“You make a phone call or answer some questions online, agree to an offer, and then it’s not something you have to worry about anymore,” says Doug Van Soest, owner of a house flipping company in Southern California, in describing the typical way things go. “Plus, you’ll save money on things like commissions, repairs, and closing costs.”
If it all sounds too good to be true or you’re unclear about what selling for cash is really like, we’re here to help walk you through the most common questions and points of confusion:
What does it mean to sell your house for cash?
Selling your house for cash is a bit like trading in your old vehicle to the dealership when you buy a new car. Sure, you might pocket a little more money if you sold it yourself. But it would likely take longer — and require extra work on your end. You’d have to make minor repairs, advertise it on Craigslist, organize test drives for potential buyers, and handle all the paperwork yourself.
Translating that to real estate terms, selling a house for cash goes something like this:
- Request an offer: You skip the staging and showing process and go straight to requesting an offer. At this point you can communicate whether you’re selling “as is” — meaning you don’t intend to make repairs or change anything about the house — or if you’re open to making any repairs.
- House is evaluated: The buyer will collect some information about the home, possibly send a representative to do an onsite visit to the property, and determine what they’re willing to pay.
- Review the contract: You as the seller then review the offer, including the contract price and terms, and decide whether to accept.
- Ask for proof of funds: You should always obtain documentation that a person or company is who they say they are and actually has the funds and abilities to complete a transaction of this size.
- Complete inspections: If the deal moves forward, the cash buyer may still perform steps like the inspection and appraisal — it all depends on who you work with and how they operate. Even if you’re selling “as is”, an inspection could still be required.
- Fast-forward to closing: Without a lender’s involvement, there will be no lender-ordered appraisal or loan processing period, which as of June 2021 averaged 51 days, according to a report from Ice Mortgage Technologies.
- Clear title: The cash buyer will require a title search to make sure that you can convey the property free and clear of any clouds or judgments against the property, such as mechanic’s liens, unpaid taxes, or boundary encroachments.
- You get paid! The cash buyer will likely wire the funds over to your bank account in a process that all in all may take only a matter of weeks or even days.
In summary, selling for cash won’t mean that a person shows up on your doorstep with a briefcase full of hundred-dollar bills. You’ll still have official steps to complete and hiccups like a title defect can still arise. But when your buyer doesn’t have to wait for the lender to underwrite or process their loan, you can usually coordinate a much faster sale.
Are cash-for home companies legit?
In short, the answer is yes; there are many legitimate companies out there that purchase homes for cash, will provide you with a great experience, and are good on their word. However, we always recommend that you do your due diligence on any buyer before you provide any sensitive information, sign a contract, or send any money.
Check their BBB rating
No matter what type of house-buying company you decide to work with, make sure it’s an accredited Better Business Bureau (BBB) member. Check for positive reviews and timely responses to complaints. (HomeLight, which provides cash offers through our Simple Sale platform, has more than 500 BBB reviews with an average 5-star rating.)
Ask for proof of funds and EMD
Shaun Simpson, a leading real estate agent based in Columbus, Ohio who’s helped a number of clients navigate cash sales, advises asking for official proof of funds from the buyer’s bank and confirming that they can provide adequate earnest money, the deposit that represents a buyer’s commitment to a sale. “If you’re buying a $500,000 house that’s supposed to close in a week, you should have no problem putting a 2-3% deposit into earnest money,” he says.
You can ask to speak to the cash buyer’s title company to see how many homes they’ve bought and get a sense of their reputation. Alternatively, an established real estate agent will likely have the inside track on who’s who in the local cash buyer market and can also help you avoid getting lowballed.
“There are a lot of investors that are reaching out directly to homeowners to try and buy their property with cash,” notes Brian Breeckner, a top-selling real estate agent who, like Simpson, is based in Columbus, Ohio. “To make sure a buyer is legitimate, or that they’re making a good offer based on the value of your home, you can always speak to an experienced local real estate agent and get their opinion.”
What about ‘We Buy Houses?’®
You’ve probably seen ads for “We Buy Houses For Cash®” companies — so are they legit? If you connect with any one of the company’s bonafide 1,150 franchises in 47 states and 170 markets across the country, the answer is yes. The company, which specializes in flipping dilapidated homes, has bought more than 100,000 houses and is well-established in the cash buying space.
But like you would any other cash buyer, do some digging before working with any investor operating under this brand known for their shaggy-haired caveman and yellow billboards. For more details on this particular company, we’ve put together an entire guide on the history of the We Buy Ugly Houses® business.
Who will purchase your home for cash?
As a group, cash buyers or house buying companies are individuals or entities that buy your house outright and all at once, without the need for lender financing. In general, selling your home to a cash buyer allows you to skip the home prep, showings, and staging hassles and arrange a more flexible closing timeline to coordinate with the purchase of your next residence. But not all cash buyers have the same exact business model. To keep it simple, we’ve grouped these buyers into a few broader categories you’re likely to encounter today.
The tech-enabled iBuyers didn’t come on the scene until the mid-2010s and use automated valuation models (AVMs) to make competitive offers on homes that are typically in better condition. They generally pay more than flippers or buy-and-hold investors but charge an average 9% service fee. Since iBuyers tend to make less profit per flip, their business is more reliant on turning over a high volume of homes using technology to streamline operations.
Hot market puts pressure on iBuyer offers
Though iBuyers have historically paid somewhere between 93%-96% of market value, data from global real estate tech strategist Mike DelPrete, shows that in Q2 2021, some established iBuyers paid well over market value in the face of extremely competitive market conditions to the tune of 107.7%.
In addition, research by zavvie shows they’ve cut both service fees and concession fees for repairs.
Together, these lower fees have reduced the cost of doing business with some iBuyers by 35%. So it’s not surprising that more sellers are starting to embrace the iBuyer model. According to zavvie, iBuyer purchases hovered near 12,000 in Q2 2021, almost double what they were in Q1.
Simpson says this trend is playing out in his area. “Typically, the previous wave of iBuyers came in and took advantage of people who benefited from a quick sale,” he explains. “Now we’re seeing a lot of these investors coming in at market value.”
Why we recommend Simple Sale by HomeLight
Simple Sale is HomeLight’s version of an iBuyer service. With Simple Sale, you can request an offer for your home online, we’ll provide you with a full cash offer, and you can close in as few as 10 days. “Simple Sale was very fast and exceeded my expectations,” says Baohan Wu who used the platform to sell his home.
Buy and hold investors
Buy-and-hold investors purchase homes and convert them into rental properties. Sometimes, these buyers sell a property once it appreciates enough. Other times, they hold on to it indefinitely.
Within this category, you have individual investors who buy and rent out properties for passive income. On a larger scale, there are institutional investors that purchase a minimum of 10 rental properties per year, the quintessential example being Invitation Homes, a subsidiary of Blackstone that operates in 16 markets across America.
In Q2 2021, institutional investors were responsible for 4.6% of all single-family home and condo purchases, the highest level since the end of 2015, according to ATTOM Data Solutions.
When you sell to a buy-and-hold investor, you have more flexible closing dates and will likely get better pricing than if you were to sell to a house flipper.
Perhaps media darlings Chip and Joanna Gaines or your remodeling-enthusiast uncle come to mind when you see the phrase “house flippers.” Whether a small mom-and-pop operation or a larger business, flippers buy homes — often in poorer condition and at a lower price — with the intention of renovating them and reselling them for more.
“The minimum return on investment varies depending on things like the market and the condition of the home, but typically we need at least a 10% return on a purchase to make it worth the risk,” says Van Soest.
He adds that while flippers usually want to renovate their purchase and resell it as fast as possible, the actual time it takes to get a home ready to list can vary. In the current hot sellers’ market, for example, contractors and subcontractors are extremely busy, so it’s taking twice as long to fix up the typical home. Van Soest is okay with this because home prices are still rising.
ATTOM Data Solutions reports that in the first quarter of 2021, 32,526 homes and condos were flipped. Nationally, the number of flipped homes purchased with cash was 59.2%.
Why would someone sell their house for cash?
Speed, convenience, peace of mind, and financial motivations top the list of reasons a growing number of sellers are turning to cash buyers, says Van Soest. Here’s how each one of these motivations could apply to your situation.
- You’re moving for a job and have to be there by a certain date.
- You’d rather not deal with the risk of a low appraisal.
- You don’t have the time to hire contractors and make major repairs.
- You’re nervous accepting an offer with tons of contingencies.
Speed and convenience
- You inherited a house you’re unfamiliar with and perhaps far away from.
- You don’t want to disrupt your life with house prep, staging, and showings.
- You have a problematic or occupied rental property.
- You need cash for a down payment on your dream home.
- You don’t have the funds to make necessary repairs.
- You’re on the brink of foreclosure.
- You need cash to get out of debt.
Take Northern California couple Sam and Cathy,* who were preparing to retire. Plan A, they told HomeLight in an interview, was to fix up their condo and list it on the open market. But after struggling to find contractors to make repairs and updates, they decided to sell to a cash buyer instead and skip the legwork. Figuring they’d take a significant loss on price, they were “shocked” when they received a near market-value offer and closed the sale in just 20 days.
What value does a cash buyer provide?
In other words, what do you get out of working with a buyer who pays cash that you wouldn’t receive otherwise? We lay out the main benefits of this type of deal below.
If your buyer has to borrow money, they — and you — are on the lender’s timeline, which is usually at least six weeks. All-cash purchases close quickly because lenders aren’t part of the picture. What’s more, a cash buyer’s offer won’t hinge on your home appraising at a certain amount. Real estate transaction data from 2021 shows that appraised values and contract prices are increasingly misaligned on the heels of a steep run-up in home prices.
Whether you want to move next week or stay put for a couple of months, a cash sale gives you plenty of wiggle room. Again, this goes back to the steps you can skip in a cash deal. “With cash, you get a lot of flexibility on your closing date because you’re not waiting on a third party to approve things like a loan or appraisal,” says Simpson.
When you request a cash offer, you won’t need to worry about keeping your home spotless for weeks or disrupting your schedule for a slew of showings. In addition, you can choose to sell your home “as is” and skip pre-listing projects like roof repairs, painting, and landscaping. How much work you want to put in is really up to you with a cash sale, whereas traditional buyers will have higher expectations about how your home should look.
A cash offer can cut out many of the usual home-selling expenses including repairs, curb appeal projects, staging, and commissions, acting as a counterbalance to any discount you may receive on price. Our analysis shows that selling a home the traditional way costs an average of $31,000.
What are the downsides of selling for cash?
If what you’ve read so far has sold you on the idea of selling for cash, great! But it’s important to understand the downsides before rushing into a cash sale.
The trade-off for a faster, hassle-free sale is often getting less money for your home. How much less depends on many factors, including the type of buyer you’re selling to, your location, and the condition of your home. Even though it’s becoming more common for iBuyers to make competitive offers on homes, their fees will still cut into your profit.
Not totally off the hook for repairs
One of the biggest lures of selling to a cash buyer is that handling pesky repairs lands on their plate, not yours. While you won’t have to pay for repairs out of pocket, you will pay something. In most cases, a house-buying company calculates how much it will need to spend on repairs before finalizing your offer and deducts that cost from your net proceeds.
Harder to negotiate
When you list your house on the open market, you’ll likely get bids from multiple buyers. They may already see your place as their new home and imagine themselves living there, which can help you leverage a better price. With cash buyers, there are no heart strings to tug — it’s strictly business.
How much do cash buyers pay?
Depending on your home’s condition, price point, and location, your house will be a more desirable purchase to certain cash buyers over others. Most real estate buyers have a specific “buy box” they use with parameters as to which types of properties are most valuable to them. That means what your home is “worth” will vary, even among buyers who can pay instantly.
Flippers, for example, often use the 70% rule. According to the rule, a flipper should pay 70% of the After Repair Value (ARV) of a home. iBuyers pay closer to market value — and, increasingly, match or exceed it — because they target newer homes in good condition. They charge a service fee, though in the current seller’s market, these fees can be even lower.
Buy and hold investors fall somewhere in between flippers and iBuyers. They typically pay more than flippers but less than iBuyers and aim to make between 8 to 12 % on their investment.
“The discounted price someone should expect for a cash sale varies significantly,” says Van Soest. “The cleaner the house, the better the neighborhood, and the fewer issues a house has, the more likely you’ll get an offer that’s closer to market value. The more problems the buyer has to deal with, the lower the offer will be.”
How long does it take for a cash buyer to close?
Getting over that final hurdle to close a traditional sale — making sure a buyer’s financing is in order — can be an ordeal. As of June 2021, data from Ice Mortgage Technology shows it took an average 51 days to close a sale with a loan. That’s almost two months of waiting for the lender to perform due diligence on the borrower and verify they can close on the loan in good faith.
Cash buyers, on the other hand, are a lot more agile. Typically, a company that buys homes for cash will show you proof of funds for the amount they’re willing to offer and can close within a week to 10 days.
Is selling for cash a smart move?
If speed, convenience, and certainty are your top priorities, then selling your house for cash can be the right choice for you.
“As a seller, one of the big things you want to do is eliminate all of the question marks around your sale, and cash can do that,” says Simpson. “Cash is the ultimate poker chip because it gives you a lot of leverage. You just have to know a cash buyer might not have the same pain points a traditional buyer has when it comes to negotiating.”
Still on the fence? Our Simple Sale platform offers a risk-free way to test the waters. Just enter a few details about your home online and we’ll provide you with a cash offer in 48-hours. From there, you can decide whether you want to move forward with the sale. In a few your house will be sold — and you’ll be moving on with your life.
One thing is certain: Companies that buy homes for cash aren’t going anywhere. And they are becoming more popular with a variety of sellers, not just those in distress.
“In my opinion, iBuyers and other cash buying companies will continue to become more mainstream,” says Van Soest. “Technology is making it easier and easier to sell a home virtually. Things like COVID-19 also impacted sellers’ willingness to sell to iBuyers because it eliminates the need for lots of direct contact. And if your house is in really good condition and in a desirable area, the discount on the price you get won’t be that great.”
*Sam and Cathy are pseudo names; these sources asked to be anonymous for privacy reasons.
Header Image Source: (Will Porada/ Unsplash)