Do you want a fair offer for your home? And what exactly is a fair offer?
- A fair offer is based on your home’s value in its current condition.
- A fair offer takes into account how fast you need to sell.
- A fair offer is clear on what closing costs you’ll pay.
- A fair offer lays out any real estate commissions involved.
- A fair offer values a cash offer vs. a financing contingency.
Home sellers can sometimes become fixated on the sales price of the home without taking into account all the commissions, holding costs, taxes, closing costs, and other expenses involved in selling.
There are many companies that play this game – they’ll give you what seems like a high “fair offer price” and then whittle it down with all sorts of fees. Here’s an example for one of the so-called “iBuyer companies” that seems to give a fair or even high cash offer – but the reality sets in before you close.
- Offer Price: $275,000 (about what you’d sell to someone who’d live there)
- minus $41,250 for “repairs, paint, carpet, and updates”
- minus 7% ($19,250) for “real estate commissions”
- minus 2% ($5,500) for “closing costs”
- The price you actually get isn’t necessarily a “fair offer” at all! After all those fees, you’ll take home $209,000 – and that’s before paying off your mortgage!
In another example, let’s say you’ve purchased a new house and moved in. You’re trying to sell your old home and are comparing a fair cash offer to listing with a real estate agent, fielding offers from home owners, and the “traditional” sales process. Which offer is more “fair”?
- Option 1 – Cash Offer for $200,000 from 1-800-CashOffer
- No closing costs
- No repairs
- No real estate commissions
- Close in 7 days
- Net $200,000 in your pocket
- Option 2 – List with real estate agent for $275,000 (woohoo!)
- After 30 days, agent suggests reducing price to $270,000 to attract more offers
- After 60 days, reduce price again to $265,000 to attract offers
- You pay 2 months mortgage/tax/insurance payments @ $2500 each
- You pay 2 months utilities @ $250 each
- You pay 2 months lawn/pool @ $200 each
- An offer comes in! It’s $262,000 but includes a contingency for the sale of another house. You accept.
- Another 30 days go by… The buyers haven’t sold their other house, so they fall out of contract and you’re back on the market at $265,000.
- But… Another month of utilities ($250), maintenance ($200) and mortgage payment/taxes/insurance ($2500)
- You get another offer! It’s $260,000 but with no contingencies! You accept. It’s 45 days to closing!
- After the inspection, the potential buyers want $15,000 to repair some leaks, pool equipment, and windows with broken seals. You need to get this albatross sold, so you agree.
- After the repairs, the buyer closes and your house is sold! But wait… Did you end up with a fair offer after everything? Let’s see…
- Sales Price $260,000
- Minus $15,000 repairs
- Minus 5 months holding costs $14,750
- Minus 6% real estate commission $15,600
- Minus 1% closing costs (title, survey, legal) $2,600
- After all those fees, the net payment is $212,050 – and 5 months of headache!
Using a cash home buyer isn’t for everyone – it’s important to consider all the options. You’ll pay a bit for the convenience of a quick cash sale, but be sure to compare the options fairly – there are so many hidden fees and expenses in a “retail sale” compared to the cash offer an investor will give. Know what you’ll take home net of fees, commissions, reductions, holding costs, maintenance, etc.
Good luck! And if you’d like to get a fair, cash offer, we’d be happy to help!