2023 Fall Update
The origin of the phrase, “Cash is King” is a bit murky, but the belief in the concept is quite strong, especially in real estate. During the last market downturn, after the 2008 financial crisis, the opportunity to buy property was especially favorable for cash buyers as lending practices tightened dramatically. As houses moved into foreclosure, cash buyers were able to scoop up multiple properties as, unlike buyers relying on lenders, condition and repairs were not an issue. Cash is still important in real estate for similar reasons. Every seller prefers an “all cash, over asking, no inspection” offer. And during the height of the competitive pandemic market here in Maine, that was what it often took to win in a multiple offer scenario. And it still helps because it removes hurdles of the lending process and the potential uncertainty of an appraisal. And while not “king,” cash offers are still an important player in a market with limited inventory of houses and an oversupply of buyers. In fact, the number of cash buyers increased during the summer of 2023 in southern Maine compared with the summer of 2022, while the number of homes remained relatively flat. During the months of June, July, and August in Southern Maine 2023, cash sales accounted for 29.3% of all closed sales, an increase of 11.1% over the same period in 2022. For the whole state of Maine, the change is more significant as the number of sales dropped by close to 1,000 units (18.3%) but the number of cash sales only went down by 10.1% Not too long ago, offering cash meant you could also pay less. After the financial crisis of 2008, some buyers, especially large institutional investors, were able to scoop up multiple properties in distress or foreclosure and avoid tighter lending rules. As the foreclosure process in Maine is especially lengthy, houses that eventually came to market often required cash buyers who could take on the damage from mold, or burst pipes. In today’s market, cash smooths the way to a closed sale, as there is no bank, no appraiser, and no out-of-state underwriter potentially creating hurdles. However, being a cash buyer does not mean you show up to closing with a suitcase of money, and it does not even mean that you cannot take out a loan. What it does mean is that you can demonstrate you have the funds to purchase and can waive the financing contingency. For more information on how to be a cash buyer and still take out a mortgage, give me a call.
Sources: Freddiemac.com, Maine Real Estate Information System, Redfin.com