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

Purchase today with all cash; finance down the road

There are a variety of ways you could potentially come up with an all-cash offer. These include:

• Using cash on hand
• Liquidating another property or properties
• Selling portfolio investments

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.

• Bank of America, N.A. ("the Bank") can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
• You are not entitled to choose which securities in the collateral account are liquidated or sold.
• The Bank can change its collateral maintenance requirement at any time without notice to you.
• You are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
• There may be adverse tax or other consequences to you if securities are sold or otherwise liquidated by the Bank.
• The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time and any commitment may be immediately terminated.
• For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily, (due to demand or liquidation by the Bank,) may be subject to a substantial breakage fee as determined by the Bank.
• Some restrictions on the use of LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.