Make no mistake about it — selling a house can be stressful. Between constantly cleaning up for showings and going back and forth with buyers over the price, it’s no wonder why homeowners often dread this process. What complicates matters even further is when an all-cash buyer enters the equation.
Who are cash buyers in real estate?
It’s pretty straightforward. A cash buyer will purchase your house outright, without any financing from a lender. These individuals are especially prevalent in a favorable real estate market such as Denver.
Here are the main categories of cash buyers, as referenced from HomeLight:
As real estate prices rise, so too does the number of buy-and-hold investors. These people have the funds to purchase a house with cash and then rent it out for passive income. Ask any such investor and they’ll tell you their rental properties are an integral part of their portfolio.
So why should you consider selling your house to a buy-and-hold investor over another cash buyer? Well, the first thing is that you’ll have more flexible closing dates. Even better, investors tend to offer more money for a property than a flipper or an iBuyer.
We’re willing to bet you’ve seen at least one episode of a “fix-and-flip” show. The concept of flipping a property is simple in that you purchase one in a poorer condition and at a lower cost, with the idea of renovating and making a profit down the road. According to ATTOM Data Solutions, over 200,000 homes were flipped in 2018, accounting for nearly 6% of all single-family home sales.
Instant buyers, as they’re also called, use technology to turn over a higher volume of homes compared to a traditional flipper. These buyers rely heavily on automated valuation models (AVMs) to offer up to 98% of fair market value. Instant buyers make their money by charging sellers a fee (typically around 10%) plus the cost of repairs.
Initially, selling your house to a cash buyer may sound appealing. You wouldn’t have to worry about a buyer’s financing falling through at the last second. Plus, since many cash buyers end up flipping their properties for a profit, you’ll likely be able to skip the repairs and appraisal.
But are these few benefits worth moving forward with an all-cash buyer? In our experience, there’s a lot that can go wrong with this type of real estate transaction.
The cons of accepting a cash offer
Just because someone may be willing to pay for your house in cash doesn’t mean you have to take the bait. Here’s why you should steer clear of cash buyers.
These buyers have the purchasing funds available so they can scoop up a property, make the necessary repairs, and then resell it for a quick profit. That said, you’ll be fortunate to get half of what your house is worth should you choose to settle for a cash offer. Those interested in getting top dollar for their residence will definitely want to go through a real estate brokerage.
As we mentioned earlier, cash buyers don’t mind fixing up a house after purchasing it. In fact, some buyers prefer distressed properties because they see a higher profit margin when the time comes to sell. Even minor home improvements, such as updating the kitchen cabinets or replacing the carpet in the bedrooms, could significantly reduce your purchase price.
No competing bidders
Sellers have an advantage in today’s housing market. While low rates are making homeownership the most affordable it’s been in years, inventory remains low. This creates the possibility of a bidding war and, hopefully, more competition for your home.
Keep in mind that a homeowner who accepts a cash offer closes the door on competing bidders. Cash buyers are notorious for their “take it or leave it” quotes and not coming anywhere close to the property’s market value.
Work with an agent instead
There are sellers out there who would rather have the speed and convenience of a cash offer even if it meant parting with their home at a discount. However, if you aren’t on a time crunch and want to get the best price for your home, we suggest working with an experienced real estate agent. A local realtor not only understands the industry, but may also have a list of pre-approved buyers ready to make an offer.
At American Home Agents, we care about every client, whether you’re looking to buy or sell. You can count on us to make the process simple and stress-free.