What is a Cash Home Buyer
Cash Home Buyers are companies that buy residential houses directly from homeowners. They are called "cash" home buyers because they buy houses without traditional loans allowing them to purchase houses extremely quickly (sometimes within a week). Cash home buyers have received a "bad rap" and are often referred to as "equity steelers". The truth is that cash home buyers help a very specific group of people.
Traditional Home Sale vs. Cash Home Buyer
Traditionally when someone wants to sell their home, they contact a realtor. Selling to a cash home buyer is a very different process. A third option does exist, for sale by owner. Selling a house FSBO is extremely difficult. This white paper won't discuss FSBO. Selling with a realtor versus cash home buyers both have their own pros and cons:
|Realtor Transaction||Cash Home Buyer Transaction|
|* Highest Cash Offer||X|
|* Most Cash in Pocket||?||?|
|Many Companies Seeking to Take Advantage of People||X||X|
|Pay Closing Costs and Realtor Fees||X|
|Close the Fastest||X|
|Buyer Requires Home Inspection||X|
|Open Houses Requiring House Cleaning/Preparing||X|
|Requires High Equity in House (40%+)||X|
When selling a house traditionally with a realtor, you will undoubtedly receive a higher OFFER on your house. However, offer price does not always equate to how much money you net when it's all said and done. Realtors typically charge a 5% commission. You'll also need to pay 2.5% closing costs and most likely 1.5% buyer closing cost assistance. You might even need to make a considerable amount of repairs. Still, selling a house traditionally with a realtor results in a higher net sale price for the majority of people. This begs the question...
Why Sell to a Cash Home Buyer?
Selling a house to a cash buyer often makes sense for sellers in the following situations:
- House requires extreme repairs ($40,000 plus in renovations to make the house livable)
In this situation, selling to a cash home buyer can net you MORE money than selling with a realtor. It can also save you months of headaches with listing a house that fails to sell. Many realtors claim condition doesn't matter on the MLS (realtor listing database). This is FALSE. Condition does matter.
- House has been listed by a realtor for extended period of time and failed to sell.
If your house has been listed unsuccessfully after dropping the price, there is a reason. That reason is often the condition or characteristics of the house. If you have the least desirable house in the neighborbood, it will be hard to sell. Cash home buyers will buy your house no matter what (most likely).
- Home owner needs to sell a house fast (3 weeks or less) due to pre-foreclosure, bankruptcy, divorce, life emergency, etc.
Cash home buyers don't go through traditional loans. Therefore, they can buy your house very fast (sometimes one week). Selling a house with a realtor usually takes 2 months. Realtor transactions fall through frequently due to buyers backing out or failing to get financing. With a cash home buyer, your home sale is gaurenteed.
How Does It Work?
Step 1: Pick a Cash Home Buyer and Accept an Offer
We've written an article on how to choose the best cash home buyer. Make sure you pick a reputable company. Search Google and check social media reviews. Ask multiple companies for quotes! Sometimes it's better to choose a more reputable company than whoever gives you the highest price. Is the company you choose actually buying your house or wholesaling (selling the deal to someone else). Most cash buyers wholesale deals which is okay. Just make sure you understand the companies business model. Read everything before you sign it!
Step 2: Investors Look at Your House
Most cash buyers aren't honest about this part. After signing an offer, investors will need to see your house. Most cash buyers wholesale deals to investors (people who rent or flip houses). These investors either work for the cash buyer directly or are partners. Don't be alarmed that a few people need to see your house. You won't need to clean anything. This process will last for a few days at most. Your cash home buyer will finalize an investor who can close on your house extremely fast.
Step 3: Arrange Closing Date
You are now ready to close on your house. You will receive your cash (in check form of course) at closing. Your cash home buyer works directly with a title company that will handle the closing. The title company should contact you so you can pick a day to close. As long as there are no issues with your title (tax lien), you should be able to close within two weeks. You will most likely go to closing by yourself as investors normally close separately.