acceptable a lender’s involved. ‘We can get ‘em in and out the door much quicker,” she told me. But because there are fewer lenderinvolved loans, revenue is down 20–25%. The second ring? When buyers understand the benefits of title insurance, they generally buy coverage, says Washington, D.C., settlement attorney Harvey Jacobs. “They usually listen to reason,” he said. “People who don’t (buy coverage) tend to be flippers” who study the market and know their costs. appraisal. And after that, borrowers have to move fairly quickly. They have only six months from the day they closed on the property to the day they close on the financing. After those 180 days, the opportunity is off the table.

The loan amount cannot exceed what you paid for the house as documented by the settlement statement plus closing costs, prepaid fees and points on the loan. But there are limits: Loan amounts cannot exceed $762,200 in most places but go as high as $1,089,300 in high-cost markets.

There can be no existing liens, either. If there are, they must be paid off either before closing on the loan or with funds from the new mortgage.

> LEW SICHELMAN

Perhaps to press the issue, two title companies owned by a major MidAtlantic real estate firm reportedly are refusing to settle transactions in which the buyer turns down buyer’s coverage. Repeated attempts for comment from the agency or its in-house title outfits have gone unanswered, so I have been unable to verify this report.

Appraisers — “All of us who focus on the residential market are feeling the slowdown to some extent,” says Appraisal Institute President Craig Steinley of Steinley Real Estate Appraisals in Rapid City, S.D. “This is the third cycle I’ve seen where volume is down; it’s all part of being in the mortgage lending business.”

Steinley can’t point to any specific numbers but he says most cash buyers eventually obtain an appraisal — investors when they put places back on the market after they fix them up or equity-rich move-up buyers when they refinance at a later date to take cash back out of their purchases.

Of course, it doesn’t help the appraisal business that a fair number of appraisal waivers are being obtained on FannieFreddie loans. According to Ed Pinto at the American Enterprise Institute’s Housing Center, appraisals were waived on 13 percent of all loans purchased by the GSEs in April. That’s fewer than in previous months, largely, says Pinto, because of “the shift away from refis.”

But cash deals also mean fewer deals for valuators. “Cash buyers almost never get an appraisal,” realty agent Robert Goldman of Michael Saunders & Co. in Venice, Fla., told me. And in his suburban Washington, D.C., market, Joe Shaver of RE/MAX in Olney, Md., says 75% of all cash buyers pass on an appraisal. “Rarely,” adds broker Rob Jensen, who works Las Vegas’ high-end, guard-gated communities, where a whopping 57% of the sales in May were cash on the barrel head.

Goldman, a former attorney, estimates that cash sales in his Sarasota region account for more than 50% of all sales — and two-thirds of his transactions. Down the road in Naples, Matthew Klinowski of Downing Frye Realty reports that 67% of all deals in his market in April were for cash.

Most buyers shun a valuation because it’s not required when no lender is involved. But, Goldman warns that buying sans appraisal is “not a good practice.” After all, cash buyers have 100% exposure when they pay above market value. Appraisers are “not always the be-all, end-all final arbitrator of fair market value,” he told me. Nevertheless, they perform an important function.

Because cash buyers may order property condition reports and other products, Steve Kahane of Greater Houston Property Appraisals says “it’s hard to say” exactly how much cash deals alone have impacted his business. But overall, he reports, his purchase mortgage appraisals are down 33–40% from an otherwise “normal” year.

“You can’t know what you don’t get,” agrees Michael Hammack of Appraisals of South Florida. “There have always been cash deals, so its not really

Anatomy Of A Cash Buyer

It’s been nearly a decade since the share of buyers purchasing a house without a mortgage has been as high as it is now. Certainly, interest rates bouncing around 7% at this writing are a major factor, but they do no tell the entire story.

One reason is the proliferation of multiple-bid situations in which more than two would-be buyers go head-to-head for the same house. While multiple-bidding is not nearly as widespread as it was during the height of the pandemic, the typical seller still receives 2.7 offers, according to data from the National Association of Realtors.

Another is the movement of people who sell their houses in highcost markets and use the proceeds to buy a place in less expensive markets. The typical buyer who had owned his previous house for a decade had more than $200,000 to play with last year, NAR reports.

Baby Boomers make up the largest share of cash buyers. More than half of all buyers age 68 and over paid cash in 2022, while 53 percent of the Silent Generation did the same. Historically, the percentages of Boomers paying cash is about 33 percent. But the number of all-cash purchases “has jumped” for all generations, says Jessica Lautz, NAR’s deputy chief economist.

measurable. Still, there’s no question cash has had an impact.”

Add cash transaction to the mix of high interest rates and fewer refis and the impact is profound. “My business is down 65% year-over-year,” Hammack told me. “It’s definitely slow.” n

Lew Sichelman is a contributing writer to National Mortgage Professional magazine. He has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country.

Surprisingly — or not — single women are the most likely cash buyers at 28%. Married couples account for 27%. Women cash buyers often are widowed or divorced and have housing equity to burn.

White buyers are more likely to pay cash than Blacks, but not by all that much — 23% vs. 15%. But then, about half of Blacks were first-time buyers last year. Only 8% of both Hispanics and Asian/ Pacific Islanders used cash.

> LEW SICHELMAN

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