Under specific conditions, the cash sale provides the owner with an opportunity to quickly sell a house, which could otherwise be a challenge.
Positive attributes of the cash sale (or quick cash sale) are it’s speed, simplicity, efficiency, and the absence of loan underwriter approval.
However, if the purchase contract allows for assignment to another buyer, realizing these positive attributes becomes less certain. This process is known as “wholesaling,” and is discussed further below.
The ever-present downside to a quick cash sale is price paid.
The following provides an overview of the quick cash sale business model and factors under which it merits consideration.
THE GENERAL BUSINESS MODEL
Cash Buyer Types
House Flippers and iBuyers
There are two general types of quick cash sales; the localized house flipper or rehabber and the relatively newly-defined “iBuyer.”
It is the objective of any quick cash buyer to purchase (or get under contract) single family property for a price which will allow an acceptable profit when resold. If either type of buyer determines that a property meets their criteria, they will act quickly. An owner can have an offer within 24 hours and close the deal (money in hand) as soon as the agreement is ratified and title work can be done.
An alternative to completing the purchase and taking ownership is known as “wholesaling.” A substantial portion of the quick cash home buyers (as distinguished from the more sophisticated iBuyers) have no intention or capability of completing the purchase contract and taking ownership of your house. A wholesaler will write an offer to purchase using a small Earnest Money Deposit, which specifies an unidentified co-buyer, “As Assigned.” The wholesaler will then attempt to sell the contract to an investor for a small profit. If the wholesaler cannot find a buyer for the contract, then they will terminate their interest in the contract and forfeit their deposit. In this situation, the owner retains the deposit money but forfeits the time lost to the unsuccessful wholesaler.
The wholesaler must receive written permission, given in the offer to purchase contract, allowing the cash buyer to assign the contract to another buyer.
Many states have enacted laws which control this practice, generally limiting it to licensed real estate professionals.
The Cash Sale Process
All buyers will submit an initial offer, which allows them to perform an inspection of the property. Depending upon how the offer is written, the onsite inspection of the property may result in a reduction of the offered purchase price reflecting repair costs or termination of the offer. Before signing the initial offer to purchase it’s important to make sure that, if you don’t like final purchase price, adjusted by repair costs, you can choose to not sign the final offer without losing any money.
In addition to purchase price and deposit or earnest money the offer to purchase may include other contingencies, including:
- your response time;
- your departure timeframe;
- costs paid by the buyer;
- an inspection period during which the offer may be withdrawn without penalty; and
- the cost for repair and renovation, which will be charged to seller’s side of the ledger.
The offer may also provide a condition that all conditions and contingencies are non-negotiable. In other words, you must take the offer as written.
Differences Between iBuyers and House Flippers
iBuyers tend to be large sophisticated well-funded organizations, which operate on the national or regional scale. Examples include Open Door and Zillow.
Local house flippers tend to be what their name implies; local. That does not necessarily mean that they do not have the cash or a hard money loan to complete the sale.
The local house flipper will pay all costs associated with the purchase. On the other hand, the iBuyer will generally charge fees to cover closing costs.
The local house flipper generally will purchase a property which needs considerably more work than the iBuyer. Houses which, in their current condition, cannot qualify for a loan are the grist of the local house flipper. iBuyers lean toward remodeling, upgrades and modernization.
HIRE A REAL ESTATE ATTORNEY
If you pursue a cash sale of your property, hire an attorney at the very beginning of the process. Have your attorney review all documents and agreements before signing. Yes, you will need to pay for this service.
IS THE QUICK CASH SALE YOUR BEST OPTION?
The simple quick cash sale is not be the best option for all sellers and situations. However, it is an option, which should be evaluated. Here are a few criteria signaling that it may be to the seller’s advantage to pursue a quick-close cash offer.
- In it’s current condition, the house cannot qualify for a conventional loan.
- Repairs necessary to qualify the house for financing are expensive and would take considerable time, equipment and expertise.
- Seller has no time or interest in making repairs and managing the sale on the traditional market.
Even if the property is loan-capable, there are situations which may bode of a quick cash sale. Examples include:
- living a considerable distance from the property and it is not providing an acceptable return;
- having limited home renovation and repair experience;
- having limited available cash to invest into making necessary repairs;
- having no time to invest in renovating or rebuilding the property;
- anxiety about the property and need closure;
- the money received from the sale can be to better use; and/or
- facing a hard deadline (e.g., tax foreclosure).
IS THE TRADITIONAL PATH YOUR BEST OPTION?
If, on the other hand the property has received reasonable maintenance and the process of making it market-ready is limited to paint, paper, minor landscaping, and a good cleaning, then the seller is advised to discuss preparation and listing the house with a real estate agent. The big caveats to this simple conclusion are time and personal intangibles, which affect the decision. If the seller’s primary constraint is getting cash by a date certain, which is quickly approaching, then a discussion with a real estate agent will not likely provide a solution to their problem. Similarly, other personal situations can exert tremendous influence on a seller’s decision on how to proceed.
COMPARE THE CASH SALE AGAINST OTHER AVAILABLE OPTIONS
In making any significant decision, the place to begin is by conducting a comprehensive analysis of your situation and desired outcomes.
The Park REI House Sale Options Model integrates qualitative and quantitative information which define an owner’s situation, through an analysis of both the economic consequences and other implications of several house sale options (including the cash sale). Model results provide a comparison of the economic consequences in the context of other nonquantifiable factors providing a perspective on each option.
If you are trying to figure out what is the best way to sell your house, the place to start is with the House Sale Options Model.
The Model results are only a portion of what we provide. With the Model, Park REI provides access to experienced staff with whom you can discuss results.
Run the House Sale Options Model today and get on your right track for selling your house.
Take Action Today
Use the Home Sale Options Analysis to develop your best plan for selling your home. Engage the professional support necessary to efficiently complete the sale.