As a Real Estate Investor who buys homes from people who want sell their house fast I meet with a lot of home sellers. I find that each has a very good reason for selling and a very different motivation. All want to Sell Quickly and for top dollar and they are faced with quite a few different options when it comes to selling. The option that is the best for them is going to depending on how fast the want to sell for the price they want to net after all costs are taken into account.
So I always ask my sellers to take a look at their options and pick the option that works the best for them. I hope to outline the Fiver Options most sellers have as I see them.
- Do nothing, keep the house and maintain the status quo.
- List the home with a Realtor, and pay a commission on the sale.
- List the home with a for sale by owner type company, do some of the work and pay a marketing fee and possibly a ½ commission on the sale.
- Sell for sale by owner and do everything on your own.
- Call a local real estate investor and sell to them with no commission.
I am going to start by looking at selling a home to a real estate investor and how that process works.
With a Real Estate Investor the home owner may receive a letter, a flyer, a postcard, or see a billboard on the side of the road, a sign in their neighborhood, or maybe find them after searching online. The Real Estate Investor is out there spending money up front to find people who want to sell their house. The investor is spending that money up front to attract home sellers to call or email that have a motivation for selling their home that is much higher than their need to get a specific sale price.
There are several types of real estate investors who buy homes and you will find that their price they will offer will vary from the rock bottom cash price where a home owner gets all the entire sale price a closing to the creative investor who might offer a little bit higher price if the seller will carry all or part of the sale in some way, meaning they get the sale price over time.
Either way the real estate investor is buying the home to make a profit. They may be selling it immediately without doing anything to it, called wholesaling. They may be making repairs and selling it in a few months. They may be keeping it and renting it out. But no matter what they do, they are buying it to make money.
The Real Estate Investor, especially the one offering all cash can usually close in a few days or on the seller’s time schedule, which can be a very big plus for someone on a time crunch. And usually when working with a real estate investor you are not going to have a lot in costly fees, they usually buy “as is” meaning they are not worried about you telling them all the issues with the house and will not be asking you to do any repairs. The trade off is going to be that the sales price will be the lowest payout of all the selling methods.
The fourth option was to plant a sign in the yard and go it alone. This option on average is going to put more money in the seller’s pocket than selling to a real estate investor, if the home owner does the work it takes to get the home sold. But it could take longer than working with a Realtor. I personally might advise this option for a home seller who has time to deal with all the issues of selling a home – putting out the signs, advertising it on all the home selling web sites, making flyers, holding open houses, and showing the house. Or for a homeowner who is on a busy street in a highly desirable neighborhood. But if the home is on a quiet dead end street where few if any are going to accidentally come by, this may not be the best option.
The drawbacks to “going it alone” need to be considered:
- Do you know how much to price it. We recently talked with a home seller who told us that houses in his neighborhood were going for about $175,000. Yet when we pulled the data from the Realtor’s MLS it showed us that the new houses in the area were asking $175,000 and had been for sale for over 1800 days (that’s 5 years by the way.) The houses that had recently sold however had been selling between $106,000 and $120,000. Going it alone and asking $175,000 and he would have never sold his house.
- Marketing it. Most FSBO companies and Realtors are going to be able to help on the marketing side of the deal, by putting it in the Multiple Listing Service and using a marketing service that puts the house on all the top home buying websites. If a seller is going it alone they will not be able to manually put it on all sites because some like Realtor.com are only for Realtors. Plus the time it takes to manually put it on all the top sites could take 3 or 4 eight hour days of hard work needs to be considered, and does the average home seller even know what all those top sites are.
- Showing the home is also time consuming. As a home seller do you want to hold open houses and do you have time to drive over to the home every time someone wants to see it. Is showing a home to every Tom, Dick, and Harriet even safe. Realtors learn how to pre-qualify home buyers over the phone, then usually meet with them in a public place or their real estate office where there are other people to get to know their buyers and get them pre-qualified with a lender before going out and meeting them in houses alone. Whereas going it alone, you may not be able to do that.
- Contracts and Negotiation need to be considered as well. Take a look at the ask Edith Column in the paper where people going it alone ask questions and she is there every week telling them to get advice from a Realtor or Attorney. Most sellers have no idea how to negotiate, do not have the right forms and contracts that consider many legal ramifications, and could run into trouble. Of course you could pay an Attorney for help, but that may end up costing more than the 6 to 8 percent commissions charged by a Realtor.
So while “going it alone” can save a seller a six to eight percent commission, it could blow the sale by charging too much, take a lot more of the seller’s time as well as take a lot longer to sell, and is it really safe to be showing to unqualified buyers. And the seller could end up spending as much in Attorney Fees or more than they would have paid to use a Realtor in the First Place.
The third option was going with a “for sale by owner” company. Here the home seller takes on selling the home “by owner” with a bit of help. These “for sale by owner” companies can usually offer a bit of help in pricing the home right, marketing online, and the contracts in the form of the company attorney.
All of this comes with a fee, depending on the package you purchase. Packages can range from $500 to $1500 up front fees for advice on pricing, signs and flyers, and online marketing. You still take calls, you still need to show the house and qualify buyers. And if the house does not sell, that upfront fee is gone.
If the package includes putting the house in the Realtor MLS, the agent helping the buyer will also need to be paid by the seller. So on top of the $500 to $1500, tack on another 3%. As a Realtor myself I can’t really see these for sale by owner companies for a home priced under $250,000, I would probably say if a home owner needs the help these companies offer, go ahead and pay the Realtor commission. A good quality agent in the Kansas City area is going to charge six percent and if they don’t sell it, there is no fee. With the “FSBO” company you are out $500 to $1500 if it does not sell, and the “FSBO” company does not follow up with every Realtor who shows it, they do not watch the market and advise the seller that they should do this or that, they do not have personal relationships with other Realtors in the area where they can make a phone call and have people looking at your house tomorrow.
Which brings me to the second option, of listing the house with the Realtor.
Selling with a Realtor will probably net the highest sale price over all the other options, but will have the highest selling costs with commissions. And Selling with a Realtor is going to take a lot longer than selling to an Investor although it will probably be faster than selling through a FSBO Company or selling FSBO.
So let’s put some numbers to it. Let’s assume a house for its given condition is worth $100,000. Meaning if the homeowner were to list it with a competent Realtor it would sell for $100,000.
Selling to an Investor the seller would probably receive a $70,000 sale price and close the house next week and be done with it. End of Story, net $70,000.
If selling For Sale by Owner, it quite possibly will be listed too high and take a while to sell and end up selling for $90,000. It could take 3 or 4 months or more because of the lack of marketing and scheduling times to see the property between the buyer and seller. Take into consideration the holding costs of real estate taxes adding up each month, lawn mowing or snow removal fees, utilities, and insurance. Keeping in mind that insuring a vacant house can be double what a regular insurance might be. So depending on the size of the house, the seller could average $500 a month in holding costs till it sells, plus interest on any mortgage payments.
Also keep in mind that when selling FSBO, who knows who is walking through a house without being screened to some extent. It could be the local crooks casing the house to determine if it’s worth their time to break in one night and steal things in the house, or rip and strip the copper plumbing, electrical wiring, furnace, ac, and hot water heater, costing $1000’s in damage. So while the seller received $90,000 on the sale, if it takes 4 months, they have lost $2,000 in holding costs, plus their time spent in all the work, and quite possibly, costs due to theft and vandalism.
When we add up the same sale using a For Sale By Owner Company, I am still going to say the home will probably sell for the same $90,000 as above, these companies do have a stigma in other Realtors eyes and their listings do get shown less than a traditional listing. It may take the 3 or 4 months to sell with the same $500 a month in holding costs. Plus there is still the $500 to $1500 up front marketing fee plus the 3% Realtor commission of $2700. When all is said and done if sold in the time frame we have estimated, that $90,000 sale goes down to a net of about $84,000. And if it does not sell the home owner is still out their holding costs and the marketing fee.
Which brings us to the Realtor Sale: Here we are looking at the $100,000 sale price with a 6 percent commission and $2000 in holding costs, the net of $92,000.
Our last option is to do nothing, which is fine if the home owner lives in the house and can keep living in the house. But what if it is a vacant house, no one lives in. Can it be rented to cover costs or is the homeowner going to be shelling out $500 a month in holding costs every month, plus gas to drive over and check on the house on a regular basis. And with the vacant house, things happen; they get vandalized as well as things break or just stop working when not being used.
So when preparing to sell a house, take a look at your options, do some research and weigh the pros and cons: of the price of the sale, the fees of the sale, the time involved in the sale. And if you want to at least see what the houses in the area are selling from the Realtor sales data vs what you could get with an all-cash offer from a Real Estate Investor, give me a call. We can provide you with both and either buy your house next week, or list it and put our team of home sellers to work selling your house for you.