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All-Cash Buyers and Multiple Offers: Changing the Face of San Carlos Real Estate

August 13, 2010 San Carlos Real Estate No Comments

They’re Out There…

Since the outset of this recession, we’ve been inundated with negative news about stagnant economic growth, high unemployment rate, foreclosures, etc…   After listening to this drab news for so long,  you start to question why anyone would ever consider buying a home in this climate — or more important, how they could afford to do so.   It’s interesting talking with people lately — it seems like many have the impression that everyone around us is living on Top Ramen like starving college students.  That’s the power of negative news.

For those home buyers who are confident enough in their own financial situation to forge ahead in this market, it’s easy to get lulled into a false sense of complacency that the poor economy has weeded out much of their competition.    After all, just listen to all of that dire news!   But anyone shopping lately in San Carlos has quickly realized that a) they’re not alone, and b) there are some well-heeled buyers competing with them for the same homes.    One thing is for certain — the recession has done little to quell the occurrence of multiple offers… and yes, all-cash buyers in San Carlos.

Cash is King.

Since the beginning of this year, there have probably been a dozen or more homes sold in San Carlos where the buyer paid for the purchase in cash – no bank loan whatsoever.  And these are not just starter homes — the prices for these purchases ranges from the $700,000 to well over $1M.   That’s alot of cash!  This phenomenon is not unique to San Carlos, either; if you follow other hot markets like Palo Alto, Menlo Park, and Los Altos, it’s happening there as well — only with even more staggering amounts of cash.   It’s pretty mind-blowing.

Unless you’re putting down a substantial amount of cash yourself, it’s pretty much “game-over” if you’re competing against an all-cash offer, regardless of what price you’re offering for the home.   Why?

Contingencies?  Nah…

The biggest reason that cash is king in these situations is that it removes the financial contingency entirely from the purchase contract.  There’s no need for the seller to worry about whether the buyer can qualify for the loan, or if the home is going to appraise at the sales price, which significantly lowers the risk of the offer.   And some sellers are more than happy to pay a price for this lower risk — if you’ve been in this situation, you’ve found that the all-cash offer is not necessarily the highest offer, and yet they win virtually every time.

Another interesting phenomenon is that some all-cash buyers aren’t even requiring a property condition contingency either.  So if you’re a first-time buyer who has scraped together your 20% down payment and you’re up against one of these completely non-contingent (or “naked”) offers, unfortunately it’s lights-out. It’s that simple.

The Proper Perspective

It shouldn’t really be a surprise that this is happening.   After all, even if unemployment is running at 12%, that means that 88% of the population is still gainfully employed.  And let’s not discount the vast amount of personal wealth that was pocketed before the bubble burst a few years back.   There’s still alot of money out there.   That’s a fact.

But rather than marvel at where everyone is coming up with these mini-fortunes, it’s simply important to accept the fact that all-cash buyers are active in the market today.  And if anything, the recession has narrowed their focus toward communities that are better suited to withstand a recession — communities whose school district hasn’t been decimated by budget cuts, or whose downtown area is still thriving despite all of the bad economic news.

Places just like San Carlos…

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