October 8, 2018 by
From “Flip or Flop” to “Fixer Upper” and HGTV’s newcomer “Desert Flippers,” the business of buying and flipping outdated houses has never appeared more glamorous. On a smaller scale, local companies working the “We buy ugly homes” angle have built an empire on the business of rehabbing residential properties. If you received a post card in the mail from a Fast Cash Home Buyer or are generally considering one of these companies for a quick sale of your home, there are several things to know about the process before moving forward.
Setting Expectations for the Sale Price of a Rehab Property
First, a cautionary tale: No one who purchases homes for resale or rental is going to do so at the full value of the real estate being purchased. The resale company will have holding, liability and reselling expenses to factor in, and market conditions can change quickly. A reputable rehab and resell bidder will typically bid at about 75-85 percent of the finished value (i.e., what the home could sell for after being flipped) MINUS projected repair costs.
- Example: An agent is looking at a home that could sell for $150K after renovations, which are estimated at $50K for updates and repairs. The agent would make an offer for $75-85K, or approximately 80 percent of $100K.
The sample formula for calculating a purchase price reflects timing, scope of work and market conditions. These deductions might seem aggressive, but the profit is usually a lot less, once commission, holding, title fees and unforeseen repairs are taken from the proceeds.
While resale companies are expected to make deductions that create a profit margin, fraudulent “fast cash” home buyers make lowball offers with an imposed 24- to 48-hour deadline to create a false sense of urgency. These offers can be as low as 30 percent of the home’s finished value, if not less. It is critically important for anyone who is conducting business with a “fast cash” company to avoid hasty decisions regarding the sale price of their home.
Benefits of Selling to a Fast Cash Home Buyer
The homeowner is losing around 15-25 percent profit right out the gate when they sell their property to a resale company. However, there are many ways in which the seller benefits from such an arrangement, and there are a large group of people who prefer “cash now” to doing repairs and opening their home to the public for viewings – such as out-of-town relatives who are handling an estate sale, or transitioning an elderly relative to a nursing home based on Medicare benefits.
Some of the benefits of selling to a professional home buyer include:
- A quick, simple, guaranteed cash sale.
- Eliminating the need for occupancy permits.
- Avoiding costly repairs for a lender or other third-party.
- Preventing foreclosure with a fast transaction.
Another potential benefit of a quick sale to a professional buyer is the option to leave personal items behind, with the caveat that they will be thrown away. This is a particularly attractive option to the aforementioned out-of-towners who are not able or willing to invest a significant amount of time in clearing out a family member’s possessions.
How to Manage the Bidding War
There are a few simple strategies to employ that can help you control of the sale of your rehab property. If you are considering a professional home-buyer, it is important to get multiple bids from reputable companies. You will be able to get a feel for the true, “as-is” value of your property when you have multiple bids to review. During the bidding process, you should also be skeptical of any potential buyers who use pressure tactics to try to force you into making a quick decision. Don’t fall for it!
“We buy homes” companies have a reputation for making an offer that needs to be decided on same-day, or they will threaten to bring the price down or walk away. An honest buyer will give you time to review bids and make an informed decision. In fact, letting those prospective buyers know you are soliciting multiple offers can increase those bids dramatically.
We typically recommend sellers be strategic by telling bidders that they are accepting offers for the next seven days, and will make a decision on the seventh day. Thus, any bids that are not good on the seventh day will be rejected. This strategy keeps the seller in control and weeds out “same-day” offers from companies who are trying to pressure the seller into a quick decision.
We cannot stress this point enough: Reputable home buyers do not make offers that are contingent on acceptance within 24 or 48 hours, even if they call it a “preliminary agreement” instead of a formal contract. All too often, these fraudulent tactics end up in court as a result of scamming homeowners – and particularly, elderly homeowners who are in precarious financial situations. If you need help reviewing offers on your home, contact Meyer Real Estate.
Meyer Real Estate Can Help
One little-known fact about Meyer Real Estate is that we do buy homes for repair and resale in St. Charles, and in Lincoln and Warren Counties. We do not purchase homes in St. Louis City or County but are happy to refer interested sellers to other companies we know and trust that are active in those areas.
Selling your home to a professional, fast cash home buyer can be worthwhile and very positive under certain circumstances. Meyer Real Estate would love your business and appreciates the chance to purchase your home. Give us a call and we will show you how a company with 60 years of know-how in the community can benefit you.