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Buying a co-op or condo in NYC? 3 great reasons to pay all cash instead of getting a mortgage

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2019
BRICK UNDERGROUND’S
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In the hyper-competitive New York City real estate market, it pays to be as strategic as possible when buying an apartment. A simple place to start—if you can afford it—is to offer to pay all in cash, instead of a more typical cash and mortgage combination.

“You’ll have a tremendous advantage over buyers seeking financing because you can close faster, with more certainty and less paperwork, which makes your offer more appealing to a seller,” says Robert Doernberg, senior managing director in Corcoran’s East Side office.

Need more convincing to go the all-cash route? Read on.

1. Time is of the essence

Most sellers want to avoid having their apartments sit on the market. A stale listing can complicate a seller’s next move, negatively impact price, or force them to carry two properties—a very expensive proposition, especially in NYC.

So the speed at which a cash buyer can close is highly desirable.

“You close much faster, because you eliminate the need for an appraisal and loan processing,” explains Judith Lief, a broker at Corcoran. “A seller who accepts a cash offer doesn’t have to worry about the appraisal required by a bank issuing a mortgage.”

The sale can close in a month, or even less.

“Generally, if the cash is available, you can close within 30 days, and sometimes you  can close much more quickly, says Cara Sadownick, a broker with Corcoran’s Nielsen Sadownick Team. “Most lawyers say they need two weeks for due diligence.”

2. Get a deal—usually

Cash buyers can often—but not always—use their leverage with sellers to get a discount. If you and your real estate agent can identify a property that’s lingering on the market, you have a good chance of a lower offer being accepted when it’s cash, especially in a slowing market. 

When that happens, the seller is faced with what Lief describes as a “tipping point.”

“You may see a buyer offering all cash and price that’s $10,000 less than asking,” Lief says. “A seller is going to have to weigh that offer versus the possibility of waiting 30 days or more to get a better offer.”

But don’t get overconfident, Sadownick cautions. “Sometimes a buyer feels they can get a better price by offering cash. That may or may not be the case. Whether the offer is financed or not is one of several factors,” she says.

Establishing “proof of funds” is a key part of the process. You can show a gift letter, or a letter from a financial manager (or from your parents’ financial manager, if that’s the case), or a bank statement with account numbers redacted to indicate the funds are in place.

“Generally, the deal sheet will indicate that financing is going to be prohibited, and the seller’s attorney will put language to that effect into the contract. That’s to protect a seller from a buyer changing strategy mid-deal. An experienced broker will know how to guide you through these steps so you are protected, too,” says Doernberg.

3. Smoother deal for the seller

Everybody wants fewer headaches, right? Real estate transactions in NYC come with plenty of them, but all-cash deals eliminate a few big ones.

“An all-cash buyer has leverage because they save the seller a lot of risk and trouble,” explains Sadownick. When a seller accepts an offer with a mortgage contingency, they take on the risk that a buyer may not be able to get a mortgage, she explains. And that can send the seller back to square one while the clock is ticking on the listing.

In any deal, she says, brokers and sellers do a lot of due diligence up front and go into it with strong level of confidence. “But with an all-cash buyer who provides proof of funds, there is a very high level of confidence.”

For some co-ops or condos, an all-cash buyer may be a good candidate, depending on what the board is comfortable with.

“An all-cash buyer wouldn’t have a mortgage, so the only expense is the maintenance or common charges, which allows room for lower income,” she explains. Boards look at debt-to-income ratio, so eliminating the cost of a mortgage greatly lowers the ratio.

Another advantage that all-cash buyers bring to the table has to do with renovated apartments. If a bank is involved, an appraiser is going to look closely at them and notice, for example, if the required permitting does not have every minor detail sewn up, which can take time and potentially money to sort out.

While you as the buyer want everything to be on the up-and-up when buying a renovated apartment, “there are far fewer hitches along the way” when paying all cash, Lief says.

Looking for expert help finding your next place in New York City? Visit corcoran.com today.