This is often a question I am asked by many. It’s a fair question and it is something that not only homeowners will ask but also those who are just tangentially interested in the fix and flip business will also ask. The short answer to this is because it makes the most sense for the homeowner, but the reasons beneath this are quite diverse and complex. Let me explain:
Understanding Your Market Buyer
A large portion of potential buyers tend to be young families who are either upgrading from their current residence or they are first time home buyers looking to avoid another yearly trip on the renters’ circuit. Most of these buyers are not interested in doing major repairs to a home. They want a turnkey home where they simply walk in, drop their bags and start unpacking. Not an unreasonable request by any stretch. Additionally these same buyers are likely obtaining financing. In order for the home to qualify for a loan, it must meet certain conditions (no mold, no structural damage, roof, boiler and septic system will all have to be in reasonably good shape). Many times someone will own a home that needs too many of such items to be repaired and as a result, your typical market buyers will not be able to purchase the home due to these conditions.
Understanding Your Seller
There is this misconception that a real estate investor is trying to steal a house from under a homeowner, and while a few bad apples have ruined the reputation for the rest of us, the reality is that you are there to help the homeowner solve a problem not to try to scam them. Typically they are in a situation where they either need to sell now, at a specific date or they want to avoid the normal selling process altogether. Here are a list of reasons beyond just the condition of the house that someone may want to sell to an investor:
- They don’t want to deal with the process of selling a home through a normal listing process on the MLS. The entire process from listing to closing can be long and arduous to say the least. During this time you have holding costs (taxes, utilities insurance at a minimum and possibly a mortgage payment). The sooner you can sell it then the sooner you can stop paying these costs.
- They want a bottom line number. There are a lot of realtor and transfer fees that come with selling a home on the MLS. For those who just want to know what the net sum will be that they will walk away with, avoiding these fees could be key to a particular seller
- They may not want people in their homes for privacy reasons. Perhaps they are uneasy with the idea of strangers in their home or they have a family member who lives in the home and doesn’t like visitors.
- They can push the sale date as long as they want. They need to sell 6 months or a year from now, but they need to know that someone will wait that long. An investor will almost certainly be open to that, but your typical home buyer is looking to move much sooner than that. Certain sellers like that they can have a specific date in mind that makes sense for them.
- They don’t like realtors. Like investors, realtors sometimes have a bad reputation. There are great realtors out there, but again if someone has a misconception about the industry, then it may compel them to avoid that process altogether
- The guarantee and the ease of the transaction with an investor. An offer in hand with a guarantee from an investor is more desirable to some then the unknown consequences of an offer from a normal buyer. Many times buyers get cold feet and back out, or they use the inspection process to try to knock off tens of thousands off of the prior agreed upon price.
- There are multiple sellers. This is very common with a home owned by more than one party. Typically it will be three or more people at least. Unfortunately, one person is usually dealing with the entire process and realizes that a cash offer which may be less money is not that much less once it is divided amongst all the owners. That one responsible party realizes that the additional money he or she would receive for a higher offer is not worth all the headache and time spent for a few extra dollars.
Understanding the Underlying Circumstances
As I said earlier, you are there to solve a problem. Many times a seller wants to put the home on the MLS and will deal with all of the headaches that will come along with it in order to get top dollar, but they simply can’t. It is your responsibility to not only understand the homeowner but to realize the position they are in and what you can do to solve a problem that is outside of their control. Sometimes we deal with people who for whatever reason their personality is more suited to selling to an investor and other times they are faced with extenuating circumstances that leaves them little to no choice.
- Tenant problems. . Usually this comes in the form of an unruly tenant who has destroyed the home and refuses to leave. The eviction process especially in New York can be quite cumbersome and time consuming, and if you need to sell then the only option you may have is a cash offer from an investor. A normal buyer will not take a home subject to a tenant (especially a bad one) and without the property being vacant, a typical bank will not lend to them. Many times you have great tenants but you are in the middle of a lease and you need to sell now, not when the lease is up
- Time is of the essence. They need to sell quickly either due to a job relocation, health issue (this is a big one) or they just want to move to another region of the country as quickly as possible (you see this a lot with people who are retiring and just want to move on as quickly as possible so that they can enjoy their retirement).
A Combination of Issues
Sometimes it isn’t just one issue but a multitude of problems. A recent house I purchased had an owner with a health issue that wanted to relocate and had a home with tenants that he didn’t want to see go. It just made sense for him to take an investor offer where I didn’t need financing or needed to do an inspection in order to purchase the home.
On another home I purchased, the seller did not want to use a realtor and have people in and out of his home on a daily basis. He wanted the ease of the process of selling to an investor, and the house was in need of quite a bit of work so it would not have qualified for financing.
Typically what I have noticed is that the combination of needing to sell quick coupled with the house needing some serious repairs is why some sellers choose to go through an investor, but as you can see there are plenty of reasons to sell your home off market. Does it work for everyone? Of course not and it is only applicable in a small number of cases, but when it does happen typically the seller is grateful to be able to dispose of the house. Our job is to make it as smooth and easy for them as possible.
At the end of it all, in order to get the most money for your home, you will have to fix it up, list it on the MLS, pay a commission and have as many people as possible see it. Even if you list it yourself but choose not to pay a realtor, you will need that competition, and if you are not paying a realtor a commission (even for those representing a buyer) then you will likely have a limited buyer pool since agents will likely steer their clients towards homes where they will be paid. That’s not what they are supposed to do, but it is a likely outcome. Less competition means less money you will receive for the home.
Ultimately though, it’s not always about the money. Will you take less with an investor offer? Yes, but piece of mind and expediency may be worth the discount, and many times people are surprised to find that the number they were hoping to get is the number we are willing to pay. You want both parties to walk away feeling comfortable with their respective decisions. That’s all you can ask for.