Should I sell to a Cash Buyer or Use a Realtor and sell Conventionally?
Is it really a good idea for a seller take a cash offer for their Dallas Fort Worth property ? Well… Do you need to sell your house fast? An investor buyer that can pay all cash might just be what you really need? Or Maybe not…
A Cash Transaction for Your House Certainly Makes Things a Much more Simplified!
I will say this; depending on the situation a cash offer might or might not be the best option for certain sellers! Various or many factors come into play when thinking about whether or not you should sell to Elvis Buys Houses, or any cash buyer. Or should you sell your house conventionally, which usually involves a listing agreement based contract which locks you up for months with a Realtor and then subsequently contracting with a buyer for usually another 30 days. The buyer will likely use bank financing that can present a seller with its own set of problems.
Reviewing Conventional vs Cash Transaction:
The Conventional Realtor Based Sale? What’s Good, What’s Bad and what is the Ugly!
Yes you’ll likely attain the Highest potential selling price for your house!
- House should be preferably fully updated and in really good functional condition, all repairs completed and paid for, if not it should be discounted accordingly (less the repair cost)
- The Realtor parade. Repeated Relator showings involving numerous strangers viewing your home which, depending on your situation can be quite intrusive to some home owners
- Unexpected and/or unscheduled Realtor showings. This does happen! The seller is always supposed to be notified of all showings prior to them showing up and entering through your front door. Yes Realtors are not perfect, some a very busy, some have assistants that don’t follow through and mistakes just happen. However you would like to look at it you must be ready for showings throughout normal working hours or late evening and obviously the busiest days…. Saturdays and Sundays.
- Yes the entire world can see your house! All Realtor place your house on the MLS 99% of the time. The MLS is necessary to provide the public with the details of your house as well as show all associated pictures inside and out. The information is not just confined to the MLS and Realtors. Most Realtors syndicate or link their listing to numerous public websites such as Zillow, Realtor.com, Redfin, Trulia and more, and anyone has access to all or any of these free websites on the internet.
- Most importantly anyone licensed by the state real estate commission has access to the keys to your house. Some sellers might be just fine with this and hopefully everything goes according to plan. But Realtors, Brokers, Inspectors and Appraisers have access to your house if there is a lockbox or Supra containing a key on your front door.
Let’s Get Into The Real Ugly Stuff:
As the owner of a family owned house buying business (Elvis Buys Houses) I can tell you first hand that the part that I despise the most after I remodel a house and try to sell it conventionally is the inspection process. It doesn’t matter how well I fix up a house or house much detail I make sure is put into repairing the house… A licensed inspector will blow it to pieces and scare the living daylights out of your buyer! Not only is it their job to find everything that might be a potential problem but they will likely go above and beyond making your house look like a terrible mess which can lead to your buyer walking away with thousands of dollars of repairs on your hands, all 100% documented! Many of the noted repairs might be quite unnecessary! Unfortunately, like it or not this is the way it goes. Why do inspectors do this? Well It’s certainly not because they are bad people, it’s because as state licensed inspectors they have guidelines and criteria to follow… and believe me their guidelines and criteria are jammed packed with inspection criteria that has been developed to prevent legal action against the inspectors and the companies that employ them. Yes the guidelines and inspection points have been reviewed, critiqued, modified and revised over and over again with the guidance of legal savvy professionals to ensure that the inspectors and their employers are protected. Again it’s not the inspectors, it’s the inspection process that can become the heartbreaker and/or deal breaker for the seller and the buyer. One last thing to note about inspections; Many times the buyers of your property will use the inspection report to ask for repair credits equating to thousands of dollars. Repair items such as an aged roof or HVAC, or windows that lost their seals. Depending on your situation you might feel as though giving up the credit is simply the better choice than dealing with the repairs and/or any associated delays or disagreements that might either delay the closing or possibly terminate the sale all together. If you disagree to do any of the repairs as noted by the inspector the buyer has the right to cancel the contract and get a full refund of their up-front earnest money leaving you to reenter the selling process all over again.
The Appraisal Process…
Once again another state licensed group that have guidelines created or approved by the state real estate commission. On top of that many lenders have their own special set of guidelines that are in addition to the standard state real estate commission guidelines. Simply put appraisers have fiduciary responsibilities that are supposed to ensure that the appraisals from any licensed appraiser should yield similar results, mostly within a 5% range. I can tell you first hand that their final appraisal results usually vary significantly and much more than 5%. I know this first hand as I myself, hire appraisers to perform valuations prior to listing my fully rehabbed property. Additionally, at times I also receive and sometimes review appraisals from the buyers side. Yes I certainly received appraisal results for the same property that vary significantly!
The appraisal process is supposed to be clear cut but it’s actually very subjective and is very much opinion based from one appraiser to another. Unfortunately This can create financial nightmares for a seller because if an appraisal comes in $5,000-$20,000, $40,000 lower that your asking price you’ve just took a significant financial loss!
Example: Myself I previously purchased a house located in the Colleyville area that required a major refurbishment. Upon completion I placed the house for sale using the MLS to sell it retail for $389,000. This house eventually had three different appraisals and all three varied within $60,000. I can attest that this made me sick and it led to some sleepless nights! Going through the selling process on that house was miserable! I lost two buyers and between both they had the house locked up under contract for sixty days! Whatever the number the appraiser values a property at you can be assured that their appraisal number will be the price the buyers lender will consider the final price. If you don’t agree with the appraisers price you can either; request another appraisal, back out of the deal. Or take the financial loss. Be advised that most lenders won’t allow a second appraisal. In my past I have tried to work with appraisers to change their appraisal price with zero little success.
It should be noted that a buyers “Pre-Approval” letter does not mean your buyers will actually attain a loan for the house you are selling. It simply means that from the Mortgage Broker or the Lenders Sales Associate they believe through a quick review of the buyers income and debt level that they are qualified enough to place a contact on a house and if all goes well in underwriting everything will be just fine. But actually, usually right after the option period the next step relevant to the sale of your house is the lender based underwriting process . The underwriters review everything about the buyers financial position and history. Their work history, savings, debt, credit, income and expenses. They even look into the buyers bank accounts and look at withdraws and expenses. Additionally they dig deeper into chain of title for the property, title history, liens, judgments. The final step is the valuation review which involves the appraisal. Depending on the situation and the parties or property involved, the underwriting process can take a few weeks, possibly longer. The buck stops here! If the underwriters find something that jeopardizes the investment and puts the underwriters at risk because your buyer did not disclose something, or was not truthful on their “Pre-Approval” loan application it will likely come to the surface during the underwriting process and possibly disqualify your buyers… At this point you are many weeks into the process and if your buyer is deemed unqualified by the underwriters your deal is dead! Unfortunately the process of selling your house along with another Realtor parade begins once again! This has happened to me more than once when I sell fully refurbished houses. Needless to say it’s quite costly personally, financially and very stressful. Of course there are times when the process concludes without major issue. Simply be aware that it’s a roll of the dice and can go either way.
The costs associated with a conventional sale, as I’ve outlined above can be significant and if unexpected they can lead to high levels of frustration at the closing table.
Let’s review the costs associated with selling a $300,000 house conventionally with a Realtor based brokerage
- $18,000 – Realtor Commission(s) of (6%)
- $7,500 – Closing Costs (2.5%) Includes Title Policy
- $600 – Home Warranty for Buyer
- $500 – Survey fees
Total Selling Fees: $26,600
Keep in mind that if all goes well it usually takes a minimum of 90-120 days, and quite possibly longer to sell a house using a conventional method. Throughout this 90 day period there are other soft costs that need to be considered such as property taxes, utilities and yard maintenance etcetera. Myself from my experience I have found that the cost for taxes utilities and yard maintenance to total up to 1.5% of the selling price or $4,500 total. If you are paying a mortgage then that will need to be accounted for as well.
Now to be realistic we need to make sure we consider repairs. From my experience I have found that repairs required after inspection can costs thousands of dollars. Myself when I sell I house I anticipate post inspection repairs to be a hit from anywhere to $4,000-$8,000 or more. Why? Because the buyer will usually want older water heaters replaced, the HVAC systems thoroughly inspected and repaired, windows with broken argon seals replaced, additional insulation blown into attic to bring it up to code, plumbing and electrical brought up to code, on and on…. Additionally, If your property is found to have any drainage variances and/or drainage issues the buyers will likely request that you pony up and pay for those as well. They know you need to sell the house and are likely dependent on the sale of your home to either buy another home or you simply be in need of the cash The buyer will have their Realtor in their court and underwriting will likely want all the majors repaired before allocating any funds for closing. Yes it does work this way in many instances!
When all said and done with this $300,000 house we have:
- $26,600 Total Selling Fees
- $4,500 in Holding Costs
- $6,000 on average in repairs or repair credit
- $37,100 of accumulated or what might be unexpected costs and three-four months of what can very well be a stressful time working with Realtors, lenders and contractors. The $37,100 number is 12.3% of the $300,000 therefore it cost you 12.3% total to sell your house. Not the 6% you might of thought… More than double!
Simply put you have walked away with $262,900 not $300,000. This can be a major issue if you cannot pay for the repairs or you have a mortgage on the house to pay off.
Important Factor #1: The $262,900 number above is pure speculation. If the appraiser values the property at $285,000 versus your $300,000 asking price you are obviously not happy and walking away with $15,000 less. Now you are down to $260,000.
Important Factor #2: Similar to Factor #1 is that if the buyers demand a $4,000-$8,000 repair credit due to the various items the inspector pointed out then you still took another repair related hit. In some situations the $4,000-$8,000 credit for the buyers is usually a better option versus performing all the repairs with contractors or attempting to complete yourself. Of course most buyers prefer that the repairs are made by the seller so they can move into a house without repairs hanging over their head
It Might Just be Easier to Sell To a Cash Buyer!
Here’s a quick review…
Let’s consider the same $300,000 house with the same costs as outlined above. All the above expenses still apply to your cash buyer because at the end of the day the cash buyer must absorb all those same costs when he/she refurbishes the property and then subsequently resells the house after it’s been updated and repaired.
So the cash buyers must take into consideration the same 12.3%. They also must account for their business expenses such as marketing, cost of capital (they pay their investors) and finally they must build in a profit.
Let’s run through the numbers for a Cash Buyer on this $200,000 property
- $37,100 in Sell/Close/Hold cost as explained above
- $9,500 which equates 3.5% marketing fees (cost of doing business)
- $9,500 for the 3.5% cost of capital (investor fees)
The above equates to $56,100 in total costs or 18.7% of the $300,000
Now at this point the cash buyer has only accounted for his cost and therefore there is zero profit for the investor. Most investors like myself calculate in a 10% profit margin. A 15% profit margin on $300,000 equates to $45,000 before taxes. The 15% number might sound like a lot but I can tell you most business require a 30% profit margin to do business and survive and meet payroll and overhead expenses. The $45,000 is gross profit. It does not include any taxation related to self-employment or capital gains so it’s a lot less!
Final numbers look like this:
- $300,000 house less the:
- $56,100 in investor cost
- $30,000 budgeted investor profit (before capital gains & income taxes)
Your final cash offer ends up being in the ballpark of $215,000. Maybe this number sounds a bit low to you? Maybe not… if you consider that at the end of the day you as the seller essentially traded away some of your proceeds for the convenience of selling your house without all the Realtor parades, the underwriter, contractor, inspector, appraiser related hassles!
Here are the benefits of everything that you no longer have to deal with when you selling to a an all cash buyer:
- You avoid the Realtor Parades
- No Strangers will Ever be Walking Through Your House
- Your House and your Furnishings Will Not Be Exposed to the Entire World
- No key in a Lockbox or Supra for All To See On Your Front Door
- You Have Totally Avoided All the Repair Hassles
- Zero Contractor Hassles and Headaches
- No Underwriter Problems or Worries… It’s Sold!
- No Documented Inspection Problems
- No Appraiser Pricing Haircuts, Disagreements or Stress…
- You save 3-4 months of your life because an All Cash Transaction can be completed in as little as 7 days. Yes your house can be sold that fast!
- The investor takes on 100% of the issues that he/she assumed from you in exchange for his cash profit. The investor will now take on 100% of the risk and deal with all the issues that you chose to avoid!
- Nothing Out of Pocket! All normal Closing Costs are Paid by the Cash Buyer!
It just might be a good decision to sell to an investor. It’s 100% your decision to go either route. If you need to sell your house fast and want to avoid the hassles associated with all of the above, then a cash buyer might be the best option for you!
On the other hand if you have the time and the patience to deal with all the above, especially if your house is in good condition, then selling conventionally might be the best decision for you! I sell my fully repaired, updated and remodeled houses conventionally all time. It’ a hassle but it is what I do for a living and therefore I’ve learned how to deal with the stress. I provide convenience and peace of mind!
If you would like an All Cash Offer on your house or if you need to Sell Your House Fast Fort Worth Dallas please give Elvis Buys Houses a call at 817-886-8295. Our offer process is an easy 4 Step Process:
- Give me a call and we’ll simply talk about your house over the phone. We’ll need to know a the history of house such as repairs that it had it had in the past as well as repairs it might now need.
- We’ll then review the sold houses around your house to see what comparable houses are selling for. This enable all of us to understand what your house should be valued at compared houses nearby in comparable condition.
- At this point we’ll make you a verbal ballpark offer over the phone. If the offer is acceptable to you I’ll come out and look at the house with you in person and finalize offer price. That’s it!
- We can close as soon as we attain clear title (4-7 days) or we can close at a date and time that works for you whether that might be two weeks or two, three or four months! It’s completely up to you.
Working with Elvis Busy Houses in easy! My motto is “Just leave it the way it is and be done with it!” Remember there is no need to clean it or repair it! Just collect your cash payment!
Elvis Buys Houses