If you’re selling your home and an investor walks in offering you all cash, you might think you’d died and gone to heaven. But before you sign that purchase agreement, think it through. Investors are not always the gifts they appear to be.
Most of the home buyers you’ll meet are individuals, couples or families looking for a place to live. They might be looking for their “forever” home or a place to raise their young kids, and they probably consider their home an investment, but they aren’t what we would call investors.
Investors are people or companies that want to purchase your home in order to make money. So negotiations will go differently (and hopefully easier) than they would if the buyer was going to live on your property. But sometimes the investor(s)’ intention should be reason enough to give you pause.
The Pros of Selling Your Home to an Investor
As-is purchase. The investor isn’t planning on living in your home so he or she (or the company), doesn’t care if your kitchen has been updated with a vibrant backsplash or if your toilets are new. In fact, many investors look for homes that are old or outdated so they can fix them up and flip them.
Little risk you won’t close for lack of funds. Most investors pay for properties in cash so you won’t have the uncertainty that comes with a buyer applying for a mortgage. Even when a buyer has been preapproved for a loan, the lender can decide the buyer’s credit-worthiness has changed and refuse to issue the funds needed to buy your home.
Before you sign a purchase agreement you should ask the investor for proof of funds. This can come in the form of bank or money market account statements that show cash or liquid assets in an amount that exceeds the purchase price of your home.
Quicker closing. Since most investors purchase with all cash, you can sell your property as soon as your two parties agree on the conditions of sale. The average time it takes sellers to close with an all-cash investor is two weeks. If you’re selling to a buyer who needs a mortgage, it’ll take you 60 days’ minimum.
Potential for flexible purchase arrangements. If your home is underwater or you’d like to get out of the real estate game altogether but don’t want to move, selling your home to an investor could be the way to go. Some investors will agree to take over your mortgage and some will even rent the house back to you in what’s called a sale-leaseback transaction.
While real estate commissions have been declining — and some recent research suggests that the average rate could soon drop below 5 percent — they can still amount to a lot of money. On a $400,000 home, a 5 percent commission would come to $20,000. With that kind of dough at stake, there are big potential savings for sellers who are committed, talented, and patient enough for an investor-friendly transaction.
YOU BRING A HOMEOWNER’S PERSPECTIVE
While real estate agents can use their experience to advertise a home’s selling points in language typically found on the Multiple Listing Service, better known as MLS, they don’t have the experience of living there. Articulate and creative owners may be able to do a better job describing their homes’ unique value and charm to an investor-friendly buyer.
YOU HAVE CONTROL OVER SHOWINGS
Anyone who has ever sold a home using a real estate agent can likely relate to the experience of getting a call on a Saturday morning and being told to quickly get dressed and leave so the agent can do a showing. Sellers handling their own sale don’t need to be so accommodating and can be more selective about when they want to do showings.
What Are the CONS of Hiring a Real Estate Agent?
If you hire the right agent, you won’t encounter many disadvantages. However, if you hire the wrong agent, you’ll learn more about the following disadvantages than you bargained for. That’s why it is vital that you carefully research and thoroughly interview any agent you consider hiring. If you don’t feel comfortable with a certain agent for any reason, even if it’s just a gut feeling, move on to the next candidate.
Possible disadvantages of hiring a real estate agent include:
- Having to pay commissions – Hiring an agent, especially an experienced, full-service agent, is expensive. Prepare to pay an agent up to 6 percent of the price for which you sale your house. That’s 6 percent of the total sale price, not whatever profit you make on the sale, if you make any at all. You can reduce the commission you have to pay by hiring a discount broker, but you will most likely also have to do without some of the benefits described above.
- Being just one of many clients – Depending on how busy your agent is with other clients, your home may not get the attention it requires. You need to be assured of having an agent that will do his or her due diligence at every stage of the selling process. The busier your agent is, the more likely you will experience the frustration of not having your calls returned in a timely manner, deadlines being missed, and deals falling through.
- Having at least one “middle man” – Depending on whether your prospective buyer is also represented by an agent, any potential deal will have to go through possibly two intermediaries. This could facilitate a deal, or it could get in the way of its progress, depending on the skills and abilities of the agent or agents involved.
- Being at the mercy of someone else’s timeline – You have your goals and priorities. You’ve established your ideal timeline. Hiring an agent introduces someone else’s timeline into the mix, one that may or may not conform to yours. If your agent does not devote the necessary time and effort, your home may sit on the market much longer than it needs to. Conversely, if your agent is eager to unload your home for whatever reason, he may make decisions that conflict with your goals in order to sell it faster.
Unfortunately, some people don’t realize that they’ve selected the wrong agent until they are in the thick of the home selling process. That’s why you cannot base your decision on whether to hire an agent solely on his or her pitch to you. Remember, agents are generally excellent salespeople, and they know how to sell themselves. By gathering as much information as you can on an agent, you at least minimize the chances that you will be caught by surprise by a bad experience.
Of course, you may ultimately determine that you don’t want to hire an agent at all. In such cases, there are other options available to you, such as selling your home on your own or selling it to a cash buyer.
For further information about the options available to you, please feel free to Contact us at 336-770-2921.