The Pros and Cons of Using Cash Home Buyers
You’ve probably seen, while out driving, one of those signs that reads, “we buy ugly homes.” If so, you’re aware, whether you realized it or not, of a burgeoning new internet trend called “Ibuying.” In the Ibuying market, homeowners can quickly sell properties to a variety of companies, such as Openbook, Orchard, Offerpad, and, yes, We Buy Ugly Houses, for cash in hand.
But just because you can do something doesn’t mean you should. Before you sell your home through an Ibuying agency, it’s important to understand how the process works, the pros and cons of selling via Ibuyers, and the people who are most likely to benefit by offloading a home this way.
How It Works
Ibuyers are designed to make selling your home quick and easy and to put cash in your pockets quickly when you need it. With slight variations, most companies work the same way. The process begins by the seller submitting a report online where they enter the address of their property and answer questions about the property, such as square footage, recent upgrades/renovations, appliances, and amenities. Often within 24 hours, the company will reply with a cash offer for the property. Be aware that many Ibuyers do not negotiate the price they offer, although a few do offer some mechanism for a review of price.
If the seller accepts the offer, then the company sends an appraiser to ascertain repairs that the house may need. The appraiser is employed by the Ibuyer and names necessary repairs as well as estimated cost of those repairs. The seller can negotiate costs and can usually opt to take on repairs on their own, but if they choose not to, the cost of repairs is deducted from the offer price. In other words, if a company offers you $175,000 for your home and appraises repairs at $25,000, then you will only receive $150,000 as the final offer. You can, of course, choose not to accept the repairs, in which case the contract is void.
It’s also important to be aware of a few other things. Most companies seek to buy only single family homes, duplexes, condos, and townhomes that cost between $100,000 and $500,000 and that sit on half an acre or less of land. Homes that don’t meet these criteria generally won’t receive an offer. Second, you will have to pay a number of fees in the cost of selling your home.
Pros and Cons
Not everyone benefits from selling to an Ibuyer. In fact, it’s advisable that you have knowledge of real estate markets and solid negotiating skills if you are going to enter into an Ibuying sale. If you feel like the process might be right for you, here are some pros and cons to consider.
- Speed: One of the most obvious advantages to the Ibuying process is the speed with which you can sell your home. Transactions can take as little as 14 days to a maximum of roughly 60 days. Gone then are months of waiting just to see if you get interest in your home.
- Ease: Ibuying takes the stress of haggling over price, overseeing repairs, dealing with agents, and waiting to see if a potential buyer qualifies for financing off of you.
- Immediate cash: If you’re an experienced seller, you can walk away with a reasonable amount of cash that can be used immediately.
- Offloading: For various reasons, some homes may linger on the market. If your home has problems that make it hard to sell, then Ibuying may be an excellent solution.
- Lost profit: before you jump at the potential for an easy sale, be aware that most Ibuyers offer 60%-80% of market value, and may take advantage of buyers who aren’t market savvy by drastically undervaluing a home. This can result in huge loss of profit on a home.
- High Fees: Ibuyers include a transaction fee that they explain as comparable to a real estate agent’s fee, which initially may seem true. Most companies fees start at 5%-6.5%, which compares to the average 6% agent’s fee. However, analysis shows that the average fee of most Ibuyers is 7-7.5% and can be as high as 14%, nearly doubling the cost. You will also see a fee for closing costs that varies between 1% and 4%.
- Repairs: Companies require that you use their appraiser who will decide what repairs should be done. You can negotiate costs of repairs and even do them on your own, but you can’t choose not to do them without negating the contract. Inexperienced home buyers may get hit with inflated repair costs to further cut into the buying price of the home.
- Appeal sales: Some homes have amenities that create competition for sales so that buyers who fall in love with the property actually offer above market value. While you save time with Ibuyers, you lose the opportunity to hook buyers who have fallen in love with your home.
Those who are most likely to benefit from an Ibuyer sale are those who have significant property experience, who are good negotiators, and who have a need to sell a property quickly or who have tried to sell a property and been unsuccessful. Below are some examples of those who have benefitted from Ibuying sales:
- Homeowners with structural problems or safety issues
- Sellers involved in divorce settlements
- An heir seeking to sell an inherited home quickly
- Someone who needs to liquidate to pay outstanding bills
- Individuals who are in foreclosure
- Those who have lost a job and need to downsize
- Those looking to move quickly, such as someone who has attained a new job
Ivan Young is a writer for Checkworks, a retailer for personal and business checks.