You seen those signs at the side of the road, ‘We Buy Homes for Cash’. Did you ever wonder what these people were about and what they offer home sellers?
The original concept was simple. You accept a submarket price in exchange for a quick easy no fuss transaction.
There appears to be 2 types of instant buyer out there in today’s market.
You and the buyer agree on a price. The house is sold quickly and you get paid. The buyer may then complete a few simple repairs (or not) and will then bring the home into the conventional market and attempt to sell for a higher price. Some of these cash buyers may rent out your former home for a few years, before selling.
There are not normally any fees attached to this kind of program.
If profits are realized, you do NOT participate.
A more sophisticated instant cash buyer has emerged in recent years. You will find most of these firms online. They have become known as “I-Buyers” within the industry.
These firms will sell your former home after you have moved out and after doing some light repairs. Unlike the original type of cash buyer, many of these firms will offer you some upside i.e., they will pay you extra if the house sells above what they originally offer you.
In most cases you will pay fees or incur cost 3 times:
1. Home selling commission.
2. Program management fee.
3. Repairs (selected and executed by the program manager, paid for by you from the proceeds of the sale and presumably marked up with a margin).
Let’s look at the steps:
1. You will agree to accept their price and agree on a move out date.
2. You will be paid a percentage of the price agreed, (for example 75% of the total price).
3. After you move out, the firm will do some repairs (at your cost & you will pay from the home’s equity) and put the house into the market.
4. The house is sold. Some firms state that if they do better than expected, you may get more. If the house does not sell you required to discount it until it does.
Note that this approach is different to a ‘Guaranteed Sale Price’. To get the Guarantee, you must list with a REALTOR® for a specific period and agree to pay commission when it sells. In the event the house does not sell, then the REALTOR® will ‘save’ you by purchasing the home at around 70% to 75% of its appraised value. Frankly in my opinion it’s a bit of a con and intended mostly to hook you into listing with them. In any market your home is going to sell, provided its positioned correctly including the price. You can read more about that here: 8 Keys to Success When Selling.
When compared to a more traditional ‘retail’ approach, the pros and cons might be as follows:
1. There’s no need to prepare your home for sale. You home will sell as is where is.
2. In most cases you can choose when to move out.
3. You receive whole or part payment quickly.
1. Not all homes are suitable. Most cash buyers want ‘ordinary middle of the road’ homes. Lower priced or unusual homes will not normally be acceptable.
2. Your selling price may be 25% to 30% below the anticipated full market value in the case of a pure instant cash offer.
3. Your fees will be higher. In the Edmonton area, traditional real estate commissions are around 4%** of the total selling price. Other firms charge a simple FLAT FEE that may be less expensive*. By contrast, instant cash offer fees can range from 6% to 14% plus the costs of repairs at ‘convenience’ prices.
4. You won’t get everything you want. A conventional sale is generally more attractive when all things are considered i.e., you get to negotiate all the deal components for example the possession date, the price and other terms at a pace that suits you.
Which Approach is Best for You?
So, who benefits from an instant cash offer type scenario?
If you are in a bind and need to sell right away.
If you need cash quickly to pay for other things.
If you simply don’t care about the house anymore and are willing to pay higher fees in exchange for speed and convenience, then an instant cash offer program could be for you.
Who should consider a more conventional approach?
If you want to keep more of your money.
If you want to control your costs and the pace of your sale.
If you can do repairs yourself or know people who can.
If you are more inclined to let the market work for you, a more conventional approach might be a better fit.
* We charge a simple flat fee of $5500 (plus any buyer brokerage fee). This typically works out to be between 1.3% to 2.7% of the total sales price, (based on a $425,000 sales price and $5,500 selling fee and a suggested $6,000 buyer brokerage fee).
** A traditional ‘7 & 3’ commission formula is calculated on 7% of the first $100k and 1.5% of the balance. On $425,000 this would equal $16,750 plus GST.
About the author:
You can read more about the author of this blog by clicking this link - Stuart Neal, Broker, REALTOR® & Team Lead.
We strive to give our home seller clients Better Value & Better Results. To get more information about our affordable full service FLAT FEE home selling program, call our broker owner Stuart Neal at: 780-760-2014 or visit our home sellers page www.FlatFeeRealtyAdvisors.ca
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