19 Jan Is selling your house to an investor right for you?
We’ve all seen those hastily handwritten “we buy houses” signs on the side of the road. What gives, who are these people continually trying to 1-up each other on who can buy a house the fastest? Is buying a house in record time supposed fast supposed to be a good thing? Hmm.
Depending on your situation, selling to a real estate investor may be the best or worst decision you can make. Above all, professional investors serve to fill the niche left open by real estate agents. With this purpose in mind, you should only sell your house to an investor if going through a real estate agent would:
- Cost you money out of pocket
- Take more time than you can afford
Investor v. real estate agent
Like I mentioned above, an investor and a real estate agent should not meet in the wild since they serve very distinct niches. For instance, agents are great for people who own a decent amount of equity, can wait the national average of 68 days to sell their house, and those whose property is in good to fantastic condition.
On the other hand, investors work with homeowners who can’t be reliably helped by agents. Seasoned investors deal with complex situations such as underwater mortgages, foreclosures, title issues, and houses that are too ugly to sell. The investor’s monetization model is what allows them to structure offers that, not only benefit themselves but their sellers as well.
Why can’t agents deal with complex situations?
It’s not that they can’t, it usually comes down to a lack of experience and their commission-based model. Real estate agents typically take home 4-7% of the sales price as their commission.
So if your house sells for $100,000, the agent would make $4,000 – $7,000 in profit. Usually, that’s not an issue unless you own very little equity in the house. However, in certain situations, their monitization can model
Your mortgage is upside-down
If you owe more than your house is worth, selling it through an agent could cost you thousands out-of-pocket. First off, you’re already in the red by selling a home that’s underwater. Do you want to add 4-7% for the agent’s commission?
Besides, most agents will do the math and be upfront with you. They’ll probably advise you to speak with your mortgage lender about the situation (which you should btw).
On the other hand, if your mortgage is underwater and as long as your title is clean, an investor would have no problems buying your house subject to.
You own very little equity
Similarly to being upside-down, owning very little equity in a house can put you in between a rock and a hard place. If the property is in excellent condition and you can sell it at market value, then you might be in the clear.
However, what if the house needs work to warrant market value? In that case, the buyer could ask for concessions that would ultimately put you in the red. Ouch.
An experienced investor could handle this situation by structuring a deal that would allow you to walk away without paying anything out-of-pocket.
Your house is in foreclosure
If you are facing foreclosure, specialized agents may be able to help you through a short sale. In other words, you’ll get out of the foreclosure but make no money from it. More importantly, a short sale, according to incharge.org, can often have the same weight as a foreclosure on your credit report.
Ultimately, the impact on your credit is in the hands of the credit-reporting bureaus. Though some market experts say there is no credit-scoring difference between a short sale reported as a settlement and a foreclosure, others suggest that short sales can have benefits.
Keep in mind that if the short sale gets approved, the whole process, on average, takes around four months.
- You: Hi, I would like to sell my house, please.
- Agent: Sure thing, can you tell me a little bit about yourself?
- You: *breathes in* my mortgage is upside down, the house is in terrible condition, its max value is $85,000, and I’m in the middle of foreclosure.
- Agent: *silence*
- You: so can you help me? The auction is 2 weeks away.
- Agent: have you tried talking to your lender?
House needs tens of thousands in repairs to fetch
Selling through an agent should be fine. Just out of curiosity, how good is the average agent is at calculating repair costs, accurate ARV, rental comps, and are they going to factor in the buyer’s profit percentage?
When it comes to houses in disrepair, most of your buyers are going to be real estate investors. As it turns out, most qualified buyers would instead buy a move-in ready house than an ugly one. Simple as that.
If priced incorrectly, your property will sit on the market for months or even years. Whereas if priced correctly, your agent can have the house under contract in a day or two. It all comes down to the agent’s experience and your willingness to be realistic.
Drawbacks to working with an investor
Investors, like their name suggests, treat each transaction as an investment. In its simplest form — and I do mean simplest — they acquire a house for less than what it can sell for and take home the difference. For them, the details of a transaction can make or break their bottom line.
It’s this attention to detail that allows investors to structure deals that benefit them and their sellers. With that in mind, if your situation does not require an investor, directly working with one is probably a bad idea.
Like I mentioned above, many investors acquire properties for less than what they’re worth. Even investors who specialize in leasing their properties want a minimum initial profit of 5%.
Additionally, rookies fresh out of those “get rich quick flipping houses seminars” can be quite troublesome. Their inexperience and sometimes coarse attitude can lead them to make costly mistakes.
Not to sound like a broken record, but if your situation does NOT require an investor’s help, don’t work with one! If you have the time and available equity, selling through a real estate agent will usually net you a much higher profit.
Remember that investors exist to work with homeowners who cannot be reliably helped by real estate agents. Therefore, reaching out to them before speaking with a local Realtor may cost you thousands in profits.
For the vast majority of people, working with an experienced agent is a much better option than working with an investor.
If it smells, looks, and feels fishy, then it’s probably a fish. Although not as common as they used to be, scammers still do exist in this and many other niche industries.
A good rule of thumb is to avoid calling the “we buy houses” signs on the side of the road. Bandit signs are placed by inexperienced or sketchy investors and can be hard to trace.
Always research any company or individual before doing business with them! Starting your search online is highly recommended as scammers are unlikely to have an online presence.
More than anything, use common sense and trust your intuitions. Even if you’re not working with a real estate agent, some of them work with investors and can help you find someone that fits your needs.
How to find the right investor your situation
Shop around and always go local! A small business in your area has more to lose than a national investment company. Local investors deal with only a few properties at a time and have a reputation to uphold within their respective communities.
They know their neighborhoods incredibly well and will always be available if you have any questions about the process. When speaking with an investor, always ask as many questions as possible and never lie about known title issues or the condition of the house. Lying will only complicate things for everyone in the long run.
Alternatively, a national company will either sell the “lead” for the highest bidder or pass it on to their franchisees. In either case, there’s nothing inherently wrong with large investment companies.
They get a high volume of leads and dealing with complex issues is just not in their best interest. Go ahead, give one of those national companies a call and they’ll usually offer you ~50% of the value of your house.
Is selling to an investor right for you?
All in all, selling to an investor only makes sense if your situation calls for it. If you’re still unsure, I would recommend you to contact any local real estate agent and ask how they can help you.
If they can help you but it would take too long or cost you a ton of money, then working with an investor is right for you.