Maybe you’ve thought about selling your house. It’s too small now for your family, or the neighborhood doesn’t suit your needs like it used to. Or maybe your new job is in another town and you have to move. But marketing and selling a house is a LOT of work, and maybe the last thing you need right now is more work. For homeowners in these kinds of situations, the possibility of selling your home quickly, without having to fix it up or have strangers traipsing through, can be very appealing.
How to Sell a House for Cash
You’ve probably seen the signs posted on telephone poles, “Sell Your House for Cash.” You may have gotten postcards or letters in the mail offering CASH NOW for your home.
There have always been investors interested in buying bargain houses, fixing them up, and reselling them at a profit. “House Flipping” is such a part of the culture that there are reality TV shows built around it (you may want to read The Fact And Fiction Of HGTV’s House Flippers). But in recent years, a new phenomenon has emerged: direct homebuying through the internet. Companies like Open Door, Redfin Now, and most recently industry giant Zillow are buying homes directly from sellers, making the process much faster and easier.
So let’s take a look at the pros and cons of selling for all-cash:
It’s Fast – Going the traditional route with an agent and the MLS (Multiple Listing Service) – or going FSBO (For Sale By Owner) – there is no guarantee that your home will sell at all. Assuming you’ve priced it right, your home should get offers. But it can take months to get the kind of deal you’re looking for. Realtor.com data suggests that once a home is listed, it takes on average about 65 days to sell (this varies widely by location). Once you’re under contract, escrow can last 30 to 60 days – or longer – and that’s assuming everything goes smoothly. While the vast majority of escrows DO close, the percentage that fail rose from 2.1% in 2015 to 3.9% in 2016 (according to Forbes). All that said, if you need money fast, going the traditional route definitely has drawbacks. Online direct homebuyers will get you an offer in a fraction of that time. One company (OfferPad) promises an offer within 24 hours.
No Fix-Up – If you’re in a hurry, or don’t have cash-on-hand, the idea of doing all the things – little and big – needed to maximize your home’s value may not be practical. Cash sales are “as is.” You still need to disclose any known defects or issues – but it will be up to the next guy to fix them. If you know your home needs major repairs, and are not in a position to do them, an all-cash offer may be the way to go.
No Contingencies – a traditional home sale is likely to come with contingencies. Virtually all will have a home inspection contingency, and most buyers will also want a mortgage contingency and perhaps an appraisal contingency. If it’s a buyer’s market, they may even demand a home sale contingency (the sale of your property doesn’t go through until their current property sells). All of these are opportunities to delay or completely derail the sale of your home.
Less Money – This is the big one. If your primary concern is about getting top dollar for your home, then an all-cash deal might not be the best route. Investors, whether traditional or online, buy homes in order to resell them. They wouldn’t stay in business long if they bought high and sold low. They need to make a profit. Still, this might not be a bad option for you once you factor in the costs of fixing up your place, and selling it the traditional way (likely a 6% real estate agent’s commission).
The Money May Not Be Real – If you’re dealing with a known, reputable company, then this isn’t a concern. But if you’re selling to the guy who sent you a postcard in the mail, make sure they have the cash that they are offering. Ask to see a bank statement or a “proof of funds” letter from their bank. In these cases, you may also want to negotiate a lease-back so you don’t have to rush to organize a move. (You may want to read How to Know If That Cash Buyer Is A Scam.)
[Since all-cash offers have such a short escrow (sometimes as short as 7-10 days), you may want to negotiate a lease-back of your house. You don’t want to frantically pack and move, only to have something go wrong with the deal at the last minute. You could end up stuck paying two mortgages, or paying rent plus a mortgage – and that adds up quickly. If you schedule your move out for a month after closing, you’ll have more time to organize yourself – and no worries about moving and then having the deal fall apart.
An all-cash offer is likely to be below the market value of your home. But it is also fast and convenient. Only you can decide which of these factors are most important in your particular situation.