More buyers in New Jersey’s red-hot real estate market are relying on an old virtue to get their offers accepted — cash is king.
Real estate agents throughout the state have said their buyers are often losing bidding wars to offers that are cash, meaning the sale is not contingent upon the buyer getting a mortgage to close. Cash buyers also run the risk of losing their deposit, so their offers are seen as more committed. And an appraisal isn’t needed for a cash purchase, eliminating another contingency.
According to a data comparison prepared by the Otteau Group, the number of cash closings in March 2020 compared to the number in March 2021 rose 4% statewide. But those sales that closed in March were likely inked in December or January, so the trend is expected to continue to emerge in closing data.
“This is a bit of a lagging indicator,” said Jeffrey Otteau, a real estate economist and president of the Otteau Group. “It’s likely to accelerate as we get to closings later in the year.”
The biggest increase in cash purchases was for homes that were above the median price of $355,000.
“These are all symptomatic or a byproduct of a sparse market in which buyers need to sweeten the offer to get the house and one of the ways to sweeten the offer is to remove the mortgage contingency,” said Otteau.
The buyers are panicked, he said, that they’re not going to be able to find a home before the prices go even higher so they’re willing to put their deposit at risk to make their offer more competitive.
Home prices increased about 12% last year, Otteau said.
“What it really is, is an indication of the desperation homebuyers are feeling now to find a home, lock up a house and get it under contract,” Otteau said.
More people are buying homes with cash.
“We are seeing it across the board at all price points. And it’s very creative,” said Robert White, President-elect of New Jersey Realtor, and managing broker at Coldwell Banker Realty in Spring Lake.
But just because the homes are being purchased with cash, doesn’t mean there is no mortgage. Some high-end buyers are borrowing from their investment portfolio to make the purchase and then paying all or part of it back with a mortgage.
“Mortgage money is so cheap and a lot of the investment advisors are recommending their clients borrow the money instead of divesting their portfolio,” White said.
The mid- and entry-level markets are also seeing an increase in cash purchases.
Pat Settar, of Berkshire Hathaway Fox & Roach Realtors in Mullica Hill, had a buyer who was trying to purchase a home in Haddon Township. The market there is very competitive, she said, due largely to investors who are flipping homes.
“I just kept hearing over and over it’s a cash buyer,” Settar said, for the reason her client’s offers were turned down. “When I told this young girl, she told her parents what was going on and they borrowed out of their 401k to give her the cash and, after she settled, she paid them back with a mortgage.”
Agents also attribute the cash buying trend to the high-prices, and low inventory market.
“Everybody is cashing in on their homes because the shortage of inventory is so severe,” Settar said. “People up north are cashing in and buying down here. I’ve never had so many cash buyers in my life.”
Brian Morganweck, the broker/owner of Power Realty in Hackensack, said 90% of his buyers in high rises are empty nesters who are selling their larger home for a big profit and downsizing to a condo with the cash profit.
“If the seller has 12 offers and one is iron clad because it’s all cash – no appraisal, they’re not going to change their mind — they edge out all the ‘what ifs’ in a seller’s mind,” Morganweck said.
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Allison Pries may be reached at apries@njadvancemedia.com.
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