All-Cash Deals in San Carlos: The Real Numbers.
July 8, 2014
Hype, or Reality?
When you start to listen to the horror stories that buyers have had to endure over the past 18 months trying to land that elusive home in San Carlos, it makes you realize just how competitive the housing market is right now. With multiple offers, bids that are multiple-hundreds of thousands of dollars over the asking price, and yes, all-cash offers to contend with, it seems as if it takes an iron constitution and a bottomless bank account to succeed as a buyer.
One of the most common complaints that I hear from dejected buyers in this market is that they are losing out to all-cash buyers. And that perception would make sense with the economic rocket ride we're on right now. Salaries in tech are growing by leaps and bounds, as are the stock portfolios of buyers as we witness the Dow blow through the once-unthinkable 17,000 barrier. Buyers are bringing unprecedented buying power to the table in today's market.
But what about those all-cash deals? With all the fear and horror stories that we hear about competing against those dreaded all-cash offers, are they truly as prevalent as many believe they are? What do you think the percentage of all-cash home sales are right now in San Carlos – 25%? 35%? 50%?
It's actually quite a bit less than you might think.
Take a look at the chart below…
Of all of the home sales reported through the Multiple Listing Service (both SFR's and condo's) in San Carlos so far this year, only 14% were all-cash deals. And this is down from 2013, when all-cash deals accounted for 16% of all sales in San Carlos. Bear in mind that this data does not account for off-market sales that were not reported to the MLS, nor agent error in reporting the financing type. (Note: This doesn't necessarily imply that this percentage would be higher if all off-market sales were accounted for. Every off market transaction that I completed last year had a loan attached to it.)
Now, at the risk of becoming too desensitized to the sheer numbers that accompany this market, 14% is still a healthy number of extremely well-heeled buyers, especially when you consider how much prices have jumped in San Carlos. But that number pales in comparison to Menlo Park, where a full 26% of this year's sales have been all-cash. In Burlingame, it's 26.5%, and in Palo Alto it's a whopping 33% (although I suspect the unreported off-market transactions in both Menlo Park and Palo Alto will drive their percentages higher.)
So, what does this tell us? All-cash deals clearly are not dominating the offer landscape in San Carlos as many of us may have mistakenly assumed. But that's not to say that strong cash positions are not influencing how decisions are being made by sellers in this market.
Cash = Strength.
What we are definitely seeing is a much higher percentage of buyers who are willing and able to put down a substantial amount of cash in their offer to supplement their bank loan. It is becoming quite commonplace to see buyers shelling out 40-60% cash down payments, almost regardless of the price range. It wasn't too long ago that buyers simply put down 20% and financed the rest.
But coming in with such a strong cash position is advantageous for the buyer in several ways — first, it drastically reduces the risk for the buyer if they opt to not have a finance contingency in their offer, which is almost a given strategy in a multiple offer scenario. Second, it gives the seller a sense of security that they are dealing with a financially strong buyer, and that the deal will have a higher likelihood of closing (note that this is not always true.)
So the good news for buyers that are still beating the street is that you don't to be an all-cash buyer to succeed in the San Carlos real estate market. In fact, I have heard of numerous instances where a conventional offer has beaten out an all-cash offer because the buyers will willing to do more to get the house.
But the bad news for buyers in this market is that cash is still king. And even though you don't need 100% of it to buy a house, the more of it you have, the better your chance of success will be.