By Polyana da Costa, via Daily Business Review
When Frank Ginder and his wife signed a pre-construction contract to buy a $279,000 condo in a Palm Beach Gardens development about two years ago, they couldn’t imagine they would get the unit at a hefty discount — or end up paying cash.
“The circumstances changed for the builder, and they started to bring the price down to encourage us to close,” Ginder said. “At first I was planning to finance with IndyMac but then they sort of disappeared.” The bank was seized by federal regulators in July.
The Ginders turned to Bank of America, “but they were having their own problems at the time so I said, ‘You know what, let’s pay cash for this.”
Ginder tapped into his savings and his 401(k) retirement account and closed on the $163,000 purchase of the unit a few weeks ago.
The Ginders are part of a small but growing group of South Florida home buyers shunning tight-fisted lenders and using their hard cash to acquire properties, often at deeply discounted prices.
Ron Shuffield, president of Esslinger Wooten Maxwell, a large Coral Gables-based residential brokerage firm, said that over the last three months cash buyers, who typically made up about 10 percent to 12 percent of his deals, have increased to about 30 percent of all residential sales handled by his firm.
The homes range from small, lower-end condos to multimillion-dollar residences. While the buyers include investors, many plan to live in the properties, he said.
One is Tiffany Rubiano, who paid $242,900 in cash for a two-bedroom unit at Midtown, the same Palm Beach Gardens development where the Ginders purchased. Rubiano said she could not have bought the unit without financing if the developer hadn’t cut the price.
“I am encouraging everyone who can to do cash deals,” Rubiano said.
Like Frank Ginder, Michael Melillo also never planned on pulling money out of a retirement account to pay cash for a house. But times have changed, he said. “My wife worked at a bank for 20 years,” Melillo said. “In the past we would have picked up the phone and gotten a mortgage in 30 days. Nowadays, even though I have a great credit score, to me, getting a mortgage is out of the question. It’s just too much of a hassle.” Melillo recently paid $209,000 cash to purchase a condo at Summer Chase in Lake Worth. The unit originally listed for $229,000.
Howard Solomon, an agent at Century 21 Tenace Realty in Boynton Beach, said 95 percent of his cash buyers plan to live in the homes they buy. About 30 percent of his deals are all-cash transactions, he said. “In the old days, when it was easy to get financing only 3 to 4 percent of my deals were cash,” he said.
Uri Vaknin, vice president of sales at Midtown in Palm Beach Gardens, said buyers with good credit and who meet stricter lending guidelines can still qualify for mortgages.
But fewer buyers qualify for financing and those who do typically have to endure lengthy loan application process. And desperate developers are eager to unload properties even if that means slashing prices to lure cash buyers. “In this market the faster someone closes the better it is,” he said.
Midtown is a mixed-use development completed early this year with 225 condo units, including 45 that have closed, Vaknin said. Until recently, most Midtown buyers financed their purchases through lenders, but in the past several months two out of three potential buyers that have come into the sales center said they would likely pay in cash, he said.
Vaknin said he closed four cash deals Thursday and had another scheduled to close today. All the deals were for substantially less than the units were priced. “It’s the state of the market,” he said. “You have to be realistic. You do what you need to do to sell the product,” Vaknin said.
Those who do have cash in hand are aware of sellers’ desperation, said Marcie DePlaza, division president of GL Homes. Most people in the market think they have bargaining power if they come with cash — and they do,” she said. DePlaza said GL Homes is negotiating with a local doctor who plans to take money out of his 401(k) to buy a house. He has offered 40 percent of GL’s original price. DePlaza, who said the company has seen at least a 10 percent increase in the number of cash buyers, said GL will make a counteroffer.
She said cash buyers have become more appealing to developers, not just because they represent a near-certain deal, but also because the approval process of lenders is taking much longer than usual.
“There is financing out there but a deal that would take three to four weeks to close now takes six to seven weeks, and some sellers can’t or don’t want to wait that long,” she said.
In many cases, especially with condos, properties can’t even be financed since lenders generally won’t make loans in developments where there are excessive foreclosures or if the condo association has financial troubles. The only way to sell those in the current market is to cut the price drastically, Shuffield said.
“I had one condo the other day where we had negotiated the price with the seller from $250,000 to $180,000,” Shuffield said. “But we found out that the condo association had some type of lien on it and no lender would lend on that building. The seller immediately said, ‘I’ll cut it to $160,000 if you can pay cash for it.’ ”
Shuffield and other real estate professionals said the volatile stock market has contributed to the increase in cash buyers since many are bailing out of equities. That’s part of a historic pattern. Over the years, Shuffield said, real estate has yielded higher returns than stocks.
“In 2002, when the dot-com stock market crashed, a lot of those investors moved over to real estate,” he said. “Since then the median price of a single-family home in Miami-Dade has risen from $155,000 to $265,000 — an increase of 71 percent over the median price of $155,000 on Jan. 31, 2002. The Dow was at 9,907 on January 31, 2002 and closed Wednesday at just under 8000 — a decrease of about 20 percent over the years.” Unlike stocks, you can’t simply cash out on a house overnight, Shuffield noted.
“There are people taking money out of the stock market and their savings and buying homes,” said Gregory Holmes, with ReMax Prestige in West Palm Beach, who also has been dealing with several cash buyers.
Seniors in particular are tapping into their retirement savings to pay cash for homes, Solomon said. “Most of my cash buyers have been people who are 55 and over or young people who are starting out and were given money by relatives to buy a home for themselves,” Solomon said.
Cash buyers and the continuing decline in home values have produced a modest uptick in sales. In Miami-Dade, single-family home sales for the third quarter were about 10 percent higher than in the same period last year, according to Multiple Listing Service data compiled by EWM. In Broward, sales were up 19 percent in the third quarter compared with the same period a year earlier, according to EWM.
Third-quarter sales increased 9 percent in the West Palm Beach-Boca Raton area for the same period, according to the Florida Association of Realtors,
But Brad Hunter, a principal at Metrostudy, a housing research firm, said there is still a way to go until prices hit bottom. “Inventory is going down, but this is only the beginning,” he said. “We are still going to see continued downward pressure in prices through next year.”
Polyana da Costa can be reached at (561) 820-2065. Ron Shuffield photo by Richard M. Brooks