You’ve probably seen signs around your town, like “Cash for Homes!” or “We buy ugly houses!” These companies are different from the traditional way of buying and selling a house, and for some people, this may be a great option. Before you take that fast cash offer, however, there are some things to consider to make sure that you’re getting the best return for your home’s equity and investment.
What Are Cash Home Buyers?
The often hand-lettered signs may not inspire a lot of faith in the home buying process, but despite the modest advertising, many of the cash-for-homes companies are investors with their own capital to purchase your house outright. Cash buyers make an offer on your house, sometimes sight-unseen, immediately, without the need for lender financing that a resident-to-resident sale often needs.
Cash buyers can fall into one of three categories. Buy-and-hold investors purchase homes, fix them up, and then lease them on a rental basis. These companies or individuals may have several homes that they own to rent out and typically use a property management company to find suitable tenants and collect rent.
The next type of investors are the “house flippers.” You’re probably familiar with them from HGTV, but the reality may be a little less glamorous. Many of these individuals look at purchasing homes that may have had fire or flood damage. They’ll make all the repairs and upgrades needed to get the maximum market value for your home, but in return, may make you the lowest offer, as they’ll still have to put money into the house to fix it up.
The third type of cash buyer is a new animal – the iBuyer. iBuyers use algorithms that determine the market value of your house and the anticipated rise or fall of its value. You’ll get an offer in as little as a couple of days, as this business model focuses on quickly purchasing and re-selling the homes. You’ll find iBuyers in newer neighborhoods, looking for homes that are in better condition. iBuyers may either be home flippers or investors for income properties – the main difference between these two is that an iBuyer transaction may be done almost entirely online. If you own a home you aren’t living in, especially if you’re currently out of state, this may be a simple option for you.
How Does the Cash Home Buying Process Work?
Although each of the three types of cash buyers works off basically the same methods, your experience with each may vary slightly. You’ll make the initial contact with a representative from the home buying company. They make you an offer, and you can accept or decline. Then, it’s just as simple as closing and handing over the keys.
Because these buyers have financing readily available, and because they take your house as-is, you skip some of the delays of traditional home selling. This can include waiting for the buyer to secure financing; if they’re pre-approved for the home loan, they still have to wait for the mortgage lender to approve their loan application. Other delays include time-consuming concessions at closing, such as repairs, replaced appliances, and the like. These can cost you, the seller, money and time, something that those without a lot of cash on hand or on a short timetable to sell the house may wish to consider.
Cash buyers don’t charge commission like a typical real estate agent, which can be as much as 6% of your selling price. There may be a fee associated with selling your home to a cash buyer, but you aside from that, every dollar you make off your home sales in this manner is yours to keep.
What’s the Downside?
Cash buyers will make lower offers than you could achieve by selling your house on the open market. If you have a lot of equity in your home, you may not realize it all back. Typically, you’ll get a cash offer of about 80% of your home’s total value, but that can vary widely depending on the condition of your house and how long you’ve been paying for it.
Why Should I Sell My House to a Cash Buyer?
There are a few different reasons that sellers opt for cash home sales versus listing with a realtor. If you’ve fallen behind on your home payments and are in pre-foreclosure, you can sell your house to a cash buyer, escaping having a foreclosure on your credit report and closing on the deal quickly enough to satisfy the outstanding balance to your lender.
Other reasons people choose fast cash sales include inheriting a house that they don’t wish to live in. Similar situations include more than one person that may be entitled to part of the money from the house sales, such as several heirs to an estate. Or, you may have had fire or flood damage and don’t wish to use your insurance money to repair your house or to live in it again. Selling it to an investor may make more sense if you need to move quickly and don’t have a lot of cash on hand to make costly repairs.
Sometimes, people have unfortunate life changes, such as divorce or unforeseen medical bills. For these circumstances, selling the home for quick payment may help offset the financial burden. Or, you’ve purchased a new home and haven’t managed to sell your old one. Cash buyers can help when your home is stuck on the market, or if you’ve been transferred out of town.
Even if you don’t have a true “need” to sell your home quickly, there are a few issues that you may encounter if you traditionally sell your house. Buyers may need to wait for a mortgage company to secure financing, pushing back your closing date. Occasionally, their funding may fall through, and you’ll have to start the listing and showing process all over. Other times, there are conditions to the sale, not just concessions like repairs or upgrades, but conditions on the offer itself. For example, the offer is only good if the buyer’s current home sells with three months. Cash buyers eliminate the fine print and delays that traditional sales involve.
When it Doesn’t Make Sense to Sell For Cash
If you aren’t on a strict timetable for selling your house, listing with a realtor typically makes more sense. You’ll be able to command a higher asking price, especially if you take the time to make necessary repairs and upgrades that add value and attract buyers. While real estate agents will charge a commission (which, as the seller you pay), you’ll still probably end up making more from selling your home this way.
If you have the time to devote to being a landlord, you may wish to consider renting out your home instead of selling it, or hire a property management company to find tenants, collect rents, and make any needed repairs. You could also have the option of having your own lease-to-own program for the house.
Even if you need to relocate and your home is taking a long time to sell, if you have a good credit score and money for a down payment, you can still purchase a new house and wait out the sale of your old home. If you choose to sell fast, you may lose much of the equity that you put into your home, which could make it tougher to purchase a new house.
Selling your home for cash makes sense if you need money quickly, or if you don’t have the time and funds to make it top-dollar ready. Be careful when talking to cash buyers, however. These businesses don’t need a license, so there isn’t much regulation or oversight. Do your homework on the buyer in question. You can also ask for a proof-of-funds from the cash buyer, and set a short closing date, ensuring that even if the deal falls through, you haven’t wasted much time.
Cash home sales can take a burden off your shoulders, but ultimately, you’ll have to decide if you’d rather have a fast sale or a higher sales price for your house.