Every year we like to reflect upon our interactions with our clients and speak to those who may be in the market to sell their home. Reason being, to help educate those in need of selling a house to an alternative way to meet their selling needs – especially if they want to sell a home without having to make repairs, or need to sell fast –for whatever reason.
I am talking about selling a house directly to a cash investor. You know…the “We buy houses” or “Sell your house fast” companies. However, given the lack of straightforward information available, there is mystery that surrounds this industry, leaving many home sellers are unaware of a very viable option to selling their house – which is selling directly to a professional homebuyer, for cash.
Our goal in writing this article is to help “demystify” the “cash for houses” industry in a way that will, at the very least, allow home sellers to understand that we (as a whole) want to add value to our clients, their families and their respective situations. And, to inform the general public that, while professional homebuyers are in business to make a profit, the ultimate goal is to create a “win win” situation within a real estate transaction which benefits both sides – the buyer and the seller.
As such, selling a home directly to a cash buyer can intimidating – especially if you, the home seller, are not properly informed as to how these companies work. If you are considering selling a home and don’t want to make any repairs or need to sell your house fast, using an all cash home buyer to purchase your house may be the answer. However, it is important that you learn to do your homework properly. The essence of this article is exactly that – to help you better understand what selling your home to a cash investor entails along with a few resources to help guide you. In short – we want to offer the truth about Cash for Houses and We Buy Houses companies; how they differ from a traditional sale, when to use them and what to expect.
We will begin by answering, what we have found to be, some of the most common questions home sellers typically have when making a decision as to how to sell their house. We will also provide you with the actual formula used by many professional home buyers to calculate a cash offer and take you through a hypothetical scenario of how an investor will calculate your home’s value and, thus, make a cash offer for your home. You will find this information near the end of the article starting on page three under the heading “How Much Will an Investor Pay for My House”. So, let’s get started…
Typical questions pertaining to selling a home come down to a few; “Should I sell my house to a cash investor?”, “Should I use a Realtor or sell myself?” and/or “How does selling to a cash investor work?”. These are questions we help clients answer every day and are the answers which I will share with you now.
Should I sell to a cash for houses investor?
Selling a house to a cash investor is not for everybody or every situation, however, it can be a value added experience, given the right set of circumstances. For example, by selling to a cash investor, home sellers don’t have to make any repairs, be inconvenienced by multiple realtor showings or inspections, or wait the length of time a traditional sale takes in order to get cash. And, in many cases, one can stay in their home until they are ready to move to different location.
This approach to selling a house is easy and worry free. In fact, once you are in contract (with a reputable home buying company), there should little to no doubt about their ability and willingness to close. Additionally, most cash for houses companies will not only close fast, usually within 5-7 days, they will pay all of the closing costs and not ask you, the home seller, to make any repairs, clean anything or even lift a finger. This approach differs greatly from selling your home with an agent given the fact that, per most real estate contracts, all personal items must be removed from the home prior to the close of escrow – which can be a major inconvenience for the home seller.
General Rule of Thumb; If your home is in disrepair and you want to sell “as is” and/or
your home is facing foreclosure and you need to sell fast, then an offer from a cash investor may be your best solution.
Why shouldn’t I sell to a cash for houses investor?
If you are trying to get top dollar for your home, selling to a cash investor may not be your best option. We consult with clients everyday about whether to list their home (as I am a licensed real estate broker) or sell fast for cash. In so doing, we always ask our clients “what is most important – selling fast for cash, in “as-is” condition, or getting top dollar for their property?”.
The answer to this question is usually at the mercy of a couple of factors:
1. Is my home in good enough condition to sell on the open market?
a. This is an important aspect to consider. If a home is not in good shape then the FHA (Federal Housing Administration) and/or Banks may not be able to put financing in place. THIS IS VERY
IMPORTANT simply because if a buyer is unable to get financing for their purchase then they
lose their ability to purchase your home! Which, obviously is a huge setback for you, the home
seller. This will easily lead you back to square one with the sale of your home. For more
information pertaining minimum home condition standards, you may find this site helpful;
http://www.fhahandbook.com/appraisal-guidelines.php
2. Do I have enough time to list and sell my home on the open market?
a. Selling a home on the open market can take anywhere from 30-90 days, whereas a cash
transaction can take as little as 5-7 days. Therefore, if the seller is facing any type of foreclosure
or tax sale auction, they may not have the time to list on the open market and may be better off
selling directly to a cash investor and closing fast. In a lot of cases, home sellers have built up a
lot of equity in their homes (equity is the difference between a home’s value and what is owed
on the property) and don’t want to lose it all to a bank or foreclosing agency. Therefore, selling
to a cash investor may be the best option.
General Rule of Thumb; If your home is in good condition and you are not in a rush, use a Realtor to get retail market value for your home. Otherwise, consider selling to a reputable cash investor who will buy your home asis and close fast.
How do I find a reputable, trustworthy, Cash Investor?
If you are like most of the population (and are reading this article) you probably use Google (or some other search engine) to find answers to most questions like this. And, it is a very important question to answer.
Having been in the real estate business for more than 20 years I have seen a lot, and if there is one thing that I have learned it is there are good companies and bad companies that offer “cash for houses” or “we buy houses” services.
The good companies have been in business for years and have built up a nice reputation (both online and otherwise) while a lot of the less trustworthy companies, quite frankly, have no reputation; they have no website, no presence with the Better Business Bureau, no licenses, no insurance, etc. Just because somebody is advertising “we buy houses fast” or “sell your home for cash” doesn’t necessarily mean that they have the ability to perform.
Therefore, I always recommend performing due diligence by performing an internet search on their name and/or company information. This includes looking up their credentials (and rating) with the Better Business Bureau (BBB). Through the BBB you can find valid customer reviews and BBB ratings and credentials. This can help you weed out the reputable cash investors from those who may be less than honest and not worth your time or consideration.
Any cash for houses investor worth their salt should have a BBB Rating and third party review(s) on their site.
You can visit this site to reference the BBB; https://www.bbb.org/en/us and inquire about all types of companies, not just “we buy houses” and “cash for houses” investment companies, by the way. Once you are able to find a cash investor that you are comfortable with, the next step is knowing what kind of offer to expect. For example, how much will a cash investor pay for your home, how does a cash investor calculate the value of your home and how do they make an offer?
How much will a cash investor offer for my house?
This question is pretty difficult to answer from a general standpoint, as there are numerous factors that go into determining the value of a home. However, I can provide you with a typical formula that cash investors use to determine a cash offer.
The first thing that any cash investor will do is establish an “after repair value” or ARV for your home. This is determined by referencing the value of recently sold homes (in your area) that have been updated or are in superior condition. Then, the investor will take the average price per square foot (PPSF) that the comparable homes sold for and multiply that PPSF by the square feet of your house. This will determine the approximate ARV for your house. *Note; Using PPSF is one of the only accurate ways to determine the value of any house or home relative to other comparable sales (assuming there is not excess land involved i.e. acreage, etc.) as this allows for values to adjust relative to the size of the house and not just configuration (i.e. 3 bedroom 2 bath vs. 4 bedroom 2 bath).
For example, let’s imagine that you are interested in selling a 1,500 sq. foot home that is in need of $40,000 in repair. Two nearby houses, in superior condition, just sold for $310,000 and $295,000 and are each 1,625 sq. ft. and 1,550 sq. ft., respectively. This puts the $310,000 home at a price of $191 per square foot and the $295,000 home at a price of $190 per square foot. Relatively speaking, after repair, your home should sell for the same $190 (+/-) per sq. ft. value. This equates to an after repair value for your home of $285,000 (1,500 x190 = 285,000).
However, this is not the “current value” of your home given the fact that your home needs $40,000 in repair – a new roof, new gutters, new windows, kitchen cabinets, counter tops, appliances, flooring and paint (inside and out). Given this, the investor will then take the after repair value (ARV), subtract selling costs (holding costs and commissions) and the cost of any needed repairs (to your home) and desired profit to determine a cash offer for your house.
Below is an example of this calculation. I used a hypothetical ARV of $300,000 and repairs of $40,000, to
illustrate what a cash offer for your home might look like;
As you can see, in the above example, the cash offer price for the home is approximately 80% of what a traditional sale may offer. Had the seller chose to sell through a realtor, they would have paid $21,000 in selling/closing costs and would have had to make $40,000 in repairs prior to the sale – a total of $66,000 in costs to the home seller – which would have netted them a total amount of $239,000 as compared to selling for $194,000 to a cash investor. The monetary difference being approximately 80% of that of an open market sale would offer ($45,000 in this case).
It is important to note that these figures are not “fixed” in negotiation and are flexible. Cost of repairs vary with every house and profits are always negotiable. The important thing is that you deal with a company that will be honest and upfront when negotiating a cash offer for your house. Any reputable company should be willing to discuss all of these variables so that you, the home seller, can make an informed decision and feel comfortable with the home selling process.
Also, you should be aware that you always have the right to seek the counsel of an unrelated third party, whether it be a realtor, attorney, family member or friend. Never let a home buyer make you feel pressured buy a “take it or leave it” offer. There really is no such thing. If a deal is good for both parties, that deal should stand the test of time and, therefore, not “expire” just because a home buyer wants to put pressure on you to sell.
In summary, remember to do your homework before selling your house, whether it be to a cash buyer or with a Realtor in an open market sale. More questions? Please visit us at http://www.elitehomeoffer.com/contact.php
