1 in 5 home sales in DC was all-cash. According to
UrbanTurf, this is true! An all-cash offer makes a buyer significantly more likely to “win” a house in this insanely competitive market.
But it’s also, apparently, typical for DC real estate these days,
even pre-pandemic. “In recent years, approximately 17-20% of homes sold in all-cash transactions, so this year's numbers [approx. 20%] are in line with annual trends.” And in fact, when you look at
numbers from the first half of 2021, 1 in 4 home sales were all-cash – nearly 25%! And both this year and last year, the majority of those cash sales were in DC’s most expensive neighborhoods, like Georgetown and Foggy Bottom.
So basically, so far this year, fewer homes are being purchased with cash when compared with the same time period last year. Kinda puts a different perspective on that 1-in-5 number, doesn’t it?
Okay but regardless of whether that’s a bit of a cool-down, one thing is still clear: a lot of people are buying homes with cash. Who has a spare $1 mil lying around to spend on a fixer-upper?? Especially when a lot of folks find it nearly impossible to save up a 20% downpayment!
I went digging because of course I did.
Okay, sure, investors are a part of the equation. But, and here’s what’s really messed up, because they’re looking at profit margins, investors try to buy low, i.e. snap up all of the
lower-cost inventory, some of which is in need of major repair, but they’re buying stock that might have gone to first-time buyers looking to invest some sweat equity.
According to data from Redfin and as reported by WTOP, “investor buyers in the D.C. region snapped up almost $952 million in homes last quarter, at a median price of $425,000, among the highest paid per property when compared to the top 50 metros.”
In the DC region in 2021, the median home sale price was $530,000, a record high. So yeah, investors are buying up the cheap stock. Much to my fixer-upper-loving dismay. But in the 4th quarter last year, investors only bought up 7.8% of the sales in the region. So yeah, it’s not just investors driving the all-cash surge.
But who are the people who pay for homes with cash?
Based on my research, there are a few primary archetypes we can look at:
✅Non-first-time homebuyers, like
this couple, who used the sale of their Oakland home (plus “savings and a small inheritance”) to purchase a new home in Portland, OR. Many of these folks will do something called “delayed financing” where they find mortgage financing after the sale goes through so that they have a bit more spending power/don’t feel “cash poor.”
✅First-time buyers who get money from family. Some parents will take out some of the equity in their own home to help front the purchase for their kids.
✅People who use a new type of financing offered by companies like Orchard and Open Door. These companies do stand to make a lot of money, either from a fee from the sale or from a buyer’s agent commission from the seller.
NPR did a great story on this newish strategy.
✅People who are really fucking rich. Because in this country, wealth can get you a lot of places. Folks with large investment portfolios (people made a lot of money during the pandemic) may have also liquidated assets to buy with cash.
Basically, if you have access to wealth you have way more options.
Okay, so you might still feel angry even with all of this context (lol), but I hope that this help shed some light on the way these all-cash purchases happen. I think it’s interesting to hear about companies that facilitate all-cash financing for regular people, but to me this demonstrates a weakness in housing finance more generally.
Yes, cash sales are easier for sellers because there’s way less risk that the sale will fall through, but should people with cash really be more competitive than the rest of us who just want to buy an affordable, decent place to live? Idk. But if you aren’t a millionaire, at least there’s a solution out there that might help you get that competitive edge.
If you used one of these companies to make an all-cash purchase, I would LOVE to talk! I’ve had a series in mind (maybe it’s a video, maybe it’s a podcast, idk) called “how I bought this” where I interview folks about how they bought their home. In our case, it was an interest-free loan from my government retirement account and a bunch of generational wealth from Geoff (including a lot of bar mitzvah money). Just hit reply if this makes you feel somethin’. 😉
