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Compare An All-Cash Offer From An Investor Versus A Typical Home Sale
July 17, 2020 Adam Gregory

Compare An All-Cash Offer From An Investor Versus A Typical Home Sale

Posted in Cash Buyers (for Homes), Home Selling

Are you torn between spending the money to fix up your house so you can list it with a real estate agent or to sell it as-is to an all-cash buyer?  This can be a hard decision as every home and situation is different.  What works for one person may not be the right choice for another.  Comparing the differences and how they relate to your situation may help you decide wether you should sell your home to a reputable investor or list it with a real estate agent.  Let’s look at the differences between selling your house the traditional method versus selling to a cash buyer.

1.  The Goals of the Real Estate Agent vs. The Cash Home Buyer:

Goal of the Real Estate Agent
The goal of a real estate agent is to list and sell your home for a price comparable to similar homes recently sold and in a time frame that is average in the market.  The main tool they use to accomplish this goal is to list the house on the Multiple Listing Service (MLS).  There are no guarantees that they will meet this goal, and based upon the market, property condition, and many other factors, you may have to lower your price numerous times before you get an offer.  At best, this process will take two months between listing and closing but will likely be several months or longer.  There is a reason a real estate agent will generally require a 6-month listing agreement.
Goal of the Cash Home Buyer
The goal of the cash home buyer is simple.  Find a property that can be purchased at a fair price based upon the number of repairs, renovations, and improvements the home needs. Be flexible and understand the needs of the home seller.  We want to structure an all-cash deal that works for both parties that will close quickly, has the potential for a fair return on investment, and will not expose the investor to excessive risk.

2.  Time to sell the traditional method vs. a cash buyer:


Traditional Method Time Frame
Before listing your home for sale, you will need to make repairs and improvements to spruce up the property’s appeal.  Depending on how much work is required and the time the seller has to invest, this process can take weeks and sometimes months. Once the home is listed in the MLS, you will need to show the home and host open houses until an offer is received and negotiated.  Once you finally find a prospective buyer, most buyers make the sale contingent on your home, passing a comprehensive inspection, which is not guaranteed.  It is the job of the inspector to find things that need to be repaired or updated, and they almost always do.  Even after you get past all of this, the average home buyer has to qualify for financing.  This can create additional delays or also cause the deal to fall through.  According to the Zillow Consumer Housing Trends Report 2018, the typical US home spent between 65 and 93 days on the market, and that doesn’t include any time spent preparing and updating the house for listing.
All Cash Buyer Time Frame
OutFactors and similar all-cash buyers can present you with a no-obligation all-cash offer to purchase your home within 24 hours.  The offer will not be contingent on financing, and we typically close in 10 days or less.  During that time, we will do an inspection, but we are only looking for major items that we may have missed during our initial visual inspection – it is never used to demand repairs or improvements. This can be quite an advantage over the traditional method, especially if you’re in a situation where you need to sell the home fast.

3.  Cash Required to Sell the Traditional Method vs. a Cash Buyer:

Cash Required to Sell the Traditional MethodSell the Traditional Method vs. a Cash Buyer
If you’re selling a home the traditional method, the future owner will most likely expect his new home to be in tip-top shape. As the seller, you will need to pay for the repairs, improvement and carrying cost of the house.  Depending on the condition of the home, the cost to do repairs and improve curb appeal can be substantial.  The cost and risk are even greater when the house is vacant, and you need to pay insurance, utilities, and property maintenance while the home sits on the market, and the money spent to maintain a vacant home is lost forever.  Following homeadvisor.com, the national average in 2018 to repair and renovate a home was $11,186, which does not include staging, utilities, insurance, and property maintenance.  Unfortunately, you may be squandering your money as there is no guarantee that these fixes will result in a sufficiently high sale price to recoup your investment.

Cash Required to Sell to a Cash Buyer
If you are selling your home to OutFactors or a similar all-cash buyer, the funds required to complete the sale are zero – none.  As an all-cash home buyer, OutFactors won’t ask the seller to do any repairs.  We budget for the repairs, and if we budgeted incorrectly or missed something, that is our problem.  You are paid cash at closing, and we assume all the risks of repairing the home.  We buy your home as-is, you don’t have to spend a dime on repairs.

4.  Commissions to Sell the Traditional Method vs. a Cash Buyer:

Commission to Sell the Traditional Method
Understandably, a real estate agent, will not work for free. When you list your home, the seller will typically pay a commission based upon a percentage of the selling price, which is usually 6%.  This means if your home sells for $200,000, you, the seller will pay the real estate agent $12,000 at closing.  This fee is the same, whether it took six months to sell the home, or you were required to spend $15,000 to make repairs identified in the inspection report.  Many homeowners also consider doing for-sale-by-owner.  While this may seem tempting, this is a very complicated undertaking with many potential pitfalls. You will need to perform market research, create and implement a marketing strategy, pay for advertising, hold open houses, vet buyers and draw up an intimidating stack of paperwork.  Mistakes can be very costly.
Commission to Sell to a Cash Buyer
OutFactors will never charge the seller a commission or hidden fees.

5.  Flexibility when Selling the Traditional Method vs. a Cash Buyer


Flexibility when Selling the Traditional Method
When you sell your home the traditional method, future owners will expect to move into their new home as soon as they have closed, or at most will allow a few extra days for the seller to move out.  Likewise, the closing date is typically set by the buyer and the requirements of their lender.  There is very little room for negotiations, and the buyer and their needs largely set the terms of the agreement.
Flexibility when Selling to a Cash Buyer
When selling to OutFactors or similar all cash home buyers, it is purely a financial transaction.  We are extremely flexible and work with the seller to craft an agreement that works for both parties.  For example, if you are behind in your mortgage, investors like OutFactors can arrange to pay your lender what is past due and take over the mortgage, saving your credit and home from foreclosure.  Do you want to sell but don’t want to move, investors like OutFactors will buy the home and rent the house back to you in what’s called a sale-leaseback.  As experienced investors, whatever the situation, we have a flexible solution that will work for you.  Just tell us what you want to accomplish.

6.  Actual Cash the Seller Receives from the Sale with the Traditional Method vs. a Cash Buyer


Cash to Seller when Selling the Traditional MethodActual Cash
Calculating the amount of cash you will receive when selling the traditional method can be very difficult. There are commissions, legal fees, closing costs, title fees, taxes, surveys, tax certificates, escrow fees, and a plethora of other expenses to pay.  For this example, we will calculate the fees assuming the home sold on the MLS for $200,000.
Gross sales price: $200,000
Pre-marketing repairs/improvements: $ 11,186
Real estate commission at 6%: $ 12,000
Seller concessions/post inspection repairs at1%: $   2,000
Home warranty for buyer: $     500
Land survey: $     400
Title Insurance: $  1,800
Escrow and closing fees: $  1,500

Total fees with traditional method: $  29,386  *

Cash to Seller: $170,614

Every city, state, and community is different, so your fees may be lower or higher than the example.

Cash to Seller when Selling to a Cash Buyer
Calculating the amount of cash you will receive when selling to OutFactors or similar investors is fairly straight forward.  In addition, many investors like OutFactors have low fixed fee agreements with closing agents, which allow them to guarantee that the fees paid by the seller will be capped at a maximum amount.  That way, the seller knows the amount of cash they will receive at closing – no surprises.  For this example, we will calculate the fees assuming the cash home buyer is buying the same home as-is for $170,000.

Gross sales price: $170,000
Pre-marketing repairs/improvements: $      0
Real estate commission at 6%: $      0
Seller concessions/post inspection repairs at 1%: $      0
Home warranty for buyer: $      0
Land survey (cash buyers do not need a survey): $      0
Title Insurance: $  1,600
Escrow and closing fees: $     900

Total fees selling to a cash buyer: $    2,500  *

Cash to Seller: $167,500

 

As noted in the above example, the seller is receiving $3,114 less than selling the traditional method.  However, the seller received their cash in 10 days, did not have an open house, selected their closing date, moved out when they chose, and left all of the work to clean and repair the home to the cash buyer.  Is an easy sale with no risk, no work, and all the benefits worth $3000 – we think so, and so do many other home sellers.

Final Thoughts

Most people are used to buying and selling homes with the help of a real estate agent. We spend the time and energy to spruce up the home in the hope that someone will make an offer.  But selling to a cash home buyer like OutFactors is more common than most people think and is growing every year. Most of the properties that appeal to an investor like OutFactors aren’t in good enough condition to sell on the MLS. But that too is changing, as more sellers see the advantage of selling to an all cash buyer simply for the convenience and avoiding financial risk – especially in these uncertain times when a pandemic can cause the market to fall or crash.  At the end of the day, always do what you are comfortable with and best for you.

We hope this helps, and if you have any questions feel free to contact us at OutFactors.com

 

Learn More about all-cash offer from an investor versus a typical home sale

 

Compare An All-Cash Offer From An Investor Versus A Typical Home Sale | OutFactors — Dallas, Texas

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