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taking these condos and homes and they are betting prices will go up.”
But all-cash purchases aren’t a cause for excitement in every luxury community in Southern California. Montecito is one such market where cash is old news.
“It doesn’t sell any popcorn here,” said Harry Kolb, a Sotheby’s agent with 32 years of experience in the wealthy Santa Barbara community. “We’re pretty jaded. Over-$5-million sales are, for the most part, cash.”
One reason for the high percentage of cash sales is that luxury properties are hard to value, making it harder to get a loan.
“Our market is very subjective,” Kolb said. “We’ll have a 3,000-
square-foot house that sells for more than a 5,000-square-foot house. Appraisers don’t know how to handle that.”
Another factor contributing to the high percentage of all-cash deals in luxury markets is the prospect of being turned down for a loan because the qualification process has gotten much more difficult for jumbo loans, Kolb said.
In areas with high housing costs, including Los Angeles and Orange counties, a jumbo loan is a mortgage of more than $729,750.
“Very substantial financial people have not been able to get loans,” he said. “It’s the first time they’ve ever been refused for anything.”
While investors are counting on home prices to rise, they should also be prepared for a long wait, USC’s Painter cautioned.
“My sense is that we are in a flat period,” he said. “I expect we’ll be there for another 12 months as the inventory gets pushed out in the foreclosures that banks are holding and as they dispose of them.”
The growth in cash buying is making clinching a deal increasingly difficult for traditional buyers.
“There is a competitive advantage against people who have to finance,” Painter said. With a cash buyer, the seller knows that the chances of a successful close are higher. “It gives people a leg up on the buying side.”
It also translates into dollars.
The all-cash buyer often can negotiate about 10% off the asking price, real estate experts agree.
“Cash will continue to prevail in any purchase, big or small,” said Rodeo Realty’s Brooks. “The allcash offer is king.”
