by Corey Scruggs
Over the years, you’ve seen the signs—handwritten in all caps, nailed to the telephone pole just as you exit the freeway—“WILL BUY YOUR HOUSE FOR CASH”. Lately, you’ve started to notice another trend: those algorithm-powered tech companies called iBuyers that make cash offers on homes and close in days.
So, what are these various business models, and what’s your best play as a homeowner looking to sell your house fast?
Some background on cash for houses
Investors buying homes for cash and then selling them for a profit is no small venture. The National Association of Realtors estimates that since March 2019, about 21% of residential sales are all-cash transactions, of which 13% were investor transactions.
Selling your house to an investor for cash is a lot like trading in your car to the dealership. If you’re looking to sell your car, you can certainly do it yourself. Do some minor repairs, put it up on Craigslist and organize your own test drives. However, it’s easier to just take it to the same dealership you’re buying your next car from and let them deal with it.
As a group, cash buyers by definition are individuals or entities that buy your house outright and all at once, without lender financing.
In general, selling your home to a cash buyer allows you to skip the home prep, showings, and staging hassles and arrange a more flexible closing timeline to coordinate with the purchase of your next residence.
But not all cash buyers have the same conditions and policies. In fact, these buyers have evolved into a few larger categories:
1. Buy-and-hold investors
Buy-and-hold investors purchase homes and convert them into rental properties.
Within the buy-and-hold category, you have individual investors who purchase and rent out properties for passive income. On a larger scale, there are institutional investors that purchase at a minimum 10 rental properties per year, the quintessential example being Invitation Homes, a subsidiary of Blackstone that operates in 17 markets across America.
In Q1 2019, 1.9% of single family home and condo sales were sold to institutional investors, according to ATTOM Data Solutions.
As a seller to buy-and-hold investors, you have more flexible closing dates and you’ll likely get better pricing than if you were to sell to a house flipper.
2. House flippers
Think Chip and Joanna Gaines or your remodeling-enthusiast uncle—they buy homes, typically in a poorer condition and at a lower cost, with the intention of renovating and flipping it for more.
ATTOM Data Solutions reports that there were 207,957 homes flipped in 2018, representing 5.6% of all single-family home and condo sales.
One of the biggest (and newest) players in the sell house for cash world is the tech-savvy and data-driven iBuyer, short for “instant buyer.” iBuyers use automated valuation models (AVMs) to make competitive offers on residential homes that are typically in better condition.
Since iBuyers typically make less profit per flip, their business is more reliant on turning over a high volume of homes using technology to streamline operations.
As for the seller? There’s no staging, no open houses—you avoid the long drawn-out traditional home sale process and can close in a matter of days once you accept an offer. iBuyers generally offer better pricing, up to 98% of fair market value, while charging sellers a fee around 7%-10% plus the cost of necessary repairs.
In 2018, iBuyers made up about 6% of the market share in Phoenix, Arizona, an increase of 26% year-over-year. In fact, close to 30% of sellers in Phoenix are asking their real estate agents for an iBuyer estimate before they list their home.
7 things you should know about selling your house for cash
1. HomeLight will match you with instant home buyers in your area.
As of 2018, 91% of homeowners chose to list their house with a real estate agent.
This is the right route for many sellers because their top priority is to fetch the highest price point possible. Agents wear a lot of hats to make that happen by helping the seller get a house prepped, staged and ready for the market and guiding them through negotiations and closing.
But in the event that a fast or certain sale takes precedence over price, you might go to the market in search of a cash buyer. For that, HomeLight’s Simple Sale platform is a great place to start.
In fact, HomeLight partners with over 150 nationwide pre-approved iBuyers to through our Simple Sale platform. Just fill out some information about your home and location and we’ll determine which iBuyer is the best match for you based on their past transaction history, target price range, and the types of property they’re historically willing to purchase.
From there, you can compare what you’d get for your house by selling to an iBuyer against an estimate of what your house would go for on the open market with the help of a top agent.
It’s good to have choices!
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2. Some direct buyers will purchase your house as-is.
If your home is in need of some significant repairs before you can put it on the market, a cash offer might look pretty appealing because some investors will buy a property “as-is.”
Each investor has their own terms and criteria on the type of home they’d purchase, like the price of the house and its condition.
Flippers specifically aim for run-down, gut jobs at a discount that they hope to turn into a profit. iBuyers, on the other hand, purchase homes that are in better condition with minor wear-and-tear issues at a more competitive price.
They’ll send out their own inspectors to your home and most often will deduct the cost of the repairs from your price.
Whether you have an iBuyer arrange for the repairs or you sell “as is,” you’ll avoid the hassles of having to complete the repairs yourself, which can be both time-consuming and costly.
3. You can avoid contingency clauses.
Contingencies run rampant in house contracts. Contingencies are “back out” clauses that do a lot to protect buyers but are onerous for sellers. The fine print might say something like:
- Offer is only valid if the buyer’s current home sells within three months.
- Offer is only good if the inspection doesn’t turn up a cracked foundation.
- Even if the bank has approved it, the offer is only valid if the mortgage lender comes through.
If you’re selling your home for cash to an investor, this may be an extra obstacle you can avoid depending on the type of buyer you’re working with (many will still require the home inspection).
4. Financing is pleasantly different.
The reason home sales take forever is that banks get involved. If you have to borrow money, you’re on their timeline and they don’t really care about your timeline. All-cash purchases close quickly because they don’t have to deal with lenders at all.
Financing is also where home sales tend to fall apart, so selling your home to someone who is buying for cash means you can skip this hiccup.
5. Selling a house for cash is quicker and less legwork.
Because you have someone interested from the beginning, you don’t have to go through all the primping that goes into listing your home for sale. No need to worry about staging or hiring a pro photographer or figuring out your marketing description.
Direct buyers take care of the inspection and repair responsibilities for you and you completely bypass the lending steps.
You call an investor, they ask you some questions and they make you offer. You take it or don’t, and you close within a week or two.
This can be an especially attractive option in the event that you have to drop everything and sell the house for a job relocation or other sudden life change.
6. You could also rent out your house or sell it on the open market with an agent’s assistance.
If you’re weighing the decision of selling your house for cash, consider some of your other options, too.
If your home is in decent shape, look at renting it out. You’ll need to hire a property management company or be prepared to do maintenance and repairs yourself, but since rental costs tend to exceed mortgage costs in most cities, a tenant can supplement or completely cover your mortgage payment.
You might even try offering a lease-to-own option to tenants.
You could also partner up with a top real estate agent in your area who has a good track record for selling homes quickly—if you decide to go this route, HomeLight can help pair you with an agent with a low average DOM, or “days on market,” indicating they’ve got experience finding a buyer quickly.
7. Scams happen in the ‘Sell Your House for Cash’ space.
Life events or circumstances such as divorce, foreclosure, bankruptcy or employment transfer all make the option of selling your house to an investor for a quick, no-fuss transaction more attractive. But that doesn’t mean you shouldn’t do your homework.
Investors, unlike real estate agents, do not need to be licensed to operate. Though there are many legitimate and legal cash-for-houses companies, it is an industry fraught with scams.
Beware. Keep an eye on your credit history to make sure no one has taken out a second mortgage on your home. Be hesitant about any company that charges an application fee upfront. Shady businesses can take your equity and walk away, leaving you in a more desperate position than you were when you started looking into a cash option.
If you don’t have the time or energy to exercise vigilance, you’d be better off going through HomeLight’s Simple Sale platform since every iBuyer in our network must go through a stringent vetting process.
To sum up selling your house for cash:
What is this business model?
An opportunity to sell your house directly for cash, skip the hassles of stagings and showings, and close within weeks or even days.
What’s the best play for a homeowner?
If you need to sell your house fast, HomeLight will match you with the right iBuyer for your particular needs, depending on factors like your home’s price range and condition, through our Simple Sale platform.
What’s the catch?
Just like your relationship status on Facebook… it’s complicated—but you’ll likely have better luck if you know your options