Property Markets Guide: A Detailed Explainer On The Concept Of Selling Your House For Cash
Updated: Nov 25, 2021
When cruising around your neighborhood, you may have come across advertisements with details such as “we will purchase your home for cash” or “we buy rundown/dilapidated houses.” Suppose you have ever wondered who pays for these types of advertisements. In that case, we have an answer for you … These types of ads are mostly usually paid for and put up by property-flipping companies (these are companies that buy rundown houses, invest in sprucing them up, and then sell them at a higher margin).
It is, however, worth pointing out that making cash for home offers is not just a preserve of house-flipping companies. Many cash home buyers and investors operating in the property market would be willing to pay you liquid cash for your house.
Suppose you are thinking of moving into a new neighborhood or simply upgrading into a new and better residence. In that case, you may be interested in exploring the cash for homes concept, especially if your bank account is running relatively low
In this post, we will provide an in-depth explanation of what selling a house for cash means with a view of helping you determine if it is the most prudent option to explore in your circumstances.
What Does Selling My House For Cash Really Mean?
Should you choose to sell your property for cash, it means that any prospective buyer eyeing the property should be willing to pay for the house in cold-hard cash. This simply means that there are no mortgages involved in the process. This method of selling properties is usually relatively easy since it basically means parting with the title to your house in place of cash with no complicated financing processes involved.
Although this method of selling houses is easy and uncomplicated, you are likely to make much less money from the sale of your property. Compared to selling your home through the traditional method (getting your property inspected, carrying out the requisite renovations, engaging a realtor to handle the sales process, etc.). In most cases, players in the property market usually reserve cash for house offers for dilapidated properties whose repairs or renovations before a sale is made would be financially impractical for the seller.
If you take a cash offer for your property, you will forgo the process of listing your house in exchange for a speedy and convenient sale, but you should also be ready to give the cash buyer a huge discount.
What Should I Expect When A Buyer Makes A House For Cash Offer?
When a potential buyer makes you “a house for cash offer,” you may be expecting them to show up at your doorstep with a briefcase packed with wads of cash to complete the transaction – just like in the movies. However, it rarely plays out this way…
For starters, withdrawing large amounts of cash can be pretty complicated because, well, buying a property takes a lot of money. Second, lugging a rucksack around that contains that much money isn’t the safest or wisest thing to do.
In most cases, when you accept a for-cash offer, the prospective buyer will most likely deposit the agreed amount directly into your bank account through a cashier’s check or electronic transfer.
Top Reasons To Consider Accepting A House For Cash Offer
If you choose to sell your home through the traditional process, you will have to carry out renovations on your property, and depending on the degree of damage, the costs can be prohibitive. On the other hand, if you sell your house for cash, the entire sales process will be inexpensive and uncomplicated though you will likely see reduced profits from the sale.
That said, what are some of the top benefits of selling your house for cash?
• The Sales Process Will Be Hassle-Free
Selling a house for cash is relatively straightforward and uncomplicated. If you accept a cash offer, you will not have to go through the process of sprucing up your property and beautifying it for the buyer.
Accepting this type of offer can also be very beneficial to people with busy schedules who do not have the time to go through all the steps involved in the traditional listing process. For example, this type of offer can be ideal for a person who has inherited a property from a relative in one state but lives in a different state.
• You Want To Sell Your House Quickly
You may be faced with circumstances where you just want to get rid of your house and start a new chapter in your life, for example, if you have just taken up a new job or gone through a nasty divorce. In such circumstances, accepting a cash offer may be more prudent since you do not have to go through all the mundane yet complicated processes required to list your home traditionally.
Additionally, as we mentioned earlier, a cash sale offer does not involve mortgages. Remember that if a prospective buyer relies on a mortgage to clinch the sale, the deal can always fall through the cracks. With a cash offer, you will be able to close the deal on your house sale almost immediately.
• You Are In Dire Need Of Liquid Cash
The main reason why most homeowners opt for a cash sale is that they lack the capital required to spruce up their home for a traditional listing.
Most house-flipping companies usually accept rundown houses with a view of fixing them and reselling them at a profit. If you are cash-strapped and cannot afford to carry out renovations to your property for a traditional listing, accepting a cash offer may be a great idea.
• You Cannot Meet Your Mortgage Obligations
If you fall behind on paying your mortgage, your lender will most likely start exploring the option of foreclosing on the property. Given that a home foreclosure can have drastic ramifications on your credit, you can explore the option of selling your home to a for-cash property investor or house-flipping company. Though you will still lose money on your house sale with a for-cash offer, it is better than having your mortgage lender foreclose your property.
What Are Some Of The Drawbacks Of Accepting A House For Cash Offer?
Above, we have discussed some of the top ways and situations when accepting a house for cash offer might be prudent. At this point, you may be wondering, if a house for a cash offer is such a great option, why doesn’t every property owner sell their home for cash? Well, it’s simple… There are two sides to a coin…
Below, we will discuss some drawbacks that come with accepting a house for cash offer…
• You Will Have To Accept A Price That Is Below Actual Market Value
The biggest flip side to accepting a cash offer for your property is that you will make much less than you would if you sold your home through the traditional listing process. Most buyers who make cash offers know that the seller wants the sale to go through quickly either because they cannot afford renovations or are too busy to oversee a traditional sale. As such most for-cash buyers tend to make extremely low offers to homeowners looking to make a cash house sale.
Though the offers made by the different houses for cash buyers vary, a cash offer can go as low as between 60% - 65% of the actual home value, especially if the buyer will have to incur huge expenses on repairs before the home becomes livable.
• You Will Have Little To No Bargaining Power When Dealing With The Prospective Buyer
If you are selling your home through the traditional listing process, there is often room for you to haggle with your REALTORS® or a potential buyer on the asking price. This is not the case when it comes to the house for cash offers.
Given that most cash buyers look for rundown homes, you will not be in a great position to bargain on the price set for the buyer if your home will eventually require major repairs. The same case applies if you want to sell your home quickly for whatever reason(s).
If you are looking for a cash offer on your home, it likely means that the property is not in good condition, which means that the pool of potential buyers will be limited. If you are having a hard time finding a buyer, you are likely to be highly tempted to accept any offer you are given, no matter how much money you are offered. Given that most for-cash buyers are usually looking to make a profit on renovating and flipping the house, you may not find a buyer who is too motivated to haggle with you on the asking price.
• In Some Cases, You May Still Be Asked To Underwrite Repairs To Your House
One of the greatest benefits of accepting a cash offer is that most for-cash buyers do not require you to carry out repairs on your home. However, the buyer may ask you to underwrite the cost of carrying out repairs on your property, in some cases.
Though you will not be asked to oversee the repairs yourself, some houses for cash buyers such as iBuyers and house-flipping companies may deduct the cost of carrying out the requisite repairs in your home from the initial cash offer they make. If you are dealing with such buyers, the profit margin from your house sale will become even marginally smaller.
Note that in some instances, it may be more prudent to carry out the necessary repairs on your property and then sell it through the traditional listing process, as it will mean a higher profit margin for you.
Do I Need A Realtor When Selling My House For Cash?
Hiring a realtor will mean more deductions from any proceeds you eventually make from selling your home. You can easily find many seasoned property agents and REALTORS® in the market who have years of experience dealing with cash buyers who can help make the process of selling your home quicker and hassle-free. They can help you figure out the best method/process to sell your property.
If you are looking for expert advice and guidance on how to sell your property, you can speak to one of our Verified Partner Agents or use the “Find a realtor” search tool at the National Association of REALTORS® (NAR).
Who Invests In Buying Homes For Cash?
According to data from the 2020 Home Buyers and Sellers Generational Trends Report from NAR, only 14% of home buyers made cash offers for their property purchases.
Earlier in this post, we highlighted some of the entities that finance homes for cash property purchases. Below, we will highlight and discuss some of the main types of investors who finance houses for cash purchases. They include:
1. Buy & Hold Property Investors
The “buy-and-hold” investment strategy is popular among investors who acquire properties with a view of making both short-term and long-term profits from their investments. To earn profits in the short-term, these investors usually buy rundown properties at low market rates, carry out the necessary repairs and then lease these properties to tenants. Once the value of these properties goes up, these investors usually sell the properties at a higher value which is how they earn profits in the long term.
In some instances, buy-and-hold property investors just focus on earning as much profits as they can from the properties they purchase without putting too much work into their investment. For example, by identifying a neighborhood with a great property market, these investors can buy rundown properties and hold them for a while. When the price is right, they can then resell the houses they own at a higher margin without doing any repairs on the properties.
Most homes for cash sale offers are primarily associated with house-flipping companies and agencies. Unlike buy-and-hold property investors, house-flippers never hold onto their property acquisitions for long. Instead, they focus on buying dilapidated homes, carrying out the necessary repairs, and immediately reselling them at a profit.
House-flipping is a risky endeavor since property repair costs can sometimes be astronomical. Because of the huge risks they take, house-flippers are renowned to be notorious hagglers with property sellers when making house for cash offers.
Also known as “instant buyers,” iBuyers are companies that leverage technology to make instant cash offers to potential home sellers. If you are looking to sell your home, you can contact an iBuyer site and inform them of your intent to sell your property, and they will get back to you with a cash offer – a process that typically takes a few days. Unlike most houses for cash buyers, most iBuyer sites tend to offer homeowners a cash offer that is relatively close to the actual market value of a property. However, just like house-flipping companies, their end goal is usually to resell the property that they acquire as soon as possible.
iBuyers tend to give homeowners better cash offers for houses for one simple reason … they usually take a commission from the seller whenever a house is purchased. Though they can be highly convenient and offer great cash offers, many potential house sellers tend to avoid them because of this commission, which usually translates to reduced profits.
I Have A House In Great Condition, Should I Sell It To An iBuyer?
Earlier, we mentioned that iBuyers tend to make houses for cash offers that almost reflect a property's actual market value. However, one key thing to keep in mind is that these investors focus on homes that are in good condition. If your property is in an excellent, you may consider bypassing iBuyers and listing it traditionally to make maximum profits from the sale.
Selling for cash to an iBuyer is a great idea if you are short on time and cannot handle the traditional sales process. However, if you can set aside the time to oversee a traditional listing, why pay an iBuyer a cut of your profits when you can keep every cent you make from your house sale?
Selling Homes For Cash Is An Emerging Trend That Will Only Grow More Popular With Time
As a homeowner, you can sell your house for cash even if it is in relatively good condition. This is a great option for homeowners looking to sell their houses (no matter what condition they are in) and quickly move on to a new chapter of their lives. However, before you accept a house for cash offer from any source, you should also acknowledge yourself with the benefits and drawbacks that come with listing your home traditionally.
To get more tips, tricks, and advice on selling your home, check out more of our blog posts.