What Does It Mean To Sell A House For Cash And Should You Consider It?
Sidney Richardson8-Minute Read
March 08, 2021
Driving around, you may have seen signs that say something like “we will buy your house for cash” or “we buy ugly houses.” If you’ve ever been curious who’s behind these ads, wonder no more – typically, house-flipping companies put them up.
Making cash offers on houses isn’t just a house-flipper thing, though – there are plenty of cash buyers and investors out there today who would be willing to pay you directly for your home.
So, can you really sell your home for cash to buyers like these – and should you? Read on for our guide on what it means to sell your home for cash and whether it may be the right choice for you.
What Does It Mean To Sell A House For Cash?
When a home is sold for cash, it means that the buyer paid for the property upfront and without a mortgage. With no complicated financing processes involved, selling a house for cash simplifies the home buying process greatly.
Though the process may be easier, you’re unlikely to make as much money selling for cash as you would if you sold your home traditionally. Cash offers are usually reserved for run-down or damaged properties in need of repairs that are worth significantly less than updated homes.
While you get the luxury of skipping the typical listing process in favor of a fast and convenient sale, you will likely have to get rid of your home at a sizeable discount.
What Is A For-Cash Offer?
While a “for-cash offer” makes it sound like the home buyer is going to show up with a briefcase full of hundred-dollar bills, this is not the way these offers usually play out.
Taking out actual physical money to make a cash offer can be extremely complicated since it’s such a large amount, not to mention it’s not exactly safe to keep so much money physically on your person. When potential buyers make a cash offer, what they’re really offering is money directly from their account via an electronic transfer or cashier’s check.
Why Should You Sell Your House For Cash?
The traditional listing process, as well as making necessary updates to a home, can be costly but will ultimately help your home sell for a higher price. Selling for cash, on the other hand, makes selling a less complicated and expensive process but results in less profit on your end.
So, when is the right time to sell for cash, and why should you?
You Want To Avoid The Work Of Selling
When you sell for cash, you can avoid the work of decluttering, cleaning, staging and showing. Sometimes sellers may inherit a property from a deceased relative in another state, making it difficult to be there in person to get the house ready to sell. In situations like these, taking cash offers rather than selling traditionally can make things a lot easier on sellers who don’t have time to travel or stay somewhere to deal with getting a property prepared for sale.
You Want To Sell Fast
Sometimes, there may be situations where you just want to sell a home and move on. In the case of a divorce or sudden job change, it’s unlikely that the seller will have all the time in the world to stick around and worry about selling their home. Since cash offers cut out a lot of the waiting and extra costs involved with the traditional sale process, it’s possible to sell far more quickly this way.
With a mortgage, there’s always a risk that the deal could fall through. A cash payment assures this doesn’t happen and the buyer and seller can close the deal as soon as possible.
You’re Experiencing Financial Difficulties
Perhaps the most widely known reason to sell for cash is financial difficulties. Many homes sold for cash are homes that the seller is unable to afford to upgrade or renovate for a traditional sale, thus giving for-cash homes their fixer-upper reputation.
Many house-flippers and investors are on the lookout for cash-only home sales in hopes of transforming a house for a profit. If you’re experiencing financial difficulties or struggling to afford updating a home for sale, letting your house go for cash can be a great and viable option.
You’re Behind On Your Mortgage
If you’re behind on your mortgage payments with no hope of catching up, the foreclosure process isn’t your only option. It’s possible to sell your home to a real estate investor or flipper for cash and avoid the negative effects of foreclosure or a short sale. While this may not be the most optimal way to sell your home, it can be a fantastic option if you’re in danger of moving toward foreclosure.
Why Shouldn’t You Sell Your House For Cash?
Selling for cash can be a great option for those in situations that make it difficult to be present for a sale or for those in financial distress – not to mention it’s a fast, straightforward process. If it’s so convenient, though, why doesn’t everyone sell their homes for cash?
Here are a few factors you may want to consider before deciding to sell your own home for cash.
You’ll Sell For Less
One of the biggest downsides of selling a home for cash is that you’ll sell for considerably less than you would traditionally. Since many sellers who are accepting cash offers are in situations where they want to sell quickly, they tend to accept lower offers in order to get paid and move on. Buyers know this and may therefore make the lowest offer they can get away with.
While the numbers will vary depending on the assessed value of the home and what the buyer is willing to pay, a cash offer is likely to be as low as 60% – 65% of the house’s current market value, especially if your home needs repairs that the buyer will have to pay for.
You’ll Have Little Room For Haggling
When selling traditionally, there is often room to negotiate with a buyer and their agent or REALTOR® on the asking price. When selling for cash, the same is not true. Whether you’re working with a tight time frame or your home has issues in need of repair, you’re not in a great position to negotiate on offer amounts.
Your home is likely to get less attention when selling for cash as well, so in some cases, a lowball offer may be the only offer you get. Depending on your situation, you may not be able to pass that up. In addition, remember that cash buyers are likely investors looking to make a profit on your home. The emotional appeal of seeking a new place to live likely isn’t relevant to these buyers, so they’re less likely to be willing to pay more in order to secure the sale.
You May Still Be Charged For Repairs
A major perk of selling for cash is that you don’t have to pay for repairs before selling your house – except sometimes, you do.
While you won’t have to worry about doing the repairs yourself, buyers such as house flippers and iBuyers may subtract the estimated cost of future renovations from the asking price of your home when they make their offer. This further lowers the amount of money you stand to make when selling your home for cash.
In some situations, it may be more profitable to make the repairs you can afford on your home yourself and sell traditionally, though it will be more time consuming.
Do I Need A Real Estate Agent To Sell My Home For Cash?
While it is an extra cost, consulting with a real estate agent or REALTOR® can be a huge weight off your shoulders when trying to figure out the best course for listing a home. There are many real estate agents and REALTORS® who have experience with for-cash buyers and sellers that could help make your selling process as quick and easy as possible.
Who Buys Houses For Cash?
According to the NAR’s 2020 Home Buyers and Sellers Generational Trends Report, only 14% of recent home buyers didn’t finance their purchase and paid cash. We’ve discussed some of the businesses and buyers you can expect to make an offer on your home already – but let’s break it down further.
The main pool of for-cash home buyers can be split into three categories: buy-and-hold investors, house flippers, and iBuyers.
“Buy-and-hold” is a common strategy used by real estate investors looking to make both short and long-term profits on the properties they acquire. These investors’ goal is usually to buy a fixer-upper at a discount, complete needed repairs, then rent out the property to tenants. Once the property’s value appreciates over time, the investors will look to sell the property for additional gain.
Some buy-and-hold investors don’t rent out the properties they acquire and instead hold onto them, sometimes without making repairs. If home values in the market are rapidly rising, these investors may be able to resell a property they bought for a profit without making any improvements at all.
House-flippers are the buyers most commonly associated with for-cash sales. Rather than hold onto a home the way buy-and-hold investors do, flippers want to buy distressed homes, renovate them, then resell them immediately for a profit. Flipping can be a risky endeavor since there are often big repair costs involved, and as a result house flippers have become notorious for being bargain seekers when it comes to cash offers.
“iBuyers” or “instant buyers” are companies that use technology to make instant offers to sellers on their homes. As a seller, you can submit your home to an iBuyer site for consideration, and the site will usually get back to you with an offer within a few days. Unlike flippers that want to buy your house at a discount, iBuyers will usually pay you close to the market value of your home. Similarly to flippers, however, their end goal is also to resell your home.
So what’s the catch? iBuyers usually charge a commission fee, and while they do typically pay closer to market value than flippers, there is likely still some discount involved in their offer. While working with an iBuyer can be convenient, the fee they charge may deter sellers from seeking out their offers.
Is It Worth Selling A Home In Good Condition To An iBuyer?
We mentioned that iBuyers purchase homes closer to market value than other cash-buyers – but it’s worth mentioning that iBuyers are looking for “good quality” homes. If your home is updated enough to sell to an iBuyer, you may want to consider selling it traditionally and skipping the commission fee.
Selling for cash is a great option for homeowners that may not have the time or money to deal with repairs, but if little or no work needs to be done before selling, you may want to consider selling traditionally rather than working with an iBuyer to avoid even more extra costs.
Selling Houses For Cash May Become The Next Big Thing
Selling your home for cash isn’t just reserved for homeowners trying to get rid of homes with major structural issues. Taking cash offers can be a great option for those looking to sell quickly, get paid and move on. Before deciding to take a cash offer, however, make sure you review the pros and cons of avoiding the traditional listing process.
For more tips, tricks and advice about selling your home, visit the Rocket Homes® Home Seller’s Guide.
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