While the vast majority of single-family homes are purchased by homeowners, you only need to find one buyer — and the best buyer for you may turn out to be an investor. Sold.com breaks down the differences you’ll face when selling to an investor versus a traditional buyer.
In 2017, investors purchased 2% of the single family homes in America. That might seem like an insignificant number, but considering that 5.1 million existing homes sold in 2017, that means investors purchased about one hundred thousand homes. That’s a lot.
How to Sell Your House to an Investor
Chances are, you have either received an offer from an investor while selling your house or an investor has purchased a home in your area. But who are these investors and how do they differ from a traditional buyer?
Two Kinds of Investors
There are currently two kinds of investors running around buying properties: institutional investors and individual investors. Institutional investors are large funds or companies made up of lots of individual investors. These individual investors give the larger institution or company money that the company invests. The latest players in this field are online companies such as Open Door, Redfin Now — even Zillow (in certain areas).
Individual investors are singular people or small partnerships that purchase property in order to make money off of it. They are either professional landlords, renting the homes after purchase, or they make major upgrades and then sell the house for a higher price than they bought it for. The process of buying a home, upgrading it and then selling it for a higher price is called “flipping.” It gained this nickname because the investors never live in the homes and the property usually turns over in a short period of time.
How the Selling Process Differs
What these two types of investors have in common is that when they purchase your home, neither plans to live in it. They see your home as a vehicle to make money (i.e. an investment), so when they tour your house they aren’t looking for an emotional connection to the space, like a traditional buyer would. They are trying to figure out if it will make them money.
How this helps you:
- Most investors buy properties as-is, so you won’t have to worry about something coming up in the home inspection that blows up the sale.
- If you don’t have the time or money to update your kitchen and bathrooms according to the latest trends, it’s unlikely an investor will care. Traditional buyers, on the other hand, usually want a home that’s move-in ready with contemporary updates.
- Investors almost always buy properties all-cash. This means you save time because you don’t have to wait for a buyer to arrange financing and an appraisal—and you have a certainty of sale. Purchase contracts with traditional buyers are almost always contingent on the buyer procuring financing.
Some investors might consider taking over your mortgage, so if your property is underwater and you’re struggling to find a buyer, consider marketing your home to investors.
How it could hurt you:
- Most investors buy properties below market value, so they might try to negotiate down the price of the house. Whereas a traditional buyer is more likely to pay your asking price.
- Investors aren’t legally required to tell you who’s purchasing your home or why they want to buy it. So you could end up selling your home to someone who turns it into a vacation rental or as the headquarters of a business. This could change the feel of the neighborhood and even if you’re not planning to stay in the area, it could generate ill-will from your neighbors.
If your house has lingered on the market for months and an investor submits an offer below your asking price, you should consider accepting. Homes that sit on the market for longer than two months tend to develop a stigma and are harder to sell. With an investor buyer, you will be able to close quickly and likely without contingencies.
In recent years, investors have turned to buy single-family homes as they believe the residential real estate market is more stable than the stock market and other investment vehicles. They usually come bearing cash and purchase homes as-is or with few contingencies. If you’re a seller who needs to close quickly or have a home that has lingered on the market, an investor just might be your ideal buyer.