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April 12, 2013

Cash Sales All the Rage in San Francisco

Cash sales became commonplace in San Francisco in 2012, and they show no signs of slowing down this year. (See “Cash Sales Soared in 2012.“)

A look at all the reported cash sales from January 1-April 8, 2013 reveals that almost a quarter of all single-family home and condo sales were cash transactions. That’s a somewhat stunning percentage, and makes a huge statement about where people are putting their money.

Most condo cash transactions took place in neighborhoods such as Pacific Heights, Russian Hill, downtown, and the more urban enclaves of Mission Bay, South Beach and SoMa. Sixteen of the 131 condo cash sales in the aforementioned timeframe sold for more than $1.5M, but 73 sold for up to $1M.

Most of the 114 single-family cash sales occurred in the Excelsior, Bayview, the Sunset, Noe Valley and Bernal Heights. Eighteen sold for more than $2M, and five sold for more than $4M. A total of 69 houses closed escrow for up to $1M.

Even TICs got in on the act, with one Mission Dolores 3BR TIC in a six-unit building on a group loan closing escrow for $2,050,000.

All of this cash activity is all fine and good for sellers, but it unfortunately can wreak havoc with comparable sales from a buyer perspective. Because many cash buyers aren’t having appraisals done, they’re more willing to throw money at a desirable property because they don’t have to worry about an appraisal coming in low and jeopardizing a loan. For example, one 3BR/1BA, 1100-square foot house on Bernal’s north slope listed for $799,000 recently received 16 offers and ultimately closed escrow in a cash transaction, with a $1.2M+ selling price. There’s no way this property would appraise were the buyers getting a loan. But with no appraisal required, such buyers are going for broke so they don’t miss out on a property they like. And a new comp is born.

Indeed, single-family home and condo buyers with all cash paid an average of 5.5% and 4.4%, respectively, over the list price. The old adage of getting a discount by paying cash apparently doesn’t ring true in San Francisco real estate.

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