Ever wondered what a cash home buyer is? Well, here’s our overview to answer your questions about cash home buyers.
What does it mean to sell to a cash home buyer?
What does the process look like?
1. Online Inquiry or Phone Call: The process usually begins with an online inquiry or phone call to a cash buyer. The buyer will likely ask some questions about the property and discuss the seller’s particular situation and reason for selling. They may provide an estimated offer range at that time as well. This range will be based on the information provided, public records, recent sales in the neighborhood and any photos of the property that are available on previous listings or Google Street View.
2.Property Evaluation: In order for a firm offer to be made, the cash buyer will need to visit the property. At the property visit, a team member from the cash buyer will take pictures, assess the condition of the home and determine what repairs and renovations will be needed after they purchase the property.
Some key things they look at are the roof, heating and air conditioning systems, water heater, electrical system, plumbing system and foundations. They will also examine what improvements have been made and need to be made in order to make the home attractive to the next buyer or renter. Some of these areas include the flooring, wall condition, ceiling texture, kitchen cabinets and countertops, appliances, bathroom vanities, showers and tubs. Outside the home, they will look at the condition of the paint or siding and the landscaping and will assess the overall curb appeal of the home. This whole process takes only 20 to 30 minutes and in most cases is the only inspection completed.
3. Get Your Cash Offer: Once the cash buyer representative has investigated the home in person, they will make cost estimates for repairs and renovations that are needed, then prepare a firm cash offer price. In most cases, the offer price includes no agent commissions and many times the buyer will pay for all the seller’s closing costs. If the seller agrees to the cash offer and a closing date, then a purchase agreement is drafted and is signed by both parties. This document can usually be signed online by using signature verification software like DocuSign or Authentisign.
From there, the process varies a little based on what state you are located in, but the signed purchase agreement is sent to an escrow or title company. This is an independent third party that will act as an unbiased intermediary to complete the transaction. The title company will check to see what liens are on the property and will pay off the required ones, such as mortgages outstanding. Prior to closing, the seller will sign final documents before a notary public, including the deed. When all signatures are complete and the title company approves closing, the buyer will wire the money to the title company. Once the sale is recorded with the county recorder, the title company will disburse all the proceeds.
How quickly will I be paid?
Most cash buyers can close in as little as 10 days.
This amount of time is needed for the title company to examine the property history and liens, order payoff statements from existing mortgages and collect all of the necessary signatures and paperwork.
One of the advantages of selling to a cash buyer is that the seller can select the exact closing date. Some want to close as soon as possible and opt for 10 days, while others may need longer in order to arrange for the move and coordinate move-in at their next home.
The escrow or title company will handle the disbursement of all of the funds. Every time a piece of property sells, the deed must be recorded with the county recorder's office to make the sale official. Once the title company receives confirmation from the recorder’s office that the sale is official, they will prepare to send out all the money. They will pay any mortgage or lien holders directly, then send the remaining proceeds to the seller. In most cases, the seller provides bank account information to the title company, so that the proceeds can be wired, but if not, a check will be mailed. Proceeds are usually sent 1 to 2 business days after the recording is confirmed. For example, if a sale closes and records on a Friday, the proceeds will usually be sent on Monday or Tuesday. If the seller requests a check, it will take longer to receive due to mail time.
How quickly will they take possession?
With most sales, possession is delivered to the buyer at the end of the day the sale has been recorded with the county recorder’s office. This can be a source of confusion because in most cases, the seller will not have received their funds yet. The seller can rest assured though, because at that time the buyer will have given their funds to the escrow or title company and they are being held by this trustworthy independent third party.
Some sellers will need to remain in the property after it closes. This could be for a number of reasons. They may need the proceeds for moving costs or the place they are moving may not be ready. If this is the case, this is something that is negotiated when the purchase is agreed to and the contract is signed. This is called a rent back or seller-in-possession. Once the sale closes, the buyer is legally the new owner and the seller becomes a tenant. When this is requested, the terms are negotiated at the time the purchase contract is written. The buyer may require that the seller pay a per diem rent amount and may even require that a security deposit be held until the property is vacated. All terms are negotiable, but if a seller wants to stay after closing, it is important to get everything in writing upfront.
Why would I sell my house for cash?
People find themselves in a variety of different situations that lead them to sell their home for cash, including:
- Needing cash quickly, and often in a shorter timeline than a traditional process would allow for
- Recently inherited a home
- Having a home that requires a lot of repairs, or a desire to avoid costly inspections
- Need to move quickly, or trying to sell a home remotely
- Desire to avoid foreclosure
- Difficult tenants
In general, selling your home for cash is a much simpler and quicker process than selling your home the traditional way. If you’re looking for a hassle-free way of selling your home, then selling to a cash home buyer is a great option. It’s likely you won’t get as much as you would in the open-market, but the tradeoff of time and stress is worth it for many. Read our overview for a full overview of the pros and cons of selling your home for cash.
When selling to a cash buyer, a seller can expect to receive an offer that is lower than what the home may sell for with a real estate agent listing. Typically, the way to sell a home for the highest price is to make any needed repairs, complete some renovations so the property looks up to date, declutter the home and remove personal items and stage with modern furniture and artwork. Once those are completed, an agent will photograph the home and list it on various websites and in the multiple listing service. They will then hold open houses on the weekends and schedule showings for prospective buyers. This process may take 30 to 60 days in order to find a buyer and agree to a price.
Once a buyer is found and a contract is signed, the buyer will hire a home inspector, apply for a mortgage and schedule an appraisal. This all happens during the escrow period which lasts another 30 to 60 days. Any number of things can cause a buyer to cancel, such as a low appraisal, items discovered during the inspection and mortgage denial. The buyer may also attempt to renegotiate the price or ask for a large credit to pay for repairs. If this happens, the seller is back to square one and the home is re-listed.
A cash buyer will accept the home in its current condition and will not require the seller to make or pay for any repairs. Additionally, the transaction is handled with privacy and the seller can live their normal life until closing. The house does not need to be kept clean and the seller does not have to leave at the drop of a hat to allow prospective buyers to come look.
The cash buyer accepts some risk and provides a service to the seller. The seller gets speed, certainty and convenience. For this, there is typically a premium and the seller may net less than they would by listing on the open market. Many sellers elect to sell to a cash buyer for the convenience and the premium is worth it to them. No one ever really knows what a house is worth until it's listed on the market. Also, market conditions and the economy are constantly changing. By selling quickly to a cash buyer, a seller can avoid the uncertainty that comes with time and changing market conditions.
How to find a cash buyer?
What are the different types of cash buyers?
Cash buyers tend to fall into three categories: local cash buyers, wholesalers and nationwide iBuyers.
Local cash buyers are companies or groups of investors that work in specific markets. They are buying the property to renovate and resell it or to hold it and rent it out. These buyers have strong knowledge about local markets and have team members in the area that can meet with sellers. They directly purchase the homes with cash or through the use of private lenders.
Wholesalers represent themselves as local cash buyers, but typically don’t have the funds or capacity to buy and renovate or hold properties. Wholesalers may offer a seller an attractive price, then sign a contract with numerous contingencies. They will then reach out to dozens or hundreds of investors and mark up the price and attempt to find a real buyer. If they don’t find a buyer they will just cancel the contract.
Nationwide iBuyers tend to be large companies that buy all across the country. They tend to operate from centralized locations with only contractors or a few employees in each market. Nationwide iBuyers typically deduct a fee or commission (4% to 8%) from their offer price, conduct a full inspection of the property and may ask for a credit for repairs after the inspection.
Do I need a realtor?
Everyone has the right to use a real estate agent for any home sale. The decision as to whether or not to use an agent depends on many factors. Someone who has owned several properties over their lifetime and considers themselves knowledgeable with respect to real estate may elect to conduct a transaction without an agent, while a first time seller may feel more comfortable with representation. When it comes to a cash buyer sale, agents are not used in most cases. One of the attractions to working with a cash buyer is savings on commissions. The cash buyer is able to offer a more competitive price and the seller will maximize their net proceeds since no commissions are paid to agents. If a seller is working with a cash buyer and does not choose to use an agent, they may want to ask an attorney or real estate professional to review the purchase agreement prior to signing it.
How does an iBuyer differ from a house flipper?
iBuyers are nationwide companies that offer home-buying services to sellers for a fee. They will typically make an offer price that includes a commission fee of 4% to 8% of the purchase price. They will conduct an inspection of the property and may ask for an additional repair credit based on the findings. Also, in most cases, they will expect the home to be left empty in broom swept condition. iBuyers purchase a large volume of homes and do minimal renovations prior to putting them back on the market or renting them out. The primary goal of a iBuyer is to make a profit from the fees and commissions, rather than by selling the home for a higher price.
A house flipper is an investor or company that buys properties with the intention of making renovations, and then selling them for a higher price. A house flipper will usually buy properties that are considered fixers or are in need of a lot of renovations. The work that the house flipper does adds value to the property and allows them to get a higher resale and return on their investment. A house flipper is usually very experienced in real estate and in the local market where they purchase. They tend to complete their own inspections and make repair estimates using their experience. Most house flippers do not require that a house be cleaned and emptied at closing, since they have crews that will come in and handle that.
How does a cash buyer differ from a house flipper?
A cash buyer may differ from a house flipper, but it may also be the same thing. A cash buyer, by definition, refers to someone buying a property with cash, as opposed to obtaining a traditional mortgage. A cash buyer can be an individual or a corporation. A cash buyer typically looks for sellers who are willing to sell their property for below market value due to the condition or their personal situation. The fact that they are buying with cash means that the property does not have to qualify for a mortgage. When a buyer gets a mortgage, the lender will require an appraisal and other inspections. The property must meet certain conditions to be eligible for conventional financing. Some of these conditions include habitability, the presence of a functioning heating system and the repair of damage caused by termites, pests and wood rot.
What the cash buyer does with the property determines whether they are a house flipper or not. Some cash buyers may be keeping the property for the long term and renting it out for income. They may do minor or full repairs and renovations before renting it out. In this sense, the cash buyer is an investor. If the cash buyer is buying the property to make repairs and renovations then put the property back up on the market for sale within 60 to 120 days, then they are house flippers. A house flipper is looking to acquire properties where they can increase the market value in a short period by making strategic repairs and renovations. A house flipper makes their profit by selling the house for more than the cost of their purchase price, repairs, renovations, holding costs and transaction costs.
Should I sell to an individual or a company?
Due to the risk and large amounts of money involved, most buyers will be organized as a business entity, such as a LLC or Corporation. These entities may only have one owner, but they provide legal protection and tax benefits vs. owning in an individual person’s name. Some companies are larger though, and by selling to a company, it may be easier to research their reviews and BBB ratings. There is also government oversight of companies, so if an issue arises, there may be a better process for addressing it. It is not necessarily a negative thing to sell to someone buying real estate in their individual name. That buyer may have alternative reasons for purchasing the home, such as the intent to live in it, keep it for a family member or rent it out. Any seller should verify the authenticity of their buyer, whether it is a company or an individual. This can be done by checking proof of funds, verifying licenses and corporate standing, checking reviews or asking for references.
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