Why might a seller take a cash offer for their Dallas Fort Worth house? Do you need to sell your house fast? A cash for houses buyer might just be what you really need? Or Maybe not…
A Cash Offer for Your House Does Simplify Everything!
Before we touch on this let me tell you this; Depending on your situation a cash offer may or may not be the right option for you! There are quite a few factors to think about when trying to decide whether or not you should sell to a cash buyer like Elvis Buys Houses, or sell conventionally, which likely involves contracting with a Realtor and then subsequently contracting with a buyer that will likely use third party bank financing.
Let’s Review Both Options…
Selling Conventionally? The Good, The Bad and the Ugly!
Highest potential selling price!
- House must be preferably updated and in really good condition, if not it should be discounted accordingly.
- Repeated Relator showings involving numerous strangers that can be viewed as very intrusive to some home owners
- Unexpected Realtor showings. Yes, this does happen! Yes, the seller is supposed to be notified of all showings prior to them opening your front door but Realtors are not perfect, some a very busy and they do make mistakes. Either way you will always need to be ready for showings that can take place during normal working hours late evening and obviously Saturdays and Sundays.
- Your house is exposed to entire world! If your using a Realtor your house is likely on the MLS. The MLS is used to provide the details and show all the pictures of your house inside and out. The information within the MLS is likely linked to all the public websites such as Zillow, Trulia, Redfin, Realtor.com etcetera and anyone has access to these free public websites.
- Anyone licensed by the state real estate commission has access to the keys to your house. Yes they do! This might be just fine and hopefully everything goes according to plan. But yes, not only do Realtors and Brokers have access to your house if there is a lockbox or Supra containing a key on your front door but licensed inspectors and appraisers do so as well.
Let’s Get Into The Real Ugly Stuff:
As the owner of my own 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? It’s 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 or approved by the state real estate commission. Additionally, many lenders and/or lender types have their own guidelines that are piled high onto 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. I also receive appraisals from the buyer’s side, and I certainly received appraisal results for the same property that vary significantly! Simply put the appraisal process is supposed to be clear cut but it’s very subjective is very much based on the opinion of one appraiser versus another. This can create financial nightmares for a seller because if an appraisal comes in $5,000-$20,000 lower that your asking price then you just took a significant financial haircut! I once had a $380,000 house that had three different appraisal and all three varied close to $60,000. Yes, I can assure you that I had some sleepless nights going through the selling process on that house! Whatever the appraiser values a property at is and will be the number the buyer’s lender (The Bank) deems as the actual value. If you don’t agree with their valuation you can either; request another appraisal, back out of the deal, or take the haircut. Most lenders won’t allow a second appraisal. I have also tried to work with appraisers to change their appraisal, but I’ve never been successful. In short… I’ve never met an appraiser that was wrong.
Understand this one thing. A “Pre-Approval Letter” does not mean your buyers will actually get a loan for the property. It simply means that from the Mortgage Broker or the Lenders Sales Associate deems you qualified enough to proceed to the underwriting process once the buyer locates a property to buy.
So… After the appraisal process the next step relevant to the sale of your house is the lender based underwriting process. The underwriters review everything from chain of title or title history, liens, judgments and the valuation appraisal. They also review the buyer’s financial position, their work history etcetera, savings, debt, credit, income and expenses. They even look into the buyer’s bank accounts and look at withdraws and expenses. 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 doesn’t match up or if your buyer did not disclose something or was not truthful on their loan application, it will likely get uncovered 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 and the process of selling your house and the Realtor parade starts all over 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.
If you sell conventionally, as per the process I’ve outlined above, be aware of the fees associated with selling using Realtors and financed buyers.
Let’s review the costs associated with selling a $200,000 house conventionally with a Realtor based brokerage
- $12,000 – Realtor Commission of (6%)
- $3,000 – Closing Costs (1.5%) Includes Title Policy
- $500 – Home Warranty for Buyer
- $500 – Survey fees
$16,000 Total Selling Fees
Keep in mind that if all goes well it usually takes a minimum of 90 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 $2,000 total. If you are paying a mortgage, then that will need to be accounted for as well.
Not to pile it on but let’s be realistic here and make sure we consider repairs. From my experience I have found that inspector related repairs can cost thousands of dollars. I anticipate $3,000-$6,000 in repair costs because usually the buyer will want the HVAC systems thoroughly inspected and repaired, windows with broken argon seals replaced, additional insulation blown into attic, plumbing and electrical brought up to code, on and on.
When all said and done with this $200,000 house we have:
- $16,000 Total Selling Fees
- $2,000 in Holding Costs
- $4,500 on average in repairs or repair credit
- $22,500 of costs and three (3) months of what can very well be a very stressful time working with Realtors, lenders and contractors. The $22,500 number is 11.2% of the $200,000 therefore it cost you 11.2% total to sell your house.
Simply put you have walked away with $177,500 not $200,000.
Important Factor #1: The $177,500 number above is pure speculation. If the appraiser values the property at $190,000 versus your $200,000 asking price you are obviously not happy and walking away with $10,000 less or $167,500.
Important Factor #2: Similar to Factor #1 is that if the buyers demand a $5,000 repair credit due to the various items the inspector pointed out then you just took another $5,000 haircut. In this situation the $5,000 credit for the buyers is usually a better option versus performing all the repairs with contractors or attempting to complete yourself.
Considering factor #1 above, which is a very legitimate possibility, your anticipated $167,500 was just reduced to $162,500.
Now…. Is it easier to Sell to a Cash Buyer or Investor?
Let’s do a quick review…
Let’s consider the same $200,000 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 he/she has absorb all those same costs when he/she turns around and resells the house after it’s repaired and ready to sell.
Cash buyers must take into consideration the 11.2%! 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
- $22,500 in sell/Hold cost as defined above
- $7,000 which equates 3.5% marketing fees (cost of doing business)
- $7,000 for the 3.5% cost of capital (investor fees)
- $3,000 in closing costs (during purchase)
The above equates to $39,500 in total costs or 19.75% of the $200,000
At this point there is zero profit calculated in for the investor. Most investors like myself calculate in a 15% profit margin. A 15% profit margin on $200,000 equates to $30,000. 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
Final numbers look like this:
- $200,000 house less the:
- $39,500 in investor cost
- $30,000 budgeted investor profit (before capital gains & income taxes)
Your final cash offer ends up being in the ballpark of $130,500. 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 their proceeds for the convenience of selling your house fast without all the hassle!
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!
At the end of the day it 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.
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:
- You call and we simply talk about your house. We’ll need to know a little about the history of house such as repairs that it had it had in the past as well as repairs it might currently need.
- We will then review the current market around your house to see what comparable houses are selling for. This enable all of us to understand what your house should sell for in comparable condition to the other houses in your neighborhood.
- We will make you a verbal ballpark offer over the phone and if the offer meets your expectation, we will come out look at the house in person and finalize the an agreed upon offer price and be done with it.
- We can close as soon as we attain clear title, or we can close at a date and time that works for you whether that might be two weeks or two months!
Working with Elvis Busy Houses in easy! Just leave it the way it is and be done with it! No need to clean it, repair it, just collect your cash payment!