If you are in the market to sell your house fast for cash, this is your ultimate guide to helping you navigate the process and make decisions that are in your best interest.
We’ll discuss a few important questions in detail:
We’ll go in depth on how cash home buyers determine their offers and what you can do to make sure you get a fair offer.
Written by Matt Lavinder, President of New Again Houses®.
As flipping houses has become more and more popular on television, an entire industry has grown around buying houses as-is. You’ve seen the We Buy Houses signs around town and online. The advertisers fall into three broad categories:
Many of these advertising to buy houses aren’t buyers at all. Instead, they are lead generation companies who take your information and sell it to local investors who will contact you. When you call, you’ll likely speak to someone out of state. They take your information and sell it to one of their franchisees, who often wholesale the lead to actual cash buyers.
There are other numerous lead generators advertising online. They include www.webuyhouses.com, www.experthomeoffers.com, www.housebuyersofamerica.com, www.expresshomebuyers.com, and others. Rather than contact a middleman who sells your information as a lead, it’s beneficial to search for a local company or individual who has the resources to buy your house with cash. Since the actual cash buyers don’t have to pay a wholesaler, they can pay you more by purchasing your house directly.
There are all types of buyers online and many of them are wholesalers, rather than actual cash buyers. Wholesalers use advanced (and not so advanced) marketing methods to find motivated sellers, lock the seller into a contract, and sell the contract to the actual cash buyer. The wholesalers are middlemen who take a cut that could have gone into the seller’s pocket.
So how do you know if you are contacting a national lead generator, a wholesaler, or an actual cash buyer to sell your house? Do your research online. Any legitimate cash buyer should have a website describing what they do and who they are.
Wholesaler websites often look similar to one another. They talk about all the houses they buy, but they won’t have detailed information about their current projects, before and after photos, or any Google reviews. They will have testimonials on their site, but anyone can manufacture testimonials on a website.
Selling a house is a big decision, so dig deeper than just a website. When you search for their business, how many Google reviews do they have? Are they members of the Better Business Bureau and do they have any reviews there? If not, they might not be legitimate.
Wholesalers typically don’t have information about their current projects because they don’t have any projects. They are in the business of marketing, negotiating, and selling contracts. They don’t have a construction company that is going to add value to your house. They are in the business of flipping “we buy houses” leads, not flipping houses.
You find them by searching for people who will buy my house fast, sell my house fast, or we buy houses. Don’t be afraid to go to page two of the search results, because the national lead generators have paid Google to get at the top of page one as a sponsored advertisement. Your best local buyers might be on page two of the search results. Look through the website for the following:
If you are a motivated seller or have inherited a probated property, your information is probably of public record from the recording of the probate at the courthouse. Therefore, you might receive postcards and letters from people wanting to buy your house. Many of these are wholesalers looking to sell the contract they offer you.
One of the most common types of letters is called yellow letters. They typically come in a regular handwritten envelope with a short note written on yellow ledger paper. It appears to be an individual wanting to purchase your house, but this is a wholesaler attempting to tie up your property on a contract they will immediately sell to the end buyer.
Ignore the yellow letters and find an actual cash buyer with a simple online search. If they don’t have a legitimate website, Google reviews, and a Better Business Bureau® membership, keep looking. If you suspect the individual is a wholesaler, keep looking online until you find an actual cash buyer so you aren’t giving away your equity to a middleman. You don’t want to give up equity and you also don’t want to tie up your property on a contract with a suspect buyer who doesn’t have the cash to close.
When you do find a prospective buyer and call them, ask them what they plan to do when you sell your house to them. If they are vague, press them on whether they will add value through construction, sell your contract, or just use the house as a cheap rental without investing anything into it. It might not matter to you if they are a shady landlord who won’t invest anything in your house.
For most sellers, however, the house isn’t just a house. It’s a family home and it’s important that the new owner invests in it so it continues to be a place where families raise their children. If this is important, ask the prospective buyer about their intentions and verify their claims online through their website, Better Business Bureau®, and Google reviews.
Choosing whether to sell your house fast as is to an investor depends on several variables. The first is your sense of urgency. If you need cash fast, this is the easiest way to turn your equity into cash. But, you still shouldn’t give it away. Here is the typical formula house flippers use to determine their maximum offer. It’s commonly referred to as the 70% Rule.
This leaves the rehabber a 30% gross margin when they sell the house. That doesn’t mean they are going to walk away with $30,000. They will pay at least half that margin in holding costs, cost of money, insurance, and transaction costs before paying any overhead.
Their maximum offer will typically yield around an 8-15% net profit, which is fair given the risk and work that goes into flipping a house. The problem is if you sell to a wholesaler who will take a 5-10% cut off the top, less will go into your pocket as the seller.
Using the formula above, assume you are selling a house that needs $40,000 in rehab to be able to sell it for $100,000. The maximum offer you should expect would be:
If the buyer purchases for $30,000 and adds value through efficient construction, he will likely make a $10,000 - 15,000 profit after paying for all the costs associated with flipping a house. $30,000 might seem like a low offer, but this is probably a fair return given the risks and work.
The location of your property is obviously important and you need to be honest about it. Because you grew up in a home and have a sentimental attachment, you might be biased about the location and the value. Identify the average neighborhood in your town or city. If your house is in a better location than that, you should get more than 70% (or the $30,000).
Conversely, if the house is in a less favorable location, the buyer will expect a lower sales price to offset the increased risk of buying a below average location. Be honest and don’t take a buyer’s assessment personally. For them, it’s ultimately about the numbers and risk level of buying the house. They have to be honest about its potential sales price and you should as well.
A buyer also has to be honest about the construction costs required to sell your house again or rent it to a quality tenant. The most common mistake sellers make is underestimating the cost of construction. Most municipalities require permits for most everything now, so a rehab requires licensed contractors who are professionals.
If you’ve ever tried to hire a “handyman” on the cheap for even small projects, you probably understand the problems with such a person managing a full rehab budget of $40,000 or more. Hiring reliable people who can execute a quality rehab costs money and that needs to be accounted for in the construction budget. As a rule, homeowners tend to spend far more on remodeling projects than they originally budgeted. So it’s safe to assume the actual construction budget for your house will be significantly more than what you expect.
Here’s a great article from Angie’s List on the difference between perception and reality when it comes to remodeling costs and how popular televisions shows on HGTV have widened the gap.
A legitimate cash buyer is going to be objective about the estimated sales price and construction budget when formulating an offer. If you truly want to sell your house fast to a cash buyer, you’ll need to be as objective, as well. Otherwise, you risk overvaluing your house and spending more than you should on holding costs.
When you choose to sell your house directly to an investor, you choose to accept a lesser sales price in return for selling your house fast as is for cash. If you have time or money to invest into the house itself, selling to a cash buyer might not be your best option. Let’s look at your options.
If your house is in move-in condition, you should certainly list with an agent. It makes little sense for you to sell a house in move-in condition to an investor. It’s probably not in move in condition, however, if you are interested in being able to sell your house for cash.
The house probably needs both cosmetic and functional work. More than likely, it’s not only dated, but it also has peeling paint on the exterior, an older roof, an older heat pump, and the plumbing and electric haven’t been updated recently. That means you will need to find a buyer on the market who has the cash to put into their house and not many entry-level home buyers have that kind of cash sitting around.
More importantly, the house probably can’t get financing because it wouldn’t pass the FHA appraisal process. Therefore, you are going to have to sell your house to a cash buyer since the house can’t be financed.
Cash buyers are the same investors who would be buying directly from you or a wholesaler. They are using the same formula above. You might get a little more since you are listing it, but you will pay a real estate agent 6% plus any additional holding costs for the time it takes to go through that process. The offer might be contingent on an inspection or financing, either of which could go wrong and delay your sell. In order to net more than the $30,000 directly from a cash buyer, you would have to sell your house for $35,000 and pay an agent and possibly additional fees.
If you use an agent to sell your house, don’t use friends and family. For every quality agent, there are twenty who do it on the side and not very well. Hire a good agent, and make sure they take professional photos and put some time into the listing.
This is probably how you would net the most money, but it might not be as large a difference as you think. Consider construction costs.
In most cities, you will need to pull a permit and hire someone to do the work. Finding, managing, and paying such a person can be time consuming and exhausting. You will probably underestimate the construction budget.
As a rule of thumb, you can estimate between $25 - 40 per square foot to remodel a house. $25 would be light cosmetic improvements and perhaps, a roof or heat pump. If you need to replace the windows, roof, and heat pump you should expect to spend around $35 per square foot. Run into plumbing and electrical issues and that number increases to $40+ per square foot in an average market.
So here’s what your numbers might look like on that theoretical $100,000 house:
That’s $19,300 more than the initial offer, but then you’ll pay taxes unless it’s been your primary residence. That also assumes you have the $40,000 for the rehab, time, and energy to execute the remodel. This might make sense.
If you consider this option, first place a value on your time. If your time is worth $10/hr, this option makes sense. If your time is worth $30/hr, it might make sense to sell your house to an investor who has experience managing a remodel.
This option requires some thought and some honest introspection. Do you want to be a landlord? Landlording is hard work. You will need to screen tenants, say “no” to many sad stories, evict the inevitable bad tenant, and respond to regular maintenance calls on nights and weekends, because of toilets only flood on Saturday evenings. Seriously, landlording is a commitment and the profits aren’t lucrative.
Use the house above as an example again. If you update the essential electrical and plumbing systems with minor cosmetic improvements, you’ll probably invest at least $20,000 into the house in order to attract tenants who aren’t desperate. Assuming the house is around 1000 square feet, you’ll be able to rent it for around $750/month. Professional landlords budget close to 50% of their rental income to the following:
The pros who manage hundreds of rentals know they are eventually going to pay close to 50% of every rental dollar in expenses before paying any mortgage payments.
So, let’s assume you have the $20,000 in cash and don’t need to take out a mortgage. You should expect to net $375/month before taxes. That’s $4,500 per year before tax as long as you can keep quality tenants. Choose one bad tenant and they can game the courts to live free for months and cost you hundreds in legal costs.
Landlording makes sense for some people, but don’t forget to count all the costs when you consider this option. You should also consider hiring a professional property manager to effectively manage the rental and tenants. That can be easier said than done as quality property managers are difficult to find in many markets.
If, after analyzing your situation, you choose to sell your house directly to a cash buyer, use the following process to ensure you protect your interests.
Choosing to sell your house fast to a cash buyer in as is condition has benefits and disadvantages. You will likely give up some equity in return for speed, simplicity, and minimal contingencies. It’s not always the best option, but it is the best option for many sellers. Use the information above to make the best decision for your particular situation. If you do decide to sell your house fast for cash, invest some time in finding a credible buyer.
We'd love to talk with you about your home, set up a time to walk through it, and see if we can make an offer that fits your need.