Should you sell your house to a home investor or work with a top local agent to list it on the open market? There are pros and cons to both routes and the right decision depends on your priorities. The great news is you have options, so let’s dig into them.
Understanding buyer intent
One of the fundamental differences between an investor and a typical home buyer is what they plan to do with your property after they buy it. A homebuyer aims to live there and make it their primary home. An investor on the other hand sees your home as a business opportunity, whether they intend to rent it out or flip it.
Get familiar with the different types of home investors
Home investing is a broad term that encompasses several distinct business models, including home flipping, buy-and-hold long term rentals, and iBuying.
Investors have varying goals in mind when they make an offer on your property, which will impact whether they’re interested in your home, how much they’re able and willing to pay, and the experience they offer to home sellers. Here’s a quick breakdown on the different type of investors along with a few key variables that separate one home investor from the next.
A buy-and-hold investor intends to purchase and own a property for an extended period of time without living there. These investors count on rental income, as well as property appreciation, to make money on the purchase long term. A buy-and-hold investor can be a real estate beginner who’d like to try their hat at becoming a landlord or a large Wall Street-backed institution such as Invitation Homes.
A buy and hold investor targets single-family homes or condos in a growing neighborhood, ideally in turn-key condition for maximum rent potential. Depending on the condition of your property, buy-and-hold investors offer close to (but still slightly under) market value. Since they’re playing the long game, there’s less of a pressure to flip the property for immediate profit.
House flippers take a buy low, sell high approach. They purchase properties in poor condition at a steeper discount, make the necessary repairs and upgrades to attract a buyer who’ll pay a greater price, and sell it usually within no later than a 12-month time frame.
The latest innovation in the home investing realm, iBuyers aim to offer a simplified online home-selling experience in exchange for a convenience or service fee. Rather than purchase a home or two per year, iBuyers turn a higher volume of homes that are in good condition on lower per-flip profit margins.
Advantages to selling your home to an investor
Selling to an investor offers a few key benefits to the seller, including:
- No financing delays.
86% of recent buyers financed their home purchase, adding an extra layer of complexity to the transaction. Financing issues happen to be the most common cause of settlement delays — even if the process stays on track, it takes on average around 45 days to close a purchase loan. Real estate investors typically pay cash, meaning you can close in a matter of days and eliminate the risk of financing delays.
- Sell ‘as is.’
Let’s say you don’t have the upfront cash to make repairs on your home that would be necessary to attract a buyer on the open market. Some home investors will purchase properties “as is” (at a discount) offering you a lifeline on a home you can’t afford to sell otherwise in a pinch.
- Minimal prep work.
Selling a house straight to an investor before your house hits the market means you can forget about staging the home for buyers or leaving the house on a Saturday for showing appointments or an open house. That’s a relief.
So what’s the downside of selling to an investor?
It ties back to that intent we covered earlier: offers from investors will be lower than what you could get on the open market because their top priority is to make a profit. That’s why the vast majority of sellers (89%) choose to work with an agent to list their home to attract a regular buyer to the sale.
Some investors may be able to offer you a more competitive bid than others, depending on how your property type and price range aligns with their business model and purchase history. However, they’re focused on margins and their bottom line; they won’t have any emotional attachment to the house that would drive the price up.
Is selling to an investor the right move for you?
With an understanding of who home investors are, as well as the benefits and downsides of working with them, your next thought might be, is this the right move for me? Let’s cover a few questions that can help you decide.
1. How urgently do you need to sell your house?
Home investors are more willing to work with your timeline than buyers on the open market. If you need to quickly settle an estate, split marital assets in a divorce, or relocate out of state quickly for a new job, you can’t always afford to wait around 45 days to close your transaction.
If you’re diligent, you can probably get your home ready for listing in three weeks, but depending on the circumstances, that process could be overwhelming or emotionally taxing. If time is of the essence, selling your home to an investor proves for a quick sale with little to no prep work.
2. What kind of shape is your property in?
Would a buy-and-hold, flipper, or iBuyer be interested in your property? Remember that:
- Buy-and-hold investors are looking for single-family homes or condos in up-and-coming neighborhoods to rent out.
- Flippers want a deal on an as-is property, often single-family homes, that they can renovate and sell quickly for a profit.
- iBuyers want a home in good condition typically valued within $200,000 to $500,000.
Depending on your market, multiple types of investors might be interested. However, top-selling Fort Worth real estate agent Chris Minteer says that “the majority of the properties that we see go the direction of an investor sale are the ones that need more love.”
Investors aren’t going to live on the property, so they don’t need that emotional connection to the space that traditional buyers are often searching for. They’ll look past cosmetic and upkeep issues to find the investment value in your home.
On the other hand, if your property is in great shape and the right buyer would pay a premium for the renovations you’ve made, then you’ll regret leaving any money on the table by selling at a discount.
3. How much money do you have on hand for preparations and repairs?
You can expect to make money selling your home, but you also have to consider the cost of preparing the house for market, as well as the repairs a potential buyer might ask for after the home inspection process.
A bad roof, faulty plumbing, and HVAC issues can run up to $10,00 each in repairs. If you’ve got the capital on hand for these updates, then strategize with a superstar agent to find the best upgrades that maximize your home’s value, and make those repairs to allay any buyer concerns.
If your home needs costly repairs you can’t afford, however, then you might have a hard time finding a traditional buyer on the open market.
Keep in mind, too, that as you compare an estimation of what you could fetch on the open market against a cash offer, you should calculate your estimated net proceeds rather than compare offers at face value.
To help you sort out the math, HomeLight has a handy Net Proceeds Calculator where you can input your home’s worth and subtract the cost agent commissions, home repairs, staging and preparation work, seller concessions, homeownership and overlap costs, and transfer taxes to get a ballpark idea of how much you’d actually pocket.
4. How much time and energy do you have to get the house ready for the market?
Getting your home ready for market can take anywhere from 3 weeks to 2 months, depending on its current condition, and the amount of time you can commit to the process daily.
When getting your home ready for a traditional sale, you’ll need to:
- Pack up and purge items from all rooms in the house (~8 days)
- Landscape (~3 days)
- Patch, paint, and reverse small dings and damage (~3 days)
- Deep clean your entire home (~3 days)
- Store items you’re keeping, and donate or store everything else (~2 days)
The above timeline is a suggested minimum of all the work and time you’ll need. It doesn’t account for large projects or major repairs that you might need.
If convenience is your top priority in selling your home, then you might choose to forgo the above projects and sell to an investor.
5. What are your next moves?
If you’ve already got your eyes on a new property and need the proceeds from the sale of your house to take the next step, then a cash sale liquifies your assets faster. Investors can close on the date of your choosing, even if it’s within a few days, and in some cases, they “can provide specialized solutions for each specific seller’s situation. For example, they can release the money to the seller early to help pay for moving expenses if cash is tight,” says real estate investor Ryan Substad.
Where to go from here
Now that you understand the differences between selling to a home investor and selling on the traditional market, it’s time to consider your priorities in a home sale. For many, it comes down to money versus convenience. Working with an investor means less upfront work in exchange for a below market offer. However, if you’re willing to invest some time and capital, selling your home on the traditional market will likely land you a higher price.
You don’t have to make all these decisions on your own, reassures Minteer, “a good agent will present both and be knowledgeable of both processes. It’s our job to give guidance on what works best for their scenario and being able to point them in that direction.”
If you’re curious what a cash buyer would offer on your property, try HomeLight’s Simple Sale tool before your home even hits the market. HomeLight works with over 150 vetted and preapproved investors that make instant bids on properties. We’ll also compare the cash offer against an estimation of what your house would sell for on the open market so you can see both options clearly. Should you decide to list the traditional way, we’ll connect you with top local agents who can sell your house faster and for more money than their area peers. With all the information in front of you, you’ll feel confident moving forward on either path.
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