05 Feb Pros and cons of selling your house as-is for cash
For most homeowners, selling their house through a real estate agent will net them a much higher profit than selling it any other way. There is, however, certain situations in which selling your house as-is and for a cash offer is just about the only option available to you.
Understanding your situation and applying the right selling strategy can mean the difference between a significant profit or losing money on the sale.
Selling your house for a cash offer is a great option if it needs thousands in repairs, you own a good amount of equity or if you can’t wait the national average of 68 days to sell the house. On the other hand, you may lose out on profits if you accept a cash offer without the need for one.
In short, selling your house to a cash buyer should only be an option for if you truly need it. Otherwise, like the vast majority of homeowners, selling your home through a real estate agent will work for you. Let’s look into why selling your house for cash may be the worst or best decision you can make.
Pros of a cash offer
From faster closings to saving thousands in commission, accepting a cash offer can be a great alternative to listing it with an agent. Additionally, most cash buyers out there don’t buy the house for themselves. Just about the only people able to buy a house for cash are real estate investors.
Since investors will represent the bulk of your potential buyers, learning how to deal with them is key to a smooth transaction. You will get low-ball offers, and one or two pushy investors might try to pressure you into signing a contract. Do not fret, however, as dealing with real estate investors can be quite simple if you ask the right question.
The average days-on-market for a house is around 68 days. That’s just over two months of waiting around to get a phone call that, if the house is priced incorrectly, may never come.
On the other hand, cash closings work quickly because the buyer does not need to apply for traditional financing. As a result, your typical cash closing can takes as little as seven business days.
You pay much less in closing costs
When you sell your house without a real estate agent, you can bypass the typical 6-10% in closing expenses. For example, if the house sells for $100,000, then you will pay around $7,000 in total closing costs. In contrast, a typical cash closing can cost about 2-4% of the sales price.
It’s important to keep in mind that most investors will try to sell you the “we pay for all closing costs!” line. Please do not fall for this as the actual closing expenses are, more often than not, taken out of your cash offer.
to figure out if the investor is paying for all of the closing costs, ask the following: “are the closing costs being deducted from my offer?” If the answer is no, then ask: “are the closing costs coming from your profit or mine?” If they promise to pay for all closing costs, you want to make sure the money comes out of their pocket, not yours.
Closing on a cash offer is already much more profitable than a traditional transaction. There is no need for the investor to parade around promising to pay for all closing costs when, in reality, you’re the one paying them.
You get to sell the house as-is
Put yourself in the shoes of a first-time buyer looking for their dream home. Now, would you buy a beautiful, move-in ready house or one that needs tens of thousands in repairs and upgrades? Of course, some people might opt-in for the diamond in the rough, but the vast majority of buyers want a finished product.
Even so, a buyer could still be interested enough to negotiate with you on the repairs. These repairs/upgrades would either be deducted from the sales price or required before closing. In other words, the cost of the repairs will be carried by you, not the buyer.
What makes selling your house for a cash offer so appealing, is the fact that the buyer will always purchase it as-is. You will not be required to complete any work as they will do most of it themselves. In all honesty, if a cash buyer ever asks you for concessions or work before closing, they’re penny-pinching, and you’ew better off working with somebody else.
Cons of a cash offer
Cash offers come with many downsides that you need to consider before signing anything. The most obvious one being that a cash offer will always be lower than a traditional one. It all depends on the buyer; are they investors or end buyers looking for a good deal?
As mentioned above, an investor will deduct the repairs, closing costs, and their profit from the property’s ARV (after repair value) and offer you whatever is left. On the other hand, an end buyer would only deduct the repairs since they do not plan on re-selling the house for a profit.
With this in mind, it stands to reason that you’d want to sell to an end buyer instead of an investor. Skip the middleman if you will. The only hurdle is that you now need to find a buyer who 1. Has the cash on hand to buy the house and 2. Is buying it for themselves and does not intend to re-sell it.
If you can find a buyer matching that description, selling to them will net you a higher profit than selling to a real estate investor. An excellent place to start would be listing the house on Zillow and Craigslist.
Offer may not fit the situation
Accepting a cash offer is NOT a good fit for most homeowners! If you have been reading carefully, you probably realize that selling your house in this manner will net you an overall lower profit.
Why then would anyone decide to sell their home in this way? As with many things, homeowners do it out of necessity. The biggest reasons why anyone would sell their house in this manner are:
- House needs thousands in repairs and traditional buyers won’t come near it
- They need to sell the house in an extraordinarily short amount of time
- The homeowner does not care about the house and wants out
Owning negative to very little equity
Another common situation in which accepting a cash offer is not in your best interest, is owning little equity or being upside-down on the mortgage. Either way, selling a house with equity issues should be treated entirely differently than one without said issues.
If you are trying to sell a house with little to no equity, accepting a cash offer could cost you cash out-of-pocket. Just because a cash offer does not work for this situation, it does not mean that blindly walking away from the mortgage is your only option.
There are several strategies that a seasoned buyer could employ to get you out of the situation and even better your credit score in the process.
Base the decision around the situation
If you have the time and money to hire a real estate agent, working with one is a much better option than selling to a cash buyer. Whereas selling to a cash buyer should be considered if you need to sell the house yesterday or if it needs more work than an average buyer can handle. The decision rests on your shoulders.
Do you want to sell the house in 7 days and lose out on your profit, or can you wait 68 days and sell it through an agent? No matter the situation, there is always an appropriate selling strategy for it. Remember that.