Cash Is King…But Not When Everyone Has It!

Cash is King in Miami

The Miami real estate market is in a world of its own compared to the rest of the country. In 2013, Miami led the United States’ real estate markets in all-cash deals and was followed by Las Vegas and New York, according to data compiled by RealtyTrac, a real estate research firm. Compared to the national average of only 31%, approximately 62% of all closed residential real estate sales in Miami in 2013 were cash deals, according to the Miami Association of Realtors and the National Association of Realtors.

Downtown Miami Skyline

Miami Condos

In 2013, 74% of all condo sales in Miami-Dade County were cash transactions, according to the Miami Association of Realtors. What does this mean? This means that buyers cannot play the “low-ball” game…in Miami, this mentality does not work. When most buyers are paying cash, sellers are less likely to allow cash to influence their decision to take a lower offer because they know that another all-cash offer may be right around the corner. When buying a condo in Miami, financing is the biggest obstacle for most buyers. Obtaining financing on a condo is very difficult regardless of your personal income or credit…I CANNOT STRESS THIS ENOUGH! This is precisely the reason for the high level of cash buyers. If you are not able to put 25% – 30% down on a Miami condo, financing is almost impossible to obtain.

Luxury Home in Miami

Miami Homes

Miami single-family homes differ slightly from the Miami condo market. In 2013, 46% of all single-family homes were purchased using all cash, according to the Miami Association of Realtors. Although this number is not nearly as high as cash condo sales, it is still 50% higher than the national average. Financing is much easier to obtain when purchasing a single-family home versus a condo in Miami. Where 25% – 30% down is required with a condo, you can purchase a single-family home with as little as 5% down…unless the purchase price exceeds the conventional loan limit…which is a completely different story.

There are various reasons why all-cash offers rule the Miami real estate residential market.

• Possibility of a Lower Price: There is a chance of purchasing the property for a lower price than if financing. Now, while I say this, I have to stress that buyers must be realistic. Paying cash definitely gives buyers an advantage, but since most people are paying cash in Miami, you still have to compete with those buyers in addition to the fact that sellers are reluctant to give away their properties in a seller’s market!
• Quicker Closing and No Appraisal Contingencies: Cash deals can close quickly and without as many “hoops” to jump through. Sellers prefer all cash because there are less contingencies to worry about.
• No Credit Checks: This is helpful for foreign buyers who have not established credit in the United States.
• Avoid Extra Closing Costs: A lender’s attorney may charge fees to handle specific portions of your financing. Not to mention, the lender charges a fee for mortgage applications and loan origination fees. Who do you think pays the fees from the lender…of course, the buyer does. If you need a loan fast apply for the no credit check loan here. All of the small fees charged by the lender at closing definitely add up.
• No Property Tax/Homeowner’s Insurance Escrow Account: Mortgage borrowers are responsible for providing funds for their mortgage escrow and sometimes have to pay major additional costs at closing to this account. Additionally, when property values rise and the annual property taxes or homeowner’s insurance also rise, you must advance that money into an escrow account.
• Avoid Exchange Rates: Foreign buyers can take advantage of currency exchange rates in cash real estate deals, especially since foreign-exchange rates fluctuate and can increase monthly mortgage payments for foreign buyers.
• ZERO Monthly Payments: The biggest perk for paying all cash for real estate is no monthly mortgage payment.

Some tips for all-cash buyers in Miami

• Trust your Miami real estate agent’s expertise. If you are interviewing agents to help you with your purchase of a condo or home in Miami, be sure that they are extremely knowledgeable about ALL aspects of real estate including, but not limited to, local market trends, real estate finance and building construction. I strongly encourage you to interview multiple real estate agents prior to choosing one Miami agent—this is usually done over the phone.
• Cash offers do not equal low-ball offers. Because the Miami real estate market is saturated with cash buyers, sellers are not particularly swayed by all-cash offers. This means that you must be realistic about your offer!
• Buyers must be prepared to have proof of funds on hand to make an offer. This could be a bank statement showing a current account balance or a letter from an accountant or banker stating that the buyer has enough funds to cover a specific purchase price. A seller will not take your offer seriously and may not even review an offer without proof of funds.

Don’t get me wrong, cash is king…but not when everyone has it!  As reported by Diana Olick of CNBC on Friday, June 24, 2014,  “All I know is that at least 80% of new or pre-construction condos today go to foreign, all-cash buyers with 50% deposits in Miami.”

If you, or someone you know, would like more information on Miami real estate or simply have a question about the Miami real estate market, please contact Michael Light of Miami Luxury Homes.  You can reach me directly at my office 305-350-9842, on my cell phone at 786-566-1700 or via email at michael@miamiluxuryhomes.com.

This post from onqfinancial.com takes you step by step through the process of how to get an FHA loan.