Cash Is Increasingly King When It Comes to Buying New York City Apartments
When showing an apartment at 585 Park Ave. in Manhattan recently, Vickey Barron, a licensed associate real estate broker for Douglas Elliman, mentioned the building only allows buyers to finance 30% of the purchase.
“We’re paying cash, so it doesn’t matter,” the buyer told her.
Many New York City brokers are having similar conversations with their clients. The percentage of condo sales in Manhattan that were all-cash in in April 2015 was 55%, according to appraisal firm Miller Samuels.
There are many reasons buyers prefer to pay cash for New York City real estate. The main one is to get an edge on competitors who are bidding on the same proprieties, say brokers. “It’s considered a seller’s market,” said Julie Park, a real estate agent with Level Group in Manhattan. “If they have a cash offer as opposed to a financing offer, 100% of the time they will go with the cash offer.”
The trend is sweeping all price points, from ultra-luxury apartments to deals under $1 million, brokers say. Sandy Edry, a licensed real estate salesperson at Keller Williams NYC in New York City, said he is seeing more cash deals than at any point in the past 10 years. At a condo conversion his team is selling at 69 Bennett Ave. in the Washington Heights area, at 184th Street, he said, about five of the 15 units that are closing are all cash.
“In the last year, where so many people were losing out on bidding wars, cash just became so important that I think a lot of people did whatever they could to pull the money together,” said Edry. “I’ve seen instances where people have borrowed the money from family,” he said. After they closed on the apartment, they obtained financing to pay back the loan, he said.
There are strategic financial reasons buyers want to pay cash, as well. Some don’t want to pay interest on a mortgage, for instance. Barron’s client who viewed the Park Avenue apartment is among them. “He is a Harvard graduate from the Upper East Side,” said Barron. “He does not invest in stocks. He has the money sitting in the bank. Why would he pay even 3% interest if he doesn’t have to?”
Barron has other clients who don’t want to deal with the reams of paperwork involved in getting a mortgage. “Some say, `I don’t want the hassle to apply for a mortgage. I’m too busy. I’m running my own company,’” said Barron.
Some buyers want to avoid the steep mortgage-recording tax in Manhattan by not getting a mortgage, said James Cox Jr., an associate broker at Cox and Co., his group at Compass, who sells properties in the Upper West Side, Tribeca and in Brooklyn Heights. The tax is about 1.8% of the closing price for loans under $500,000, and 1.925% of deals above that. On a $3 million purchase, for instance, the tax would be $57,750.
“It’s a big consideration for some people,” said Cox. “Certainly, your closing costs can become substantially less.”
Foreign buyers are another key group of cash buyers. It can be difficult for them to get a mortgage.
Two years ago, Edry sold a 90-unit project in Flushing, Queens, where he estimates that 80% of buyers paid cash. Most were Chinese. “I think it’s indicative of the fact that a lot of folks are trying to get their money out of China into investments,” Edry said.
Many of the buyers from China who are paying cash today are not ultra-wealthy, he said. “This is upper middle-class money,” he said. “The billionaires have already moved their money out of China for the most part.”
Of course, there can be nefarious reasons international buyers want to pay cash, too, particularly at the very high end of the market. The U.S. Treasury Department announced early this year that it would require real estate companies to provide the names of foreign buyers of properties in Manhattan and Miami who use shell companies such as LLCs to purchase them, in an anti-money laundering effort. The move is designed to prevent buyers from using money earned in illicit activities from buying real estate with it.
And even when cash deals are on the up-and-up, not all brokers relish them.
“My experience is that all-cash, quick-to-close deals rarely translate into exactly that,” said Cox, whose cash buyers have ranged from an NFL quarterback to a couple buying a $1.5 million home. “They can be more of a pain-in-the-neck than another deal that’s financed. At least when there is financing, there is a process. They have an appraisal, a period of time when they have to get their documentation in, a commitment letter and then you close.”
Cox has recently been working on an all-cash deal that he says has become “utterly frustrating.”
“I just sent a letter to the broker: You promised an all-cash, quick-close deal. A financed deal would have been closed by now,” he said. “I think the cash buyer feels once they have the contract they have a lot of extra power and can jerk you around.”
Ultimately, though, cash buyers have a powerful incentive to close, he adds. Buyers and sellers can only push the closing date by 30 days in New York. “The only thing I can tell my seller is that we’ll close by July 2 or they will forego their $320,000 deposit,” said Cox. “We’ll close. I’m sure of it.”