Wait! Should You Sell Your House For Cash, Or Use An Agent?
Through the years I am sure you have seen the "bandit signs" that are hand-written and say, "SELL HOUSE FAST FOR CASH". They are usually nailed to a telephone pole, or on a sign stuck in the ground by the busiest intersection. You know what we're talking about. Now they send you postcards, advertise online, and in Googles search results. But you're probably asking "Should I sell my house fast for cash?".
In this article we'll answer questions like:
- How do these different business models work?
- Are they legit?
- Do they really give you a fair offer?
- What about those guys who say they can get you an offer without ever looking at your house?
- I've heard these guys are snakes. Are they trying to rip me off?
- Why sell my house fast for cash? Why not just use an agent like everyone else?
- What do I need to know about selling my house fast for cash?
These are all important questions. So, let's get started!
Some background info on the "We Buy Houses for Cash" buyers
An investor who buys homes for cash and then sells them for a profit is nothing new. The National Association of Realtors estimated that since March of 2019, around 21% of all residential sales are all-cash transactions, of that 21% over 13% were purchased by investors.
So, think of selling your house for cash to an investor like trading in your car to the dealership. Sure, you can sell your car yourself. You could certainly:
- Do some repairs
- Fix the bumps and dings
- Wash it, clean it up
- Make it look pretty
- Put it up on Craigslist
- Field the phone calls
- Organize your own test drives
- And negotiate a price
However, it is definitely easier to just take the car to the dealership you're buying your new car from and let them deal with selling your old car.
Selling to an investor who buys houses for cash won't wring every cent out of the sale, but it is certainly faster, easier, and much less of a headache. This is especially true if you find yourself in the unfortunate position of saying "I have to sell my house fast".
So who are these "We Buy Houses Fast" guys, anyway?
By definition, these are individuals or entities that buy your house in as-is condition, outright, and all at once, without lender financing.
Generally, when you sell your home to a cash home buyer, you can skip the:
- Home prep
- Staging hassles
- Paying for repairs
- Endless parade of people invading your privacy
And you typically can arrange a more flexible closing timeline which allows you to more seamlessly coordinate the move-in of your next residence.
But not every cash home buyer has the same conditions, policies, or end goals. These buyers have grown into a few categories:
1. Buy and Hold Investors
Buy and hold investors purchase homes they intend to hold for an extended period of time. Often this is done by converting the property into a rental or an owner financed property.
In the buy and hold category, you will find individual investors who purchase and rent out properties for a source of passive income. Also, you will see on a larger scale, institutional investors. These investors are usually large corporations who purchase at a minimum of 10 rental properties per year. The standard example being Invitation Homes, a subsidiary of Blackstone, who buys properties in 17 markets across America.
In the first quarter of 2019, according to Attom Data Solutions, nearly 2% of all single-family homes were sold to these large institutional investors.
As a seller to buy and hold investor you can expect flexible closing timelines and potentially a better price. Because a buy and hold cash homes buyer is looking at long term gain, they may be willing to cut their initial margins more thinly.
2. House Flippers
Think HGTV, Chip and Joanna, or your remodeling-crazed relative. Usually, they buy homes in disrepair at a discounted price. Then, they will renovate and "flip" the property for a profit.
According to Attom Data Solutions, flipping accounted for nearly 208,000 homes representing over 5.5% of all single-family home sales.
If you sell your house to a flipper you can expect a quick closing timeline and a lower offer. Because of all of the unforeseen rehab expenses, they need as much of a margin possible. It is a great choice if you are needing to move quickly because of a divorce, job relocation, or to avoid foreclosure.
One of the newest and fastest-growing players in the sell my house for cash world is the tech-heavy iBuyer, short for instant buyer. iBuyers use automated valuation algorithms to make an offer on residential homes. Typically, the homes sold to iBuyers need fewer repairs.
Because iBuyers spit out offers so quickly, and without complete information, they rely on a high volume. They use technology to calculate an estimated price and then use the information you provide to assume a certain price for repairs.
Unfortunately, as a seller, this can be very misleading, frustrating, time-consuming, and costly.
iBuyers often give an inflated offer to get you committed, only to lower the offer once they get an appraisal or inspection done. You frequently are dealing with a computer instead of an actual person which makes it hard to get information about the process, where you are in the process, and how they arrived at their price.
Wouldn't you rather have a conversation with a real person when dealing with such an important issue?
But are they legitimate businesses?
Yes... and no. Just like with every type of business there are going to be a few rotten apples. The reason why it seems like real estate is so full of con artists is because the impact is so much greater when dealing with a house. For example, would you complain more about someone who sold you a bogus "online course" for $100 or someone who tricked you out of $100,000 worth of equity?
In all of my years of experience, most of the people in real estate investing are genuinely trying to help solve problems. And, the number of good guys heavily out weighs the bad guys.
So, as with everything in this day and age, do your homework, ask questions, and be informed.
Reading this article is a great start!
8 things to know before selling your house for cash
1. A higher offer doesn't mean more money
Make sure you crunch the numbers. Just because a real estate agent, cash investor, or an iBuyer offers you a certain price does not mean you will be getting more money in your pocket .
- You must take into account their fees. Real estate agents take anywhere from 6-8% of the sales price, and the majority of the time it is the seller who has to pay them.
- The cost of repairs should be considered. Real estate agents will tell you that they can get you a price of x amount. What they don't tell you is that it will cost you out of your own pocket to get the house in the condition to sell it for that price.
- Closing costs can be... costly (Sorry, I couldn't resist). On average, closing costs alone can be from 1% to 3.5% of the sales price. And that's just for the seller. Closing costs include things like attorney fees, courier fees, settlement fees, recording fees, and title fees that are tacked on at closing.
Even if your house is in perfect condition (let's be honest, who's is?) it could cost you, the seller, at minimum 11.5% of your sales price. And that is before you have to either make seller concessions or do repairs the bank requires for your buyer to get approved for lending.
How can you avoid this trap?
It is in your best interest to talk to an investor who accounts for all of these costs before they present you with an offer.
You really should think of it in terms of money you will actually be able to put in your pocket. This is referred to as the walk-away-money. After all the costs and fees, what you, as the seller, will actually receive.
So, depending on your situation, selling your house to a cash investor can actually put more money in your pocket. Frequently, the reason homeowners think cash offers are unreasonably low is because they are already accounting for all of the hidden fees.
Don't be fooled by high initial offers!
2. Find an investor who uses multiple strategies
In general, investors stick to one of the selling categories listed above. This allows them to focus on their business model and how to make the most amount of money.
Unfortunately, this can make them rigid in their approach to meeting your real estate needs.
Find an investor who has multiple strategies for what they will do once they purchase your house. A flexible investor allows you to get the best offer, with the best terms, on the best timeline for your situation.
Make sure you ask yourself, "Do I need to sell my house fast for cash because I need it? Or because it's best for their business model?".
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3. Using an agent, instead of a cash home buyer, might be your best choice
I wouldn't be doing my job if I didn't let you know that real estate agents can be right for your individual situation.
There is a reason why real estate agents are the "traditional" home selling and buying option. They can still get you the most money for your home if you're in the right situation.
So, if you have:
- Time to wait around for 3 months before you complete the sale of your house
- Money to make repairs and get your house in perfect condition
- Patience with having your privacy constantly invaded
- Discipline to keep your house looking great while it's being shown
- Persistence to continue when a deal inevitably falls through because of bank lending
... then selling your house the conventional way, through a real estate agent, is may get you the best price. And, like we just learned, not just a better sales price, but also more money in your pocket. Because one definitely does not guarantee the other.
Honestly, real estate agents can be a great resource if you are in the right situation. I have many friedns who are real estate agents. However, a cash investor can offer you solutions that are not available to a real estate agent.
4. You can avoid pesky contingency clauses
Contingencies are all over the place in housing contracts. Contingencies are just a fancy way of saying "We can back out if this happens". Often, contingencies are to protect buyers but are a pain for sellers. These are things like "Offer is only good if the inspection doesn't turn up XYZ".
If you are selling your home for cash, this may be an additional obstacle you can avoid. It largely depends on the type of investor you're working with. Pretty much every investor will require some sort of inspection contingency. This just allows them to back out if there is a huge unforeseen repair. But unlike when you are working with a traditional buyer, that is usually the only contingency.
5. Banks aren't involved
This (in my opinion) is one of the best arguments for selling your house fast for cash.
The reason most home sales take such a long time is because banks get involved. If the buyer has to borrow money, you are pretty much beholden to their timeline. And believe me, they do not care about your time.
All-cash purchases can close so quickly because they do not have to deal with lenders at all.
Additionally, financing, or borrowing money from a bank, is where most home sales fall apart. If the house doesn't appraise for high enough, if certain repairs need to be made, or if certain requirements aren't met by the buyer a bank can simply say "Never mind, you don't get our money".
Now, you have just wasted all of your time, effort, and potentially money waiting for the buyer to get money from a bank only for the bank to say no.
There is nothing more frustrating than a deal breaking down in escrow.
6. Selling a house for cash is quicker and less effort
Because you have someone interested from the beginning of the process, there is no need to go through all the headaches that go into listing your home for sale. You won't have to worry about staging or hiring a professional photographer or fretting over your marketing description.
If you find yourslef saying "I need to sell my house fast", cash buyers take care of the inspection and repair responsibilities and you get to skip the lending step entirely.
You just have to contact the investor, answer some questions, and they make you an offer.
You take it or you don't.
If you do you can close in as little as a few days.
If you have to drop everything because of a:
- Job relocation
- Pending foreclosure
- Behind on payments
Or you just don't want all of the hassles, you should definitely ask "Can I sell my house fast to a cash buyer?".
7. Ask about seller financing and subject to
Another benefit of which most people aren't aware of is the option to sell your house using different terms.
What is seller financing?
Seller Financing allows you to make even more money on the sale of your house. If you don't need all of the cash from the sale of your house right away, it can give you a nice source of passive income.
You will essentially become the bank. You will loan the investor money and the investor will make monthly payments to you for a length of time at a particular interest rate. Additionally, you can use this method in combination with some other strategies to get a break on the taxes associated with the sale of your house, but that's an article for a different day.
What is Subject To?
Subject To can allow an investor to offer you even more money because they will need to use less of their funds upfront to purchase your house.
Subject To refers to buying a house "subject to the underlying loan". This means that the seller's original loan will stay in place and under their name while the title, or ownership of the property, will change to the buyer. Then, the buyer will make payments for the seller.
You may be asking, "Why on Earth would someone even consider this?". Well, there are a number of reasons, but the main one is, it allows you, the seller, to get more cash in your pocket for your house.
Additionally, if you have poor credit because you missed payments, closing a line of credit can have a further negative impact so this will avoid another negative mark on your credit. Also, because the buyer is paying off the loan for you, the loan will be in good standing and will improve your credit over time.
Again, it's not for everyone but can definitely be helpful.
At the risk of sounding like a broken record, be careful. Subject To has been used in the past by those rotten apples we talked about as a means for running scams. Like everything in life, the more you know the better decisions you can make.
It never hurts to ask and know all of your options.
8. Scams can happen in the "Sell My House Fast for Cash" space
Life circumstances and events like divorce, employment transfer, foreclosure, or bankruptcy can make selling your house for cash, quickly, and hassle-free a very attractive option. But that doesn't mean you should go in blindly.
Cash home buyers, unlike real estate agents, do not need to be licensed in order to conduct business. And even though there are many legitimate and legal cash-for-houses investors, it is definitely an industry that has been hindered by scams.
Be aware. Keep an eye on your credit history. Make certain that there is not a second mortgage on your home. Sketchy business can take your equity and leave you in a more desperate position than before you started.
Make sure you do your homework.
Ask for references, follow up with the references, ask questions.
Remember what grandma said, if something sounds too good to be true, it almost always is.
In Short, selling your house fast for cash:
What is selling to a cash home buyer?
An opportunity to sell your house directly, without the "middle-men agents", for cash. You get to skip the headaches of fixing up your house, showing your house, and can close within weeks or even days.
What's the best play for a homeowner?
It depends, but at Cash Homes Buyer, we use a variety of techniques which allows us to solve your real estate problems effectively and efficiently.
Remember to ask about our seller financing options to get even more money for your house, and make some passive income.
What's the catch?
With Cash Homes Buyer there is no catch.
We make you a no-obligation, Walk Away offer, and can close on your specific timeline. We have purchased properties all over America and have been the solution to a number of people's real estate problems.
As always, we recommend you do your homework, know your options, and be informed.
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About the Author
Hi my name is Benjamin Voorhis I am the owner of Cash Homes Buyer. I live in Dallas Texas but I was born in Indiana. I'm a pretty simple midwest guy. I love spending time with my beautiful wife, crazy dogs, friends and watching basketball and football (go Purdue!).
Before I was a real estate investor I was a teacher. I taught special education reading and math. I also taught middle school Texas and world history.
I began my investing in real estate back in 2014. I fell in love the idea of helping people out of sticky situations and being there for them when selling their home makes the most sense. I saw just how many people have no idea what to do when they need to sell their house quickly, even real estate agents!
I also saw a need for trustworthy, upstanding, transparent real estate investors. So many people have the wrong impression because of the "snakes in the grass" that take advantage of people that are in a vulnerable position. I strive to provide transparent and honest assistance to people who are in tough situations.