How Do Real Estate Investors Benefit Sellers?
When the subject of selling a house comes up, the first thing most people think to do is to find a real estate agent that can help them sell their house. They will try to think of any agents they know or else ask people they know for a recommendation. Some will call agents from “For Sale” signs in another’s yard, others might search online…or even search the yellow or white pages. Which of these do you fit into?
What all of this comes down to is that Real Estate Agents have a near monopoly on residential real estate. Many people don’t know that they have another option for selling their homes. According to the National Association of Realtors (NAR), nationwide nine in 10 homes in 2017 were sold using an agent. But this may not be the right path for some sellers…sometimes listing a property through a Real Estate Agent isn’t the best course of action for your individual situation.
We frequently find most people are unaware that using an agent or Realtor is not required when selling a house. A homeowner can sell their property directly to another individual or company if and when they choose. Have you ever seen a “For Sale By Owner” sign in front of a house? This is one form of a direct sale.
What is sometimes forgotten by sellers is that you are paying the agent to sell the house for you in the form of a 6% commision. When a seller is signing the listing agreement with an agent, he/she may hear the agent say they will list the property for $250k (for example). Immediately, the seller is thinking he/she will get the $250k and neglects to realize they actually receive a gross of $235k ($15k less than originally thought) in this case. And then you have the cost of repairs that your agent requests you make before they list the property.
Hidden Costs: Second Bite of the Apple
Many people believe that the purpose of the inspection report is to list everything that is wrong with the property. Instead, what inspectors are required to report is everything that is not up to current code. Just because something is not up to the current year’s code does not mean that it is dangerous and needs to be repaired. However, because the common belief is “that if it’s on inspection report, it’s wrong and needs to be fixed”, the buyer has a second chance at price negotiations once they get the inspection report back. The buyer will either ask for the seller to make certain repairs, or they will negotiate a lower purchase price. Generally the seller ends up making concessions (causing a lower purchase price) which can add up to thousands of dollars that you thought you would be making on the sale of your house.
Fortunately, the buyer pays for the inspection. However, there is also the cost of a survey proving the boundaries of the property and showing any easements or encroachments that exist. Generally the seller bears the cost of the survey. Additionally, when you actually go to closing at the title company or legal office, there are fees for title insurance, escrow fees, document preparation fees, attorney fees…all those fees that you’ll see on the Closing Disclosure (it used to be the HUD-1 Settlement Statement that was used).
Hidden Costs Continued: Holding Costs While Waiting For a Buyer
Even when listed, the sellers are still liable for the house. It is a misconception that once a Real Estate Agent is contracted to sell the property, they assume responsibility for everything related to the property. First, let’s consider the physical structure of the house. Selling a house still comes with a lot of work. The house will not maintain itself. The lawn will continue to grow. Things break, and repairs need to be made just like it would if you had not decided to sell. Not to mention, while the house sits on the market waiting to be sold, unfortunate things have been known to happen. The most recent examples of this are Hurricanes Harvey and Irma. There are many houses that had closing dates just after those hurricanes that were flooded and then fell out of contract (not only do those owners have to pay for the repairs, but they continue to incur all the costs we mention below).
On the financial side, you have to think about all the costs that accumulate as you wait for a buyer to come along: monthly mortgage payment, HOA dues, insurance, and taxes in addition to any maintenance services that you may need to pay for. These accumulate until the day you close on the sale of the house. Not taking into account the time and holding costs that come with selling a house often have sellers wondering “what if I had just taken the offer that was just a little lower than my asking price?” In some instances, taking the lower offer sooner may end up keeping more money in your pocket when it’s all said and done as the holding costs can add up to tens of thousands of dollars.
Time Is of the Essence
There are often instances in which a seller needs to unload a property quickly. For example, in 2017, 14% of home sales occurred because the seller had a job relocation, per NAR. In certain age demographics, this happens more often. Faster paced, and more volatile industries often ask employees to move to a different city, state, or even country with only a few weeks notice. Between finding new housing in a different location, packing, and moving in addition to work and school requirements, there is not usually much time left to meet with agents, accommodate showings, and review offers. Another thing to consider is how will you pay for the next house when your current one is not yet sold?
Scenarios that require a property owner to carry two mortgages may also arise without any notice or warning. For example, if you are the beneficiary to a loved one’s estate, you may also inherit a house with a mortgage. Mortgages and other debt requirements do not dissolve with the death of the debtor. These obligations pass to the heirs of the property.
In situations like these, or when a quick sale just makes more sense, Investors provide a beneficial service to the property owner. Investors purchase properties in “As-Is” condition. Some will even buy the house without you having to clean up, or dispose of any unwanted possessions. What’s more, nearly all Investors have access to cash funds so they are able to purchase a property in a matter of days. When using an Investor with the cash funds, there’s no waiting and worrying about whether the financing will be approved as you may see with many retail buyers. Because it’s not traditional financing involving a bank, there is no need for contingencies based on financing.
What Now?
If any of these scenarios sounds familiar to what you are facing, working with a Real Estate Investor may be the right solution for you. Investors, like us, see a variety of real estate related problems and can provide answers to help you choose the right path. Problems rarely just go away and can lead to greater issues if not addressed in a timely manner. Call us today at (512) 213-1500 and let us help you Start Fresh.