Who Actually Are These Cash-Buyers?
The existence of these cash-buyers for houses isn’t actually a new phenomenon. Back then—before the age of social media—, they are often referred to as Equity Purchase (EPs) companies, and in a nutshell, they are companies that purchase properties from homeowners who are, in most cases, in a less than ideal situation to sell the house and need to sell as quickly as possible.
Thus, they are often referred to as “opportunity investors” nowadays. A homeowner is looking to sell the house ASAP, so they took on this ‘opportunity’ and offer to close the deal usually within 30 days because they use their own cash and don’t have to deal with financing arrangements—which often took the longest time.
Typically, they can finish the deal in under 30 days, providing the seller with the long-awaited cash. So they often seem like a savior for those looking to get our of their mortgage loans ASAP.
Are You an ‘Opportunity’ Seller?
You might have stumbled upon advertising or a blog post promoting the service of these cash-buyers, where they often advertise the possible types of situations the (potential) home seller might be in.
In short, they are targetting certain sellers: ‘opportunity’ sellers that might be in situations like:
- A seller whose listing has expired
- People who are divorcing and willing to sell the house—or you haven’t thought to sell the house until you saw the advertisement—
- Sellers who are declaring bankruptcy
- Sellers with homes in foreclosure (very common target, and very vulnerable)
- Sellers who are looking to move fast (i.e. transferred to a new job location, etc.)
- Homeowners who are evicting tenants
- Sellers who can’t sell for one reason or another
- Vacant homes
- Homes in probate
What’s The Catch With These Cash-Buyers?
As you might have guessed, these people are looking to get the best possible deals and they will give you an offer (far) below the market price.
In fact, on average they’ll only offer around 65% of a house’s market value. In a worst-case scenario? They will only offer as high as your current mortgage loan’s balance. So, if you owe $10,000 in loan balance, that’s the number they’ll offer and they won’t budge.
Think about it, you are the desperate seller and you are looking for a fast way. Why do they have to offer more?
These cash-buyers (or cash-buyer companies) typically have available lines of credit or—as the name suggests—, cash. Typically these individuals have raised money, and the lower they can push your house price down, the faster they will close the deal.
(Again, remember that you are the one in a hurry, and they have all the time to ‘stall’ the deal)
So, what happens after they’ve got your house?
As you might have guessed, they will simply resell the house for a higher price, often making a huge profit because of two factors:
- They are able to hold on longer than you and they probably know more people
- They got a really good deal with your house in the first place
Is This Process Legal?
Unfortunately, the answer is yes in most cases, since you most likely lost any legal right after you’ve sold the house for cash.
However, whether it’s ethical or not, is another story.
Is It Actually a Fair Deal?
Generally, these fast-cash purchases will produce more problems compared to if you decide to hold down to the house.
However, there might be cases where it can be beneficial for you—the seller—, or at least it won’t be as detrimental. How? When the price is fair.
Comes the iBuyers, or shot for instant buyers.
iBuyers, The ‘Fair’ Cash Buyers
iBuyers are the latest ‘wave’ of cash-buyers in the increasingly popular sell house for cash environment. Short for instant buyers, these are tech-savvy companies using data-driven automated valuation models or AVM to offer competitive deals and aim for quantity instead of quality.
Since they mainly aim for quantity, iBuyers generally make less profit per house flip—the practice of buying and reselling properties for profit.
iBuyers generally offer competitive, fair pricing and can reach more than 95% of the fair market value. Typically, however, they might charge you—the house seller— for around 7-10% fee outside the cost of necessary repairs.
More Things You Need To Know Before You Sell Your House For Cash
Below are several things you might want to know before deciding to sell your house to these cash buyers?
If your house is in need of significant repair
This is a common cause for sellers to doubt that they can sell the house as-is.
However, some cash-buyers might be willing to purchase the property while they might only deduct the cost of repairs from the overall price. Again, this might be a good deal, as long as the offered price is fair.
In this situation, they might send out their own home inspectors to your property and assess the condition of the property.
Scams do happen
We have discussed this above, but let’s reiterate.
Unlike real estate agents, individual investors and these cash-buyers don’t need a license or permit to operate—so, you are not legally protected from their ‘services’.
In general, avoid any cash-buyers that charge any upfront fee (application fee or something similar), always pay attention to your credit history (some scammers might take a second mortgage on your home), and no matter how desperate you are, aim to get a fair market price.
As discussed above, there are now more players in this cash-buying game that are willing to pay fairly for your house, so wait a little longer and try a little harder to find these fair deals.’
Selling a house for cash is about speed
The main advantage of selling your house for cash is that you can close the deal quicker and with less legwork—mainly because these cash deals do not involve banks and financing services.
However, this doesn’t mean you should be in a hurry. Review all possible deals carefully, hire a home inspector when possible, know the fair market price of your property, and as mentioned before, make sure to get a fair sales price.
Renting your house is an option
If you can’t get a fair price and your house is in a decent condition, remember that renting it out is a viable option. You might need to do maintenance and repairs yourself—or you can hire a management company.
In most locations, rental costs always exceed mortgage costs, so it’s quite likely you can cover this maintenance cost on top of your mortgage. Also, you might try offering rent-to-own options.
Work with a real-estate agent
Yes, working with a (qualified) real estate agent as a home seller will cost you. However, remember that you only need to pay a commission fee out of your house’s sale price. If it helps in getting a fair—or even, good— deal, it’s better than getting scammed.
End Words
To sum up: selling your house of cash is a valid opportunity to sell your house directly and quickly, but more often than not the cash-buyers tend to see you as an ‘opportunity’, and will offer a price far below the fair market price, taking advantage of your desperate situation.
It’s, however, possible to get a fair price out of this situation, especially from iBuyers, as discussed above. So, be very careful, and especially, be patient if you are currently one of these homeowners looking for a quick sale.
Joanne Harris