What’s the Difference Between a Foreclosure vs. a Short Sale?
When the real estate market fell apart a decade ago “For Sale” signs popped up everywhere. A rider indicating either a Foreclosure or Short Sale was often attached. While most people understood what a foreclosure was, they scratched their heads at the words “short sale.” Both terms deal with the issues pertaining to the mortgage on a home, but there is a difference. So that begs the question:
What is the difference between a foreclosure vs. a short sale? To start, here’s a brief summary of each one:
What is a Short Sale?
When a homeowner wants to sell their home via a short sale, it means the property is not worth what is owed, and the owner has asked the lender to accept that lesser amount to pay off the loan. Essentially, a short sale means the homeowner is willing to pay off the debt based on the current value of the property and be “short” the balance. Let’s say the loan amount is $200,000 but the home sells for only $140,000. The homeowner (seller) is basically “short” $60,000.
Short sales were a regular occurrence when the real estate market collapsed, and home values plummeted. On top of that, the economy was in dire straits, and people had either lost their jobs or had to accept drastic pay cuts. Instead of simply walking away from their homes and letting them go into foreclosure because they couldn’t make their monthly payments, banks and lenders were more apt to accept a lesser amount on the loan rather than be left with the whole nut, so to speak.
There is a process to sell a home as a short sale which varies with each lender. Short sales must be approved by the lender and have advantages and disadvantages. It’s important to consult with the lender holding the mortgage on a property before attempting to sell it via short sale.
What is a Foreclosure?
A foreclosure occurs when a homeowner (borrower) simply stops making the monthly payment on the mortgage for several months. To recoup the loss, a lender will take back the property from the borrower through legal channels, or foreclose, evict the residents, and sell it.
Prior to the actual foreclosure, the lender presents the borrowers with a Notice of Default and the intention to foreclose within a given time period. At that point, the borrowers can make restitution and come current with the back payments owed, attempt to short sale the property (if the lender allows), or let it continue into foreclosure. Because each state has different rules related to foreclosure, again, the process varies. In the end however, if a property goes into foreclosure, it is auctioned off “at the courthouse steps” to the highest bidder. Should the property not sell at auction, it becomes the lender’s property and ends up in the hands of a licensed realtor to be sold as a real estate owned (REO) property.
How Do Short Sales Differ from Foreclosures?
While both are options to deal with the inability to pay back a mortgage, a short sale may be attempted (if the lender agrees) prior to placing a home in foreclosure. Essentially, with the short sale, the borrower can pay back a good chunk of the mortgage; whereas, a foreclosure is taking the property away from the borrower.
The foreclosure process moves faster than the short sale process in that once a home has been placed in foreclosure, it is either auctioned or sold as an REO property to new buyers. Short sale paths take longer and involve negotiations on costs and fees between the lender and the prospective buyer.
Another difference between the two is in terms of buyers being able to truly see what they get. When a buyer purchases a foreclosure at auction, he must buy the property lock, stock, and barrel – meaning the buyer cannot have an inspection to see if there are structural or functional issues, and they agree to pay any outstanding liens attached to the property. As we stated, however, if a property does not sell on “the courthouse steps,” or auction, it becomes an REO is sold through a realtor following the path of a regular home sale.
Apart from the lender being involved in negotiating the agreed to price, a short sale follows the same buying process as a traditional home sale. It is also a better option for a seller than losing the property through foreclosure.
Is There an Alternative?
Prior to listing a home as a short sale, it is worth talking to an investor who buys homes for cash. While it may still be a short sale, it may shorten the sales process because a borrower (seller) is not only asking the lender to approve a short sale, he is bringing a cash buyer to the table as well.
Selling a home for cash is also faster since no one is seeking a mortgage on the property. The two parties simply come to an agreed to the price and go through the steps of the transaction to complete the sale.
Before talking to a lender about a short sale, it is worth the time to talk to one of our representatives. We buy homes for cash and would like the opportunity to help you sell your house fast. Contact us to schedule an evaluation.
Before you consider a short sale, contact New Again Houses® to get a fair cash offer for your home
We buy houses for cash and we can close in as little as 5 days. We make the process simple so you can find freedom from your old home. Contact us today for a free home evaluation. We’ll give you a fast and fair cash offer!
How to Sell a Home with a Lien on it
If you’re trying to sell your home but it has a lien on it, here is what you should do:
If you’ve ever sold a home, you know how lengthy and stressful the process can be even when both parties bring no obstacles to the table. Selling a home with issues attached can take the entire transaction to a whole new level if you don’t know what to do. It is very important to have information about how to sell a home with a lien to help smooth the process.
What is a Lien?
A lien is a claim on real property related to an unpaid bill by the homeowner. It is essentially a way to ensure the creditor gets the money owed. Once a lien is placed on a title to real property, it is more difficult to sell; however, it may be possible to do so.
Selling Your Home with a Lien
If you need to sell a home fast but there is a lien, there is information you need to know to help make the process easier and do-able. Here are some of the considerations you need to know:
If there is a lien on a property, the seller must sell the home AS-IS. This means that the lien is there and must be satisfied. People who buy houses for cash often work with sellers on this type of transaction.
Determining the Type of Lien
The type of lien on the property is important. Some liens are not negotiable such as property tax, child support, IRS and others. Before attempting to negotiate a settlement, determine what type of lien is on the property. Liens are public record, so it is easy to find out the existence of liens and what type exist.
Finding a Buyer
Because selling a home with a lien can be tricky, finding a buyer skilled at buying real property with liens attached is key. Investors and buyers who know how to buy houses with liens, and for cash, can be of great help to sellers.
Negotiating Payments to Creditors
Judgments tied to liens are typically negotiable. It is helpful to work with investors well versed in buying properties with liens and negotiating payments with creditors. These investors typically buy houses in any condition including those with liens.
Settling the Liens
When working with creditors to settle the lien(s), sellers may not have to pay the agreed settlements before closing. Depending on the type of lien, creditors may agree to accept payment at closing when the payments are deducted from the proceeds. They may also agree to a full or partial release of the lien when settling it. Again, working with experts to sell property with liens is especially helpful.
Working with Experts
The considerations mentioned are much easier to perform when working with experts at negotiating and settling liens. Investors or title experts are skilled at navigating the process, knowing what to say to whom and completing the transaction.
Other Important Factors
While attempting to complete the transaction without expert help can be done, it is tricky and often complicated. Creditors know that, along with the stress of settling the payments, sellers have emotions tied into the process. Companies and investors with experience at buying homes with liens can make the process less stressful.
Like always, each state has different rules and regulations when it comes to selling a home with a lien. We recommend you work with professionals who know the laws in your state.
Contact us if you need to sell your house with a lien
We buy houses fast for cash and we will make you a fast and fair cash offer for your home.
The State of the Tri-Cities TN Selling Market in 2019
2019 is shaping up to be a good year to sell your home in the Tri-Cities. Although just barely over 10 years ago we had a major housing crisis, it seems as if the housing market in the Tri-Cities has bounced back since then. There are plenty of reasons why selling your house in 2019 may be a good idea. If you’re considering selling your home in 2019, you should read this article before you do.
Where Have We Been This Past Year?
Real Estate trends like anything else, are subject to the economy as a whole. Thus, most markets have a natural ebb and flow to them. Over the past 10 years, the United States has witnessed economic improvements which have had a palpable effect on the real estate market. To start, let’s look at 2018, where we saw a slowing in home price growth in the United States as a whole. According to U.S. News & World Report, this cooling was adjoined with an increase in 30-year fixed-rate mortgages which culminated with a seven-year high of 4.94%. This resulted in the purchase of fewer homes toward the end of 2018, which initially increased the available inventory and lowered the median listing price. Both of these relationships can be seen in the graphs below which were made using data from realtor.com.
Looking at the top graph, which is not seasonally adjusted, it is apparent that on a national level inventory rose from March to September 2018 and fell from September to December. In the early months of 2019, it appears as if the inventory remained relatively constant. These inventory and price changes left many skeptical of the market outlook for 2019. A quarterly survey by the national association of realtors found that for the last 2 quarters of 2018, the nation’s perception of whether it was a good time to purchase a home was at a 2-year low. Since then, public perception has increased slightly but still remains relatively low in comparison to the previous 2 years. Specifically, in the first quarter of 2019, 65% of people believed it was a good time to buy a home (37% believe strongly and 28% believe moderately) as opposed to 68% and 63% in quarters 1 and 4 of 2018, respectively.
Where Have We Been In The Tri-Cities?
When looking at market report data for the Bristol Tennessee, Virginia Association of Realtors (BVTAR), some of the national trends are apparent for our market here in the Tri-Cities. Particularly, there was a steep drop in inventory around September of 2018. In August of 2018, the Tri-Cities inventory was 5.75 months, by September that number was 4.09, which is significantly lower than the September 2017 number of 5.17 months. On the national level, September 2018 was the peak month for housing inventory, after September and through the 4Q of 2018 inventory trended downward month after month.
In the first quarter of 2019, the inventory available in the Bristol area decreased sharply, especially when compared to the first quarter of 2018 where inventory rose dramatically. This sharp decrease began in February and has continued through 2019 where we are continuing to see a shortage of inventory in the Tri-Cities area. According to information from Keller Williams, the available inventory in Kingsport, Bristol, and Johnson City for April was 3.8, 3.4, and 3.7 months, respectively. These April numbers show a continuation of the trend that we have seen in the first quarter of 2019. This inventory shortage is further supported by BTVAR data which shows a decrease in active listings for 2019 when compared to 2018. The BTVAR data that supports these claims can be seen below in two graphs. Particularly, the graphs below show the inventory change here in the Tri-Cities area as well as the change in active listings for the past two years.
How Has This Affected Days On Market?
For the Tri-Cities area, we have seen a decrease in the number of days spent on the Realtors Property Resource (RPR) for the first quarter of 2019. This decrease in the number of days on the RPR is in tandem with a decrease in inventory for the Tri-Cities. In other words, we are seeing houses sell quicker because there are fewer of them to be sold. If the shortage of inventory persists, it is likely that this trend will continue. A BVTAR market report displaying this relationship is shown below.
How Has This Affected Home Prices in the Tri-Cities?
As would be expected, the median listing price here in the Tri-Cities has increased in the first quarter of 2019. This rise in median listing price can be attributed to the decrease in inventory we’ve witnessed thus far into 2019. The median listing price for the Bristol area in March of 2019 was about 175k, which is more than $30,000 greater than the median listing price of March 2018. The graph below comes from the BVTAR market report and shows how the median listing price has been steadily tracking above its price since May of 2018. The steep increase we are seeing in the first quarter appears unusual and is most likely a result of decreased inventory.
As for sales prices in the Bristol area, we have seen a similar increasing trend. As of February 2019, the median sales price began to trend upward, which matches up with when we started to see a decrease in supply. In March of 2019 the median price in the Bristol area was about 150k which is nearly 20k greater than its March 2018 number. The graph below depicts this year-over-year change in sales price and was taken from the BTVAR market report.
How Has This Affected Total Sales?
In the Tri-Cities, market data suggests that inventory is down and home prices are up, but there is another important factor we have yet to consider – total home sales. How has the recent dip in inventory and rise in home price affected or been affected by total home sales here in the Tri-Cities? From the market data through March 2019, it would suggest that home sales are greater than the same period in 2018. Particularly, the BTVAR market report states that the number of closed sales from January to March of 2018 was 622 while the number of closed sales for the same period in 2019 was 656. This is an increase of over 5% for the year to date sales through March. Additionally, there were far greater pending sales in March of 2019 when compared to March of 2018. Particularly, the number of pending sales during March 2018 was 359 while it was 500 in 2019. This is further support that homes sales in the first quarter of 2019 are greater than in 2018. The data table below comes from BTVAR and is the source for the aforementioned data.
What Does This Mean For You?
It would seem that through the first quarter of 2019 we have seen the following 4 trends when compared to 2018: 1) a decrease in inventory, 2) a decrease in days on the RPR, 3) an increase in the sales price, and 4) an increase in home sales. So, in recap, what does all this information mean for you? If you are considering selling your home you should understand these trends and know a few things. Firstly, the shortage in inventory usually signals a seller’s market. With a smaller inventory home prices increase, which we have witnessed, as a result of supply and demand. If there continues a shortage in inventory, expect sales prices to remain elevated. However, if you are planning to sell, you should also know that interest rates increased throughout 2018, and on the national level, home buyers are not expected to flood the market. This means that one should not expect home price growth to erupt as a result of buyer demand.
How To Find Your Home’s Value
One of the first steps a real estate agent takes when meeting with a potential seller is figuring out your home’s value. Luckily you don’t have to be licensed to know how to come up with a value. With a computer, a little research, and some mathematical ability (basic math with a calculator), you can get a general idea of your home’s worth. There are several factors that play into it, but here a few ways we can show you how to find your home’s value:
Look at Comparables
Comparables (aka comps) are simply similar homes within your neighborhood, or certain proximity to yours, that are currently for sale and have sold in the past 60 to 90 days. The word “similar” means comparable in style, size, age, number of bedrooms, and other physical characteristics. Looking at homes currently for sale lets you see your competition as well as how long these properties have been for sale. If you notice that the higher priced homes have been on the market longer than others, you can assume they may be overpriced. Alternatively, recently sold homes give you a handle on where the sale price of homes in your neighborhood fall. When homes have sold within a certain price range, it is unrealistic to expect yours to sell at a higher price or lower for that matter.
Consider the Current Condition of the Home
Your home’s condition is very important in determining the resale value. When you look at comps, a fully updated home similar in size and design may not be a true comparable property if yours shows extensive signs of age, wear, and no updates. If you think it needs a lot of work, you may want to consider selling your house for cash.
Ask a Realtor®
You can pretty much ask any Realtor® to give you a valuation. It just involves a phone call and a quick discussion about your home. The main thing you need to do is be honest about your home and its condition. In return, you get a general home value – a ballpark. But you can have an idea about what it’s worth. Once you have that number, you can make an informed decision about selling it and the best way to sell it.
Be careful with asking a Realtor for a valuation for your home. Some realtors may find your home’s value and then try to pressure you into listing the home with them. It’s also common for an agent to underestimate the cost of repairs since they aren’t general contractors.
It’s best to do your research to find a reputable realtor in your area that can give you an honest, no-pressure home valuation. It’s best to ask multiple Realtors for valuations so you can have a few pricing options.
Get a Formal Valuation from an Appraiser
Certified appraisers charge to perform home valuations – most often for lenders. The value they provide is about as accurate as you can get. Appraisers are impartial and look at the property, its comparables, and other factors along with what it may cost to rebuild it. If you have considered selling your home but want to know what it’s worth before listing it, an appraiser gives you the confidence to avoid second-guessing your price. On top of this, if you find it is not worth what you thought it would be (remember, the appraiser is impartial), you may decide to sell your home for cash.
Selling Your Home Fast
Once you find your home value, you can decide what you want to do. If your home value is not what you want it to be though, you should consider selling your home fast for cash. Reputable investors buying homes for cash take much less time to complete the transaction. It takes much longer to list your home and wait for a buyer to make an offer. Plus, you may not get as much as you want because of negotiations and fees involved. Most home buyers willing to take on a home needing repairs and updating want a great deal.
If you are thinking of selling your home, contact us for a cash offer.
We buy houses in any condition at a fair price and close quickly. We help you maximize your profit and lessen the fees involved than selling your home in the traditional manner, and we close fast. Contact us today for a fair cash offer for your home.
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Five Signs You Should Sell an Inherited Home for Cash
When parents or other relatives pass away, one of the biggest inheritances the adult children receive is the family home. Settling the estate of a parent is a major undertaking and the family home is at the center of decision making. Surviving relatives must come up with a plan about what to do with the home. After all, there are decades of memories in that home. The thought of not having it may be unnerving – extremely sad at the very least.
Nonetheless, it is a decision that must be made, and there are only three options: keep it, rent it, or sell it. For children grieving the death of their parents, making this decision can be very overwhelming. If you find this predicament familiar, here are five signs you should sell an inherited home:
You Know There is a Mortgage on the Property
Hopefully, you know what is going on with the property you inherited in terms of whether there’s a mortgage or other type of lien on it. It’s easy to find out by checking with the county’s tax collector. This is probably one of the first things to determine about the property when deciding whether you should sell an inherited home.
If there is indeed a mortgage or other lien, it is typically one of the first things that must be settled. Selling your house fast allows you to pay off the debt and continue to settle the remainder of the estate.
You Don’t Have the Cash Flow to Maintain the Home
If you are a homeowner, you know the expense involved in maintaining the property. Trying to keep a home in the family on top of your own home, even while you try to decide what to do, can be costly. There are expenses involved in the upkeep – household bills, lawn maintenance, and other costs to keep the home itself in good condition. If you don’t have the cash flow for the expenses, selling your inherited home may be the wisest choice. Reputable companies buy houses for cash no matter the condition to remodel or rebuild to be new again.
You Need Cash Fast
Whether you need cash for expenses in your own life or to settle the estate of the deceased, selling your house fast is often a viable option. Not only does it help you with your cash flow, but it also alleviates the pressure of the outstanding bills and other obligations that may face the recipient or executor of the deceased’s estate.
You Know There is Damage to the Property
As people age, maintaining a home becomes more difficult and expensive. When small issues are left alone, they often turn into major problems. Suddenly, the cost to repair the problem becomes quite large – even impossible to handle. Think about something as small as a leak in a pipe. When left alone, it can lead to major water damage or worse – mold. Once this happens, the expense taken on for the restoration may be too much. If this happens, selling your house fast to cash buyers may be the best step to take. Many cash buyers look for properties to buy, restore and update.
You Don’t Live Locally
If you don’t live in the same locale as the inherited home, selling a home fast for cash is an excellent option. Trying to maintain a home from a distance is difficult. Listing it to sell traditionally may take longer than you anticipate especially if it is not in good condition. Investors who buy homes for cash provide people with the opportunity to sell the inherited homes quickly no matter the condition of the property.
Consider selling your inherited property for cash to an investor
New Again Houses buys houses in any condition for cash. From there, we remodel and rebuild the houses to make them new again. If you are trying to decide whether you should sell your inherited home, it may be an excellent time to talk with one of our team members to help you make an informed decision.
If you want to sell your house for cash fast, fill out our contact form below and a member of our team will respond shortly!
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Should You Sell Your House to a Cash Buyer or Use an Agent?
Have you inherited a house and not sure what to do with it? If you don’t want to spend the next 50 weekends swinging a hammer and updating it yourself, you have two primary options: Sell it directly to a cash buyer, or list it with a real estate agent. Both have their advantages and disadvantages.
Selling your house to a cash buyer is easier, but you won’t be sure you are getting the highest amount. Listing with an agent might bring a higher offer, but it will probably take longer and you will pay both the listing agent and buyer’s agent from your proceeds. That being said, should you sell your house to a cash buyer or list with an agent?
What is the house’s condition?
Most inherited houses have deferred maintenance and need to be updated. If, however, the house is in good enough condition that a buyer could get financing and be happy, you should probably list it and let your agent market it to the highest amount of buyers. If it’s in good condition, the additional amount you’ll get on the market will probably exceed the agent commissions. However, if the house needs work, it will be a cash buyer who most likely buys it on the market. It might then make sense to sell to a cash buyer who will add value to the house through a remodel. By selling your house directly to a cash buyer, you can avoid the hassle and costs of listing with an agent.
How Much Time Do You Have to Deal With It?
Selling a house to an investor with cash is pretty easy and fast. They can typically close within a week and you don’t even have to clean anything up. A cash buyer usually does all the cleanout and can even help solve probate issues that might come up. While an agent will handle a lot of the work that comes with listing a house, you’ll still have to deal with negotiating offers, inspections, and the time it takes to go through the process. Many market contracts fall through due to inspections. That can significantly increase the cycle time of selling a house. Don’t forget to count the costs of holding the house for a few months while it goes through the process.
Do You Care What Happens to the House?
For many families who have inherited property, it’s not just a house. It’s the centerpiece of your family’s story. You might care if the buyer is going to invest in the house or simply turn it into a cheap rental property. If it’s in good condition, it will probably become another family’s home where they raise their children.
If it’s in poor condition, it will likely be purchased by a cash buyer who flips homes who will invest in it or a landlord who might rent it with the least amount of work possible. There’s also a chance the market buyer will be a landlord who will put in the least amount possible. By choosing a real estate investor who will invest tens of thousands of dollars into a remodel, you will know the house will be preserved and enjoyed by families for years to come.
Final Decision: Should you sell to a Cash Buyer? Or a dedicated Real Estate Agent?
Inheriting a house can be emotionally and financially stressful. Answer these questions honestly, and then decide whether you should find a quality agent or cash buyer, depending on your particular situation.
The Hidden Costs of Selling Your Home Through a Realtor
The Costs You May Not Know About When You Sell Your Home through a Real Estate Agent
There are real advantages of selling your house through a real estate agent. That’s why the majority of houses are bought and sold on the market. The obvious cost, of course, is the commissions paid by the seller which are typically 6% of the sales price.
But, there are some hidden closing costs you may not know about when you use a realtor. As you consider the choice between selling through an agent or selling to a cash buyer, there are some other less obvious costs to consider when selling through an agent.
Seller Paid Closing Costs
Closing costs are different than agent commissions. Closing costs include the attorney fees, recording fees, state taxes, mortgage fees, appraisals, termite inspections, and document preparation that are a part of most real estate transactions. Oftentimes, market buyers expect sellers to pay the closing costs. These can be as little as $1000 for simple cash closings and can exceed $10,000 for buyers with FHA loans that include high up-front funding fees. If you are listing a house on the market, be sure to budget for some seller paid closing costs as buyers often require the seller to pay some or all of those costs.
Inspection Repair Lists
If you ask an agent what the most difficult part of the process is, he or she will likely tell you it’s negotiating inspection lists. A typical sale includes the following people walking through the property and making lists of things that need to be fixed:
- Buyers’ Agent
- Home Inspectors
- Insurance Inspectors
- Termite Inspectors
- The buyers’ parents and any other family members who are self-proclaimed experts
- The buyers themselves
Every one of these people who walk through the house will note items they deem necessary to be fixed prior to close. These lists get complicated and expensive. Can you choose not to do them? You certainly can, but you will risk killing the deal. Buyers won’t be able to get financing unless the appraiser, insurance, and termite lists are completed. If the deal falls apart, as many do, you’ll have to put the house back on the market with additional days on the market. Your agent will also have to explain to future buyer agents why the previous contract fell through. This can be difficult and discourage buyer agents from showing the house.
When deals fall through and houses sit on the market, holding costs can accumulate quickly. If the house is going to be vacant, those costs increase significantly. Maintenance and insurance for vacant houses can be exceedingly expensive. It will be important to keep the house in excellent shape while it’s on the market and being shown by agents. Be sure and budget for the following while a house goes through the market cycle.
- Mortgage interest
- Utility costs
- Lawn Mowing
- Staging, if required
- Vacant house insurance, if required
- Cleaning and repair costs
There are benefits to selling your house through an agent as opposed to selling it for cash to an investor. It’s also important to consider the costs that are often associated with selling a house on the market.
3 Ways to Avoid Home Buying Scams
With We Buy Houses signs at seemingly every intersection, motivated sellers needing to sell their house fast for cash have many options. The We Buy Houses industry attracts many scams and imposters. Reality shows and free weekend seminars promise quick riches in flipping houses.
Theoretically, investors are trained to buy houses from motivated sellers, add value through a remodel, and sell for a profit. Easy, right? In reality, remodeling is both expensive and difficult. If you’ve ever remodeled anything as simple as a bathroom you know how many moving pieces there are to manage. It’s difficult, and most aspiring flippers fresh out of the weekend seminars find flipping houses is not easy. They need significant capital, an efficient construction network, and excellent systems to flip a house. Even then, the margins aren’t what they are cracked up to be on TV because the quiet costs eat away at slim profit margins.
So why are there so many people claiming to buy houses fast with cash? You might be surprised that most of the people behind the We Buy Houses advertisements don’t actually flip houses. Instead, they flip contracts. They find motivated sellers, tie the house up under contract, and find a real house flipper to pay an assignment fee for the contract. They aren’t actually flipping houses. When you sell to such a middleman or a wholesaler, you are unnecessarily giving up your equity. Find a real estate investor who will actually flip your house, eliminating middlemen wholesalers who pose as real investors.
Here are three ways to avoid being scammed out of your equity:
Ask the Right Questions
On the first call, ask the cash buyer what he plans to do when he buys your house. Don’t settle for vague answers. When he says, “we will flip it”, ask who is “we”? How many houses have you flipped in this town, and what’s the last one you finished? It won’t take long to find out if they are actually adding value to the house or simply selling your contract to an actual real estate investor who will rehab it. If you suspect the buyer is just a wholesaler, keep looking for a business that can buy the house directly from you and put the most money back in your pocket.
Add a No Assignment, No Contingency Clause to the Real Estate Sales Contract
Once you sign a contract with a cash buyer, you give up most control of the transaction. Once the buyer has the house tied up with a contract, he can take the maximum time to conduct inspections and lower the offer based on those inspections. Often, the cash offer was really just a bait and switch to get the contract. In reality, the seller never had any intention of paying that amount. Once the house is under contract, the wholesaler will begin looking for an actual cash buyer to buy the contract. The wholesaler will often use the inspection period to find a buyer. If he doesn’t find a buyer to purchase the contract, what happens? He cancels the contract due to an inspection clause, gets the earnest money back, and you are left holding a useless contract. How does a seller avoid all this lost time and stress? Before signing a contract, add a clause that gives you control of the process and requires the buyer to be fully committed. On the contract, simply state that the contract may not be assigned. Also, you should state that the house is being sold as-is with no contingencies. If the seller has a problem with this, ask him to do his inspections before signing the contract. This way you avoid having the house tied up in a contract. If a buyer signs a no contingency contract that can’t be assigned, you’ll know the buyer is both serious and committed.
Require a Significant Earnest Deposit
Wholesalers are trained to write in an earnest amount into the contract for between $10 – $100. Earnest funds are typically held by a closing agency and are forfeited if the buyers fail to follow through on the terms of the contract. If the earnest amount is insignificant, it allows the buyer to get out of the contract if he can’t find a cash buyer. It effectively removes much of the risk for the buyer and puts it on the seller. Require an earnest deposit of at least $500 (or preferably more) be held by the closing agent. If the buyer is actually a cash buyer, this shouldn’t matter. Understand that an earnest deposit isn’t that useful if there are contingencies such as inspection periods or financing contingencies. A buyer can get the earnest amount back by canceling the contract due to anything found in an inspection. Be a smart seller and require a substantial earnest deposit with no contingencies.
Are all wholesalers running a scam? No. There are very professional wholesalers who add some value by connecting sellers with buyers. Do you need a wholesaler? Probably not. If you’ll spend some time online, you can find local cash buyers who will add real value to the property and sell it for an honest profit.
Are you thinking of selling your home? Visit our Sell Your Home page for more information.
How to Determine a Fair Cash Offer for your Home
When planning to sell your house for cash, it’s important to determine a fair offer for your home. You don’t want to price the home too high, but you also don’t want to price it too low. So, what factors can help you determine a fair price for your home? In this video, Sam and Matt discuss how you can determine a fair cash offer for your home.
Determining a Fair Cash Offer
Use the 70% Rule
Selling your house for cash is the easiest way to turn your equity into cash. Selling your home for cash, however, means you’re not going to get the full market value for your home. The point of selling your home for cash is that the investor buying the home will also be investing their time and money into repairing the home. They are not going to give you a full market price offer for your home. Instead, they will likely give you some variation of the “70% rule”. Here is the formula that a real estate investor typically uses:
ESTIMATED SALES PRICE X 70% – REHAB COSTS = MAX OFFER
Typically with this calculation, the real estate investor will gross 30% in additional income. This money will go toward holding costs, insurance, overhead, and other expenses. Their maximum offer will typically yield around an 8-15% profit after all other expenses are taken care of.
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:
100,000 X 70% – 40,000 = $30,000
You would end up receiving a $30,000 cash offer for your home. This may seem low, but the real estate investor needs to have the funds to remodel the home and sell it for a modest profit.
The benefit of this arrangement is that you get cash pretty quickly, but if you have put some time and money into remodeling the home, you may want to get the home valued by a home appraisal service. They can determine the full market value for your home, which is likely higher than what a cash offer would be. From there, you can consider selling your home on the market or selling your home for cash.
Managing your Expectations
It is very common for home sellers to overestimate the value of their home based on their own sentimental attachments to the home. It’s important, however, to keep in mind that location is a big factor that will determine a fair cash offer for your home. If your home is in a good and highly-coveted neighborhood, you’re more likely to receive a higher cash offer for the home. The real estate investor must also take into consideration some other factors, such as the estimated renovation costs, to determine a fair cash offer for your home. Even if you replaced your carpet just a few years ago, that doesn’t mean you’re going to get a better cash offer for your home. Certain systems, such as heat pumps and electrical systems, don’t last forever and need to be replaced every 12-15 years.
The bottom line is that if you’re considering selling your home for cash, location and estimated rehab costs will be the main factors that will determine the cash offer you’ll receive. If you have completed additional renovations and your home is in a coveted location, you will likely receive a higher cash offer for your home.