Homebuyers are finding one way to win the real-estate bidding wars popping up throughout central Ohio: pay in cash.
The percentage of central Ohio homes bought without a mortgage has risen dramatically the past few years as the housing market has regained footing.
According to the real-estate information service RealtyTrac, more than four in 10 central Ohio homes bought in the first quarter of 2014 were paid for with cash — twice the percentage reported a year ago.
Corporate investors, who buy homes to rent to tenants, account for most of that activity, especially last year when they paid cash for hundreds of central Ohio homes sold by Fannie Mae and Freddie Mac.
But even among routine listings, bought by owner-occupants, the number of cash transactions has skyrocketed.
According to the Columbus Realtors trade group, 24.6 percent of central Ohio homes sold this year through the Multiple Listing Service have been cash sales — well above the 8.5 percent seen a decade ago.
Retirees, downsizing from larger homes, help drive such purchases.
But also fueling the cash fire are buyers seeking leverage in case they end up in a bidding war for a home. Sellers typically prefer cash buyers because their offers have fewer strings attached that can slow down a deal, such as financing or an appraisal.
About a year ago, when the market started heating up, Michelle Santuomo, an agent with RE/MAX Metro Plus in German Village, began recommending that clients pay in cash when able.
“One of the things I’ve expressed with my clients is, ‘If you have the cash available, that will make your offer that much stronger. You can always go back and take out a mortgage after, but if you want to get this deal done, you might want to consider paying in cash.’ ”
Santuomo estimates that she has represented 10 cash buyers in the past year, most of them investors, but some of them were clients looking for an edge in a bidding war.
She recently represented a woman shopping for a condominium in sought-after areas of Grandview Heights, Upper Arlington and the Short North. After discussing the market with her client, the woman’s parents agreed to buy the condominium and sell it to their daughter.
Santuomo thinks the cash offer made the deal possible.
“They did get into a (bidding) situation and won the deal. I think the cash made the difference.”
A professional caretaker who paid cash on Wednesday for a Groveport house also thinks cash helped her secure the deal. The woman, who asked not to be identified, landed in a bidding war for the three-bedroom ranch listed for $49,000.
She ended up offering $61,000 in cash for the home, which was sold for less than the mortgage balance and therefore required the approval of the former owner’s bank.
“I know the bank wanted someone paying in cash,” she said.
She moved into the home on Thursday and kept her previous home for her sons to live in.
She’s now looking for other homes to buy and expects to again pay cash, part of which she accumulated through a recent inheritance.
“I don’t want any mortgage, any bills coming in,” she said. Most cash buyers, however, aren’t carrying thousands of dollars in their pockets — or their savings accounts. Like Santuomo’s client, they might borrow from families or draw on home-equity lines or other sources to make the deal, often with the expectation of getting a mortgage later.
Andrew Show, with Buyer’s Resource Realty Service in Worthington, said he is working with clients using a home-equity line to buy a condominium for their son with the intent of refinancing the property later.
Milt Lustnauer, a RE/MAX Premier Choice agent and this year’s president of Columbus Realtors, has been involved in similar deals.
“Mom and dad and family members are stepping up to offer cash … and later going back and refinancing instead of making the offer contingent upon financing,” said Lustnauer, who said he’s handled four cash transactions in the past 30 days.
RealtyTrac found that 42.7 percent of U.S. sales during the first quarter were cash transactions, but the percentage ranges widely from city to city.
Metropolitan areas that attract a lot of retirees or vacation-home buyers see a lot of cash deals. In several Florida cities, cash accounted for 60 or even 70 percent of sales during the first three months of the year, according to RealtyTrac.
Also experiencing a lot of cash deals are metro areas such as Toledo, Detroit, Atlanta and Memphis, where housing is relatively cheap and investors are active.
RealtyTrac Vice President Daren Blomquist said the percentage of cash deals appears to be declining a bit this summer, but he and others expect cash to play a major role in the housing market for the foreseeable future.
“I think we’re going to see kind of the same market for cash over the next 12 months until there are some loosening lending restrictions, particularly around allowing more first-time homebuyers into the market,” Michael Mahon, the general manager and executive vice president of HER Realtors, said.
Santuomo also thinks cash buyers will remain a big part of the market, at least until enough homes are offered for sale that bidding wars decline.
“Obviously not everyone’s able to buy things in cash, but in this market, you have to be willing to put your best foot forward if you want to buy a home.”