Should I Sell my Home to an Investor?
Updated: Feb 20, 2020
Sellers can avoid the stress of a complicated home selling process by selling directly to a traditional investor. These kinds of sales may allow sellers to bypass things like inspection contingencies and avoid appraisal and buyer financing concerns.
Even if you start off intending to sell to a traditional buyer, you might end up getting a compelling offer from an investor, perhaps one with minimal contingencies and the promise of a quick close. But before you accept, it’s important to understand how the process differs from a typical transaction. And if it feels too good to be true, it probably is.
What you should know about selling your house to an investor
Selling to an investor saves time and hassle, but it’s not for everyone. Personal situations, like a job relocation, inheritance, divorce or potential foreclosure, are some common reasons people end up quickly selling a home to an investor. With a traditional investor, you can expect a quicker close, an as-is sale and an all-cash offer. When selling to a private investor without a listing agent, you need to do your research to protect yourself from scams. There are plenty of companies that buy houses — make sure to use a reputable one.
Common reasons to sell to an investor
While most people sell their home the traditional way, there are a few scenarios where selling to an investor might make the most sense.
If you’ve inherited a property from a family member and you don’t plan to live in the home, you won’t want it to sit empty for too long. Not only can a vacant home be a target for vandalism, but if you sit on the property in a fast-moving real estate market, you could be on the hook for capital gains taxes.
If you’re behind on payments and need to sell quickly, an investor might be a good option.
If your home requires a lot of updating or repair work to be attractive to traditional buyers, it may be appealing to sell your home as-is to an investor.
No financing possible
If the home you’re selling doesn’t meet safety or permitting standards, most lenders won’t finance a loan for the property, which can make it hard to sell to a traditional buyer.
Need timeline flexibility
If you’re selling on a very specific timeline, you usually have more control over the close date with an investor, since they’re not timing a move-in date the same way a traditional buyer is.
Currently in escrow
If you’re trying to time a sale and a purchase at the same time and your new purchase is contingent on your old home selling, going with an investor offer can speed up the process.
Relocating for work
Often a job relocation requires a faster-than-average timeline. Selling to an investor can be faster than waiting for the perfect buyer.
Divorce settlements require both parties to divide the assets, and selling fast and splitting proceeds can often be an easier way to go.
Doing repairs, taking listing photos and scheduling showings with tenants living in a house can be complicated, so people owning rental properties often turn to investors when it’s time to sell.
Pros of selling your house to an investor
Even if your personal situation doesn’t fall under the common reasons listed above, you might benefit from selling a house to an investor. Here are some of the biggest benefits.
No prep work
With a traditional home sale, you’ll have to do a lot of preparing before you list, from cleaning and decluttering to taking listing photos and staging. In fact, according to Zillow research, the average seller spends $6,570 prepping their home for sale. That figure includes hiring a professional for projects like painting, staging, house and carpet cleaning, lawn care and gardening.
Most investors care more about the financials and less about how your home looks. After all, they’re going to either turn around and quickly resell your home or renovate anyway once the deal has gone through.
Quick escrow period
Unlike in a traditional sale, where a buyer will require a 45-day escrow period to allow enough time for inspections, appraisals and mortgage approval contingencies, a traditional investor can close in less than a month — and sometimes even faster.
Because the home is being sold as-is, you won’t need to worry about making any repairs before closing, whereas it’s common for traditional buyers to request repairs as part of their home inspection contingency.
Additionally, 21 percent of sellers offer to pay some or all of their buyers’ closing costs to seal the deal, according to the Zillow Report. But, with most investor offers, all closing costs are typically included.
All cash offers
Traditional investors usually buy in cash, so there’s no danger in a buyer’s appraisal coming in below the offer price and killing the deal. And in general, cash offers can close more quickly.
Securing a cash offer is especially important if your home can’t qualify for financing — for example, if it doesn’t meet the Federal Housing Administration’s (FHA) minimum property standard, which states that homes being financed with FHA-backed loans must meet safety, security and soundness guidelines.
When selling to a traditional buyer, you have to agree upon a closing date that works for both parties, though usually the buyer calls the shots. And that means you have to be out of the house on the closing date — no exceptions.
Investors may be more flexible with the close date than a traditional buyer. You may also be able to leave stuff behind that you don’t want, which isn’t an option in a traditional sale.
Cons of selling your home to an investor
Although the process is faster and less complicated, selling your home to an investor isn’t always the best idea if you’re looking for top dollar.
The offer you receive from a professional investor will almost always be lower than what you would receive from a traditional buyer, especially if you’re selling in a slow real estate market. However, keep these factors in mind:
You won’t pay for prep work: The average home seller who hires professional help spends almost $5,000 getting their home ready to sell, including things like painting, staging, cleaning and lawn care. When you sell to an investor, these steps aren’t required. The offer reflects needed repairs: If your home is already in disrepair, an investor has factored the cost of needed repairs into their offer. Lack of emotional connection: Since a professional investor won’t be buying your home to live in with their family, there’s no emotional connection, which can sometimes lead traditional buyers to offer more for a house they love.
Possible scams with all-cash offers
Unlike real estate agents, who have to be licensed to represent buyers and sellers, investors don’t need any credentials to buy property. This lack of licensing or any sort of professional affiliation leaves sellers susceptible to “we buy houses” scams. Always do your due diligence when you’re considering an investor offer.
How to avoid scams from home investors
If you decide not to have a listing agent represent you, you’ll want to do some research to make sure the offer you’re considering is legitimate and that you aren’t being taken advantage of. Here are a few important steps you should take:
Call their office using the published number you were provided.
Ask for a list of recent purchases.
Check their website. If they don’t have a website, ask the investor if they have any materials to support their business claims.
Read reviews online. Most professional investors, even if not part of a large investment company, have some sort of online presence.
Check your local Better Business Bureau for warnings. Never give any money to the investor until the closing date, and even then, all transactions should take place through a closing or escrow agent.
If you'd like an investor offer on your home, please contact Property Mothers!
All blog info and data is from Zillow.com
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