If you’re buying or selling a NYC apartment these days, you probably know that cash is a prominent member of the royal family, and in competitive bidding situations, the advantage usually goes to His Royal Highness.
But you may not know that cash also commands a discount.
“Cash is a sure thing, and in the current market it provides a distinct advantage over competing buyers using mortgage financing,” says real estate appraiser and market analyst Jonathan Miller. “Anecdotal evidence suggests that an all-cash buyer should expect a discount from the seller and that the seller, from a practical standpoint, should want to provide a discount to get the deal closed.”
How much of a discount, exactly?
“On a $1 million apartment, cash is worth $50,000 or maybe even more,” says Jerry Feeney, a Manhattan real estate lawyer who works primarily with buyers and sellers.
Some say the premium is bigger than five percent.
“As a seller, if I had to choose one offer over another I would definitely go with all cash,” says Paul Purcell, the co-founder of Charles Rutenberg Realty and residential real estate consultancy Braddock + Purcell. “Ten percent might not even be enough for me to take financing over cash.”
Cash has been gaining influence since banks noosed up their mortgage requirements and sellers could no longer count on the money actually showing at the closing table.
Stranger-danger appraisals have also shined up the appeal of the greenback, says Purcell.
“New regulations call for banks to bid out the job and we have no idea who we will end up with, like a guy from Jersey doing a co-op who’s never set foot in Manhattan,” says Purcell.
“The buyer may need to come up with extra cash for the downpayment," he notes. "And contracts for sale are being rewritten with new clauses so the buyer can walk if the appraisal doesn’t come in where they need it to.”
Before accepting an offer that relies on financing, Purcell urges sellers to do make like a forensic accountant.
"Get as much financial information about the buyer as possible. Speak to their mortgage broker if necessary," he says. "Dig for the truth to the degree possible."