Paying Cash For DC Real Estate

Author: Susan Isaacs | The Isaacs Team

Paying cash for DC real estate allows buyers to save on transaction costs such as loan fees, and offer sellers attractive terms.

Cash Means Never Having To Say 'Contingency'

WHY IT MATTERS

Cash can be the deciding factor in multiple offer scenarios. It means sellers can write non-contingent offers, purchase properties restricted by lenders, and bypass appraisal.

It’s not all easy-breezy, though. We outline what sellers and listing agents expect from a cash home buyer in the nation’s capital.

Why Make An All Cash Offer?

It’s faster, easier and often more successful. Here are the top reasons to make a cash offer on real estate in Washington DC:

  • No-contingency offers are attractive to sellers
  • Fast closing due to elimination of loan processing period
  • Appraisals aren’t required for cash offers
  • No inspection requirements
  • Buyers pay lower closing costs by avoiding loan fees
  • Buyers pay no interest on mortgage loan
  • No required mortgage underwriting restrictions
  • Ability to purchase any type of property in any condition
  • Flexible settlements. Cash buyers can sign electronically.
  • Competitive advantage in multiple offer scenarios
  • Cash buyers often pay a lower purchase price

What Do Sellers Expect From A Cash Offer?

No-Contingency Offer

One of the primary advantages of a cash offers for DC real estate is the ability to write a no-contingency, or ‘clean’, offer.

Sellers can be assured that an accepted cash offer will not fall out of escrow due to loan denial, low appraisal, or inspection issues. While buyers writing cash offers are not precluded from adding contingencies to their offers, most will forego all but inspection, (and often even that provision), in order to procure the home they want at the best possible price.

Funds Verification Letter

Proof of funds is required with a cash offer.

The seller will expect confirmation that available funds exist to cover the entire purchase price of the property plus closing costs. The POF is included with the buyer’s offer to purchase.

Proof of funds can take a number of different forms, including:

  • Bank Statement (hyper-personal information redacted) generated by the buyer’s banking or other financial institution, dated, including bank officer contact information for verification purposes;
  • A verifiable copy of the buyer’s money market account statement;
  • An open equity line of credit verification;
  • Security or custody statement;
  • A certified financial statement;
  • Pre-approval letter from a mortgage lender;
  • And the easiest of all, a cash buyer can simply deposit all funds required for closing into the transaction escrow account within 72 hours of contract ratification, stipulating the portion to be allocated as ‘earnest money’ according to the terms of the contract.

Qualifying POF funds must be liquid capital. Sources such as retirement accounts, mutual fund accounts, life insurance, funds from others, stock shares and bonds are not appropriate forms of proof of funds.

Earnest Money Deposit (EMD)

Earnest money will still be required. Sellers will expect a healthy deposit into an escrow account when your contract ratifies. This sum is forfeited by the buyer and awarded to the seller as damages if the buyer defaults on the contract, unless contract terms dictate otherwise. The EMD amount is typically 7% – 10% of the purchase price, more under certain circumstances. The Earnest Money Deposit is held by the title company of the buyer’s choice and will be credited against the purchase price of the property.

Short Escrow

Because there is no loan processing period to extend the term of the transaction, Washington DC home sellers will expect a short escrow period when accepting a cash offer.

Allowing time for the title company to complete its title search, a seven to 10 day period is common for cash sales, 14 days at the outside.

Only sellers who are owner-occupants, or those with tenants occupying the property will desire a longer escrow period in order to deliver the property vacant.

What Defeats The Advantage Of A Cash Offer?

Lowball Offers

‘Cash Is King’ is still true, but it won’t make up for lowball offers.

Some buyers are surprised to learn that cash purchases are quite common in the DC real estate market, and that theirs isn’t the only one sellers are likely to receive in a multiple offer scenario. Sellers in the District are not so impressed by a cash offer that they’ll accept a low offer, even one with great terms.

Unrealistic Terms

Contingencies, demands for property improvements or major repairs, stipulating seller payment of buyer closing costs, inclusion of furnishings and other personal property, and dubious source of funds can sour sellers on a cash offer.

Every contingency weakens an offer. Loading a cash offer up with contingencies can negate its key advantages to the seller. There’s one exception; Inspection. Deadlines for offers set just a few days after properties are listed can make pre-offer inspections next to impossible. Therefore, a short (3 day) inspection contingency in an offer for a home that is not being sold ‘as is’ may be the sole contingency sellers will accept from a cash buyer in a multiple offer situation, especially if the inspection is no-negotiate, or ‘walk away.’

Disadvantages of Cash Offers

In our view, none.

Commonly cited ‘cons’ to paying cash for a home are:

  • Diminishing liquidity
  • Investing significant capital in one asset class
  • Foregoing leverage afforded by a mortgage if property appreciates

 While the primary ‘pros’ are:

  • Securing a desired property at a lower price
  • Saving on transaction costs
  • Eliminating obstacles to the sale
  • Reducing transaction time
  • Not paying loan interest

Virtually all the ‘cons’ can be mitigated by leveraging the property after closing, having achieved all the goals of the sale transaction.

2024 Proposed FinCEN Changes Affecting Cash Transactions

February 16, 2024: Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking titled Anti-Money Laundering Regulations for Residential Real Estate Transfers. The proposed rule imposes reporting and record keeping requirements on certain persons involved in real estate closings and settlements for non-financed residential real estate transactions.

The proposed rule would require certain professionals involved in real estate closings and settlements (title companies, attorneys, escrow agents) to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts.

FinCEN’s proposal is tailored to target residential real estate transfers considered to be high-risk for money laundering, and it would not require reporting of transfers made to individuals.

“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” according to FinCEN Director Andrea Gacki.

The proposed rule describes the circumstances in which a report would be filed; who would file a report; what information would need to be provided, including information about the beneficial owners of the legal entities and trusts; and when a report about the transaction would be due.

Reportable Transfers of Residential Real Property

• The proposed rule would require reporting on various types of residential real property transfers, including transfers of single-family houses, townhouses, condominiums, and cooperatives, as well as buildings designed for occupancy by one to four families. It would also require reporting on transfers of land that is vacant or unimproved, but that is zoned, or for which a permit has been issued, for occupancy by one to four families.

• In the case of reportable purchases, there is no threshold purchase price for the transfer; in other words, the transfer would be reportable irrespective of purchase price. Likewise, transfers of ownership for which no consideration is exchanged, such as a gift, would need to be reported.

• Exempted types of transfers would be those involving an easement, that occur as the result of the death of the property’s owner, that are the result of a divorce, or that are made to a bankruptcy estate.

• For a transfer to be reportable, it would need to be non-financed, meaning that it does not involve an extension of credit that is secured by the transferred property and extended by a financial institution subject to AML program and SAR reporting obligations. Transfers financed by private lenders that do not have an obligation to maintain an AML program and a requirement to file SARs would be covered by the reporting requirement.

As proposed, a transfer of residential real property would be reported only if at least one of the new owners of residential real property is a “transferee entity” or “transferee trust.” These categories are defined broadly to capture a wide variety of legal vehicles used to own property, such as limited liability companies, corporations, partnerships, and trusts. Both domestic and foreign entities and trusts would be covered by the reporting requirement.

• Certain definitional exceptions would apply for highly regulated types of entities and trusts that are less likely to be used by illicit actors to launder money through residential real property.

Data from the reports would assist the Department of the Treasury and its law enforcement and national security partners in addressing vulnerabilities perceived to expose the U.S. residential real estate market to abuse by illicit actors.

The proposed rule is consistent with the Bank Secrecy Act’s longstanding directive to extend anti-money laundering measures to the real estate sector and builds on the success of FinCEN’s Real Estate Geographic Targeting Order program, which has demonstrated the need for increased transparency and further regulation of this sector nationwide.

Disclaimer

We are not title attorneys, legal experts or CPAs. The information presented on this site and page is derived from reliable sources, but may be paraphrased, incomplete, or outdated and should not be considered legal, financial or investment advice. The Isaacs Team LLC, DOMO of Compass, and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific transaction.

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