David Gesinger wants to live in Richmond, but for now he’s stuck renting a one-bedroom apartment with his eight-year-old daughter in nearby El Cerrito, about two blocks from the Richmond border. For the past year, Gesinger, 44, has been trying to buy a house, but all-cash buyers have outbid him every time.
The Richmond real estate market, like the rest of the state, is on the rebound. And some of that recovery is thanks to investors who are able to buy homes without taking out a loan. That’s great news for both sellers and real estate agents, but it leaves limited selection for buyers who don’t have access to a lot of cash.
Gesinger says he has offered to pay as much as 110 percent of a home’s appraised value, and still he has been turned down. “The feedback I’ve gotten from all of my bids is: ‘A cash offer was accepted; your offer was not,’” he says.
“If there are five people bidding, it’s the one that bids with cash that gets put to the top of the list,” Gesinger says.
In July, 43 percent of the homes sold in Richmond were purchased with cash, according to data obtained by RealtyTrac. The phenomenon isn’t limited to Richmond; other parts of the Bay Area have seen a rise in all-cash sales, as well. But for the past two years, the percentage of cash sales in Richmond has exceeded state and national averages.
Real estate values have risen in Richmond since the mortgage crisis, but investors believe that houses in the city are still undervalued, according to East Bay Realtor Geoffrey Craighead. “Investors are anticipating a tremendous amount of appreciation, a bunch of which they’ve already seen.”
Part of cash’s appeal to sellers is that the transaction can be completed quickly: Cash closings take just 15 days, whereas conventional loans often take more than a month to close. And as Gesinger, a military veteran, has learned, loans backed by the Department of Veterans Affairs tend to take even longer.
Real estate agents receive their commissions only once the closing is completed, so they have an added incentive to expedite the process. “If I’m looking for a payday, I don’t get paid until it closes escrow,” says Craighead, explaining the prevailing mentality of listing agents. “A lot can happen in that 45 to 60 days, so cash looks all that much more intriguing.”
Gesinger worries that the increase in investor activity could change the character of neighborhoods, as absentee landlords replace homeowners. From 2007 to 2011, more than 60 percent of Richmond homes were owner-occupied, according to the US Census Bureau. But that percentage could shrink if investors continue to purchase homes and convert them into rentals.