The bar chart describes the nationwide percentage of single-family home and condo all-cash sales by year.
2016 27.73%
2017 26.98%
2018 27.01%
2019 25.10%
2020 22.75%
2021 34.35%
2022 36.12%
Without selling investments or draining your liquidity
Despite signs of some softening in the housing market, competition for residential properties (particularly in desirable markets) remains fierce. Bidding wars continue to be commonplace; and as a result, all-cash offers have become more commonplace.
In fact, cash sales accounted for more than a third (36%) of all home sales in 2022.1 And that percentage rises as the value of the properties and the desirability of the neighborhood rises. In some premium markets such as Manhattan, even though both the volume of sales and average property prices fell in the first quarter of 2023, the number of all-cash deals continued to rise — to a record 57%. At the high end of the Manhattan residential market, three out of every four sales over $5 million were all-cash deals.2
Why this surge in all-cash deals? While for the most part driven by limited supply and high demand, for sellers the numerous advantages are clear:3
In many cases, buyers who plan to go the more traditional financing route are today finding themselves at a considerable disadvantage. According to Redfin, “prospective homebuyers who offered all cash were more than four times as likely to win a bidding war as those who didn’t… making it by far the most effective strategy to win a home when there are multiple offers.”3
There are a variety of ways you could potentially come up with an all-cash offer. These include:
Any of these strategies can serve as an end solution or as a bridge — allowing you to take your time in lining up advantageous post-sale financing after the transaction is completed. But what if you wish to level the playing field and effectively compete with cash buyers, yet don’t want to force yourself into a liquidity crunch or incur any unnecessary adverse tax consequences?
If qualified, you might instead want to consider obtaining a securities-based loan which would allow you to potentially make an all-cash offer without needing to sell any of your investments. In effect, these are loans which are secured by eligible assets in your investment portfolio — allowing you to quickly obtain cash funds to meet closing deadlines — and then at a later point in time, apply for a residential mortgage loan and if qualified use those proceeds to pay off or refinance the securities-based loan.
Additionally, you could use some of the securities-based loan funds to renovate, repair and/or furnish the property — making you an even more attractive potential purchaser by avoiding demands that the seller make certain improvements prior to closing.
Merrill clients may apply for a Loan Management Account® (LMA® account) from Bank of America. It’s a way to maintain your current investment strategy, while using your investments as collateral to access the funds you need to pay for a home purchase — with flexible terms/repayment options and a choice between fixed- and variable-rate structures. The entire process (from application to funding) usually only takes about a week.
Risks of Borrowing
Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors. A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
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1 “U.S. Home Seller Profits Top 50 Percent In 2022,” Attom Data Solutions, January 2023.
2 Elliman Report 1Q2023, Miller Samuel, April 2023.
3 “All-Cash Homebuyers Are Four Times More Likely to Win a Bidding War,” Redfin, March 2022.
The Loan Management Account® (LMA® account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call, and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans, and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A. For fixed rate and term advances, principal payments made prior to the due date will be subject to a breakage fee.
Credit facilities are provided by Bank of America, N.A., Member FDIC, or its subsidiaries or other bank subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based and/or securities-based financing involves special risks and is not for everyone. When considering an asset-based and/or securities-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. For any loan with securities collateral, the securities or other assets in any collateral account may be sold to meet a collateral call as provided in the definitive loan documents and the client is not entitled to choose which securities or other assets will be sold. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors.
Banking products are provided by Bank of America, N.A., and affiliated banks, Members FDIC, and wholly owned subsidiaries of Bank of America Corporation. Equal Housing Lender.
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