COVER STORY: PAYING CASH
BYLINE: By Lew Sickelman and Joe Catalano; Lew Sickelman and Joe Catalano are freelance writers
SECTION: REAL ESTATE, Pg. C06
June 1, 2001 Friday ALL EDITIONS
LAST SEPTEMBER, Edward and Margaret Zingone sold their home of 43 years in Wantagh and bought a condo at The Waterways at Moriches, a community for those 55 and over.
Edward Zingone said he thought about investing the proceeds from his previous residence and financing the $189,000 condo, but he decided to pay cash instead.
"I didn't want a mortgage payment every month at the age of 87," he said.
While interest rates are low and most home buyers are stretching their incomes to qualify for a mortgage, a healthy minority are still paying cash for their new residences these days.
About 12 percent of the 5 million-plus buyers of existing homes in 1999 paid for their new digs in cash, including an impressive 7 percent of all first-timers, according to the National Association of Realtors, a Washington-based trade group. And a far greater percentage of new-home buyers-nearly one out of every four-did the same, according to the Census Bureau.
Who are these all-cash big-ticket buyers?
Experts say many of them are senior citizens, like the Zingones, as well as immigrants accustomed to cash transactions and wealthy second-home buyers who don't want to disclose their assets to lenders.
Although there are no hard statistics, observers believe the number of all-cash purchasers has been increasing, spurred, at least until recently, by the long economic expansion and the stock market boom. The extent of the all-cash trend has so intrigued economists that the Federal Reserve Board and the National Association of Realtors are now collaborating to come up with more accurate figures, according to Richard Mendenhall, president of the Realtors association.
The stock market's downturn has certainly changed some cash buyers' plans, said Marilyn Larsen, owner of Lane Realty in Jericho, which acts as the selling agent for several new-home communities on Long Island and in Queens. For example, many of the contracts at the Smithtown golf course community known as Stonebridge Estates started as cash, Larsen said, but purchasers have been closing with financing, due to the stock market collapse.
The staple of the all-cash housing market continues to be senior citizens who are using the proceeds from the sale of a previous residence to acquire their next-and perhaps last-one.
Some, like the Zingones, are remaining in the area. Others are using their home-sale proceeds to buy retirement units elsewhere.
Margaret Corbalini, for instance, sold her house in Stony Brook three years ago, using all the proceeds to buy a new place in Sun City Grande, an active adult community just outside Phoenix.
"It just seemed like the easiest thing to do," she recently said of her all-cash purchase. "I was so relieved when I paid off the mortgage on my old house on Long Island, I said, 'Let's not bother with another one.'"
According to the Realtors' association, the average age of all-cash home buyers is 57, vs. 38 for those who borrow money.
At the senior-citizens housing projects developed by the Klar Organization, "Seventy-five percent are buying all cash," said Steven A. Klar, president of the East Meadow firm that built The Waterways.
The final 150 condo units at The Waterways, which will be in three-story buildings with underground parking, go on sale in early summer, he said. "We already have a waiting list of people with cash in hand," he said.
At a second condo project, The Hunt Club in Coram, where only four of the 286 units are left, there are no age restrictions. Even here, though, 75 percent of the senior citizens who purchased paid cash, spurred by a $2,000 discount for doing so, Klar said.
Senior citizens are also buying existing homes in all-cash deals, real estate agents say. For example, Bethany D. Marten, owner of the Home Buyers' Resource Center Inc. in Baldwin and Riverhead, a buyer broker, said she is working with a couple purchasing a resale in Long Beach for cash.
One reason senior citizens pay in full is because they think they are too old to obtain financing, industry experts say. But under the federal Equal Credit Opportunity Act, it is illegal for a lender to turn down a buyer solely because of age.
Senior citizens don't have to be working, as long as they have the resources to cover monthly mortgage payments, said Ingrid Beckles, vice president of credit policy at PNC Mortgage, a national lender based in Vernon Hills, Ill.
"We look at the same factors for seniors as we do for everyone else: income stream, assets, credit and liabilities," Beckles said. "But if the assets generate the income, that's OK as long as it's enough to afford the payments."
Many senior citizens, in fact, don't pay cash for their retirement homes, especially in higher-priced developments.
At Harbor View in Port Washington, where the villa and estate units start at $600,000, buyers generally take out mortgages on the advice of their accountants, Larsen said. These purchasers usually are also buying another retirement home in a warmer climate, and even though they are selling a large primary residence whose proceeds would cover the two new homes, their accountants recommend financing because mortgage rates are so low, she said.
Still, some senior citizens may not want or need a typical mortgage, financial experts say. If homeowners are at least 62 and have enough equity in their old place, they can use a reverse mortgage to buy a new home, keep some cash for themselves and still eliminate their monthly mortgage payments.
A reverse mortgage is one in which the lender pays the borrower, either in one lump sum or monthly, based on the borrower's age, estimated longevity and the value of the property. No payments are required as long as the borrowers occupy the house; once they move out, the loan will be due and payable.
With a version of reverse mortgage known as "Home Keeper for Home Purchase," senior citizens can use the equity they have in one house to buy another. (They can get more information or find a reverse mortgage lender in their area by calling Fannie Mae's Consumer Resource Center at 800-732-6643).
While the economic gains of recent years have helped younger families buy homes, the high prices on Long Island and in Queens have prompted most buyers, particularly first-timers, to finance as much as they can, Marten said.
Developer Klar has noted a few instances where parents have paid cash to buy a first home for their children, but usually parental assistance comes as a gift of the down payment, he said.
Meanwhile, some of the new wave of immigrants in the New York area are paying cash because that's the way homes are bought in their native countries, said Tayseer Razik, owner of Re/Max Universal Real Estate in Bayside.
For example, Holly Park, an associate broker with Re/Max Universal sees about one out of every 50 of her Chinese buyers paying cash. The numbers would be higher, she said, if not for the relatively steep prices; homes in Bayside start at about $380,000. Many that take financing put down $150,000 or more, which would buy a house outright in some communities, Park said.
In addition, some pay cash for religious reasons, Razik said. For example, it is against the Muslim religion to pay or charge interest, said Razik, a Muslim himself.
One sizable group of cash buyers on Long Island, in particular, is the second-home buyer in the Hamptons, experts say.
"The more expensive the home, the more frequently they pay all cash," said Frank Newbold, vice president of Sotheby's International Realty with three East End offices including Bridgehampton. He estimated 50 percent of the firm's home sales are finance-free. Money comes from the sale of another property, investment profits or cash on hand.
These buyers pay cash sometimes to try to get a discount on the asking price, Newbold said.
Paying cash, they can close the deal immediately, which is "very appealing to a seller," he said. In homes with multiple bids, a cash offer "is a way of making yourself first in line."
Furthermore, many wealthy buyers pay cash because they don't want to disclose their finances to the seller or a lender. Some of the homes are bought in corporate names. Once the deal closes, the buyer may take out a mortgage later on, he said.
While an all-cash offer may give a buyer greater bargaining power, that's not always the case, unless you are dealing with an extremely motivated seller who wants out fast, real estate agents say.
If you are buying a new place, though, your builder may be willing to knock something off the price. The Del Webb Corp., a big Phoenix-based builder of active adult communities in several states, including the one where former Stony Brook resident Corbalini moved, offers a 6.4 percent break for buyers who pay in full a year before closing.
In order to get the full markdown, buyers would have to let Del Webb have use of their money for seven months before the company started building their homes, since Del Webb works on a five-month construction schedule.
About four out of every 10 of the company's customers pay for their homes in advance, according to Bob Hawks, manager of sales administration at the company's 6,000-home Sun City project in Huntley, Ill. Two more eventually close with cash.
Experts say paying cash up-front is generally not a big risk when the builder is of the size of Del Webb, which recently was acquired by Michigan-based Pulte Homes. With a smaller builder, they caution, buyers had better check out the company thoroughly before handing over their nest eggs.
"It's a good deal-unless he can't finish the house," Hawks said. "If he goes into bankruptcy, you're just another unsecured creditor."
Copyright 2001 Newsday, Inc. Reprinted with permission.