Weighing the Pros and Cons of “Selling Your House for Cash”

You have likely seen signs posted along the side of the road saying things like “We Pay Cash for Houses” or “We Buy Ugly Homes”. So what’s the deal? Are these offers for real or are they a scam? As with most things, some may be scams but some are legitimate and can be a valid alternative depending on your situation. However, at what cost? In many cases you may end up giving away about 20% of your equity in exchange for the convenience of a quick sale with little work on your part.

Keep in mind we are talking about investors or investment companies that buy directly from the seller with no Realtors involved, usually with the intent of buying them at the lowest possible price so they can resell, rehab, or rent them at a profit. Although they may have their own cash, they may also be using a line of credit or a hard money loan that doesn’t involve a traditional mortgage. They prey on home sellers who are in distress or need a quick sale with little or no work.

The kinds of properties and situations they typically target are…

• Houses not selling as traditional sales
• Properties in undesirable locations
• Need to get rid of a problem rental
• Inherited property with family members spread far away who want cash and no work
• Facing foreclosure or behind in payments
• Houses in probate
• Bankruptcies
• Need to liquidate because of medical bills, divorce, other reasons
• Need to sell fast for any reason
• In need of extensive repair
• Many other scenarios

Selling your house for cash – THE PROS

• NO REPAIRS – cash buyers buy homes ‘AS IS’, meaning they will assume responsibility for all major and minor repairs, truth-in-sale-of-housing required repairs, even foundation issues; not only do you not have to make any repairs, you may not even have to clear out the house… just take what you want and leave the rest
• NO BANKS OR APPRAISALS – financing extends the timeline, and appraisals and underwriting issues can put your transaction in a state of uncertainty
• NO CONTINGENCIES – selling your house for cash should mean no contingencies… not subject to inspection, repairs, appraisal, financing, even cleaning out requirements
• NO COMMISSIONS – you pay no Realtor commissions when you sell directly to a cash buyer
• NO NEED TO FIND A REAL ESTATE AGENT or go FSBO – no need to do anything to prepare your home for sale
• NO SHOWINGS – no need accommodate requests for showings
• SHORT TIMELINE – expect cash buyers to close within 2 weeks or less, biggest time factor should be  title work

Keep in mind that there are also buyers who pay cash and can close quickly with no contingencies and AS IS with no repairs in traditional transactions with a Realtor. While you pay a commission in a traditional sale, when you sell direct to a cash buyer you can expect your sale price to be about 20% lower than in a traditional sale… a cost about 3-4 times the cost of a typical commission.

 

Selling your house for cash – THE CONS

• LOWER PRICE – a cash offer from a professional home buyer will probably be lower than what you could get elsewhere; the offer will likely take into consideration the following…
  • Condition of the property
  • Renovations and associated costs
  • Time needed to make improvements
  • Costs to keep the property while it is being repaired and resold
  • Retail value of the property once repairs are made
  • Buying and selling costs when they resell the property
  • A reasonable profit
• NO REPRESENTATION – professional home buyers have their own best interests in mind, not yours; it is your sole responsibility to review all terms and documents
  • When you have a Realtor representing you, your seller’s agent is legally obligated to keep your best interests in mind and will guide you through the process
  • Ask for proof of funds before signing a contract
  • Read your contact carefully
    • Ask for non-refundable earnest money of 5-10% of sale price
    • Make sure there are no contingencies
    • Make sure any city time-of-sale requirements are met
    • Clearly define whether you or the buyer are paying any assessments
  • Close with a reputable title company or real estate attorney
    • Make sure your mortgage(s) and any liens are paid off
    • Don’t sign over the deed to your house except in the presence of a title company closer or real estate attorney as part of the real estate closing process
• IS IT A SCAM? – some companies are legitimate but other are not, do your research
  • Legitimate companies don’t ask for any up front fees
  • Check the Better Business Bureau for reputability and credibility
  • Check out their website
  • Research their owner
  • Ask questions
• SPEAK TO A REALTOR BEFORE MAKING YOUR DECISION
  • Depending on your circumstances, selling your home directly for cash may be the best option for you
  • You may make more money by working with a Realtor to sell your home, talk to a trusted real estate agent to consider other options
  • Identify your priorities and make your decision after considering your options

Sharlene Hensrud, RE/MAX Results – 612-419-0560 – shensrud@homesmsp.com