Yesterday I had a lady call me who was interested in a Miami Beach condo she found on our website. Prior to calling her I looked up the property’s information and also called the listing agent. I found out that the property was an REO (a real estate foreclosure that didn’t sell at auction and now it is placed on the local MLS). The seller (the bank) was also only accepting cash offers.
When I called this lady back to go over the details of the property she said that she did not have cash to pay for the property and would need financing. I explained that unfortunately this property is a “cash only” purchase required by the seller. She didn’t understand because she said that of course the seller would get cash at closing and she would get a loan from the bank.
I tried to explain how this works but I think in the end she was still a little confused, are you? I mean hey, it makes sense right? Ultimately if you are the buyer and are getting financing when the deal closes, the seller gets cash right?
So what difference does it make whether you pay cash from your bank account or cash that you obtain from a loan that you get from the bank? Well the answer is ….. a BIG DIFFERENCE.
(1) This is how it works.
Nowadays banks only loan money on properties (condos located in buildings) that are financially sound and meet other special criteria. Some of these criteria are:
- Is the delinquency rate under 15%?
- Does the condo building carry specific insurances and collect x amount of reserves?
- How many renters versus owners?
- Does any one entity own more than x percentage of the entire building?
- How many foreclosures and short sales?
- (and there are many more criteria…)
So even if you are a great buyer with excellent credit and a good down payment, if the property you are purchasing is located in a building that does not meet the lender’s qualifications, you cannot purchase this property with a loan from your lender.
Single family homes are a little different. Can you guess why? If you said because it’s not in a building where those factors that depend on the business of the building are not an issue, you are correct. Of course single family homes still have to go through the appraisal process and other criteria but they are definitely easier to finance than condos in today’s market because they don’t depend on the “whole of the building’s business”.
(2) Why Sellers Say “Cash Only”
- If a seller already knows in advance that the property is located in a building where financing is not possible, it only makes logical sense to seek only cash offers.
- Some sellers in today’s market do not trust the lending process and this process can take in a typical transaction 45 days to underwrite, approve and close. So some sellers make the decision that they don’t want to risk taking the property off the market this long in order to have an approval from the bank so they make a decision to only accept offers from “cash only” buyers.
(3) If you need financing, you have to have an agent and a local lender who knows the process.
- First speak to a local lender who knows our market and knows the buildings. If you call the 1-800-loanmelotsofmoney hotline, all of these people will tell you “of course you qualify for whatever you want….. your wish is our command.” What you need to know is these people are NOT the underwriters who will actually “approve” the loan. Usually they are completely clueless about our market and the final qualification process of the buildings. They are also not the one (you the buyer) putting down a large deposit that can be at stake if the loan is not approved. So use a local experienced lender.
- Case in point last year I had a buyer who insisted on using a lender not familiar with our market and she almost lost a $60,000 deposit because they screwed up the transaction. In the end, she had to find cash to close or her deposit could have been at stake.
- Also local lenders know the products that are available for buyers in specific situations.
- Use an agent who knows the market and knows the buildings.
Find a good agent and trust what they are saying. Ultimately if we are working together, I would like for you to purchase a property. If you need financing, I don’t want to show you places that are cash only purchases. It’s a waste of both of our time and it doesn’t make sense.
Last week I had a client who could purchase with cash or financing, she just hadn’t decided which one yet. I explained in advance that some of the buildings we were looking at were cash only buildings but I don’t think that she actually believed me until we visited every single property manager at the buildings and they each confirmed whether properties within their building could be purchased by cash or financing. It was until she actually heard, “sorry, cash only,” that she actually understood the validity of this statement.
It’s true my friends most of the real estate transactions in Miami Beach are total cash purchases. If you need financing it’s not impossible to buy but you need to speak to a local lender and be sure your agent knows how to find eligible buildings. Don’t be disappointed when your agent tells you “sorry that’s a cash only building,” it’s probably a good sign that they know what they are doing.
Copyright © By Jamey Prezzi 2011 *Miami Beach Real Estate
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About Jamey
Together for over twenty years, Jamey and Ognjen know the meaning of hard work, persistence, trust and dependability. They have been involved in numerous real estate transactions that involved multi-million dollar properties from high-rise luxury living in South of Fifth to large estates on the islands like Sunset Islands and more.
