My Home Needs Repairs. Should I Sell To A We Buy Houses Company?
Houses that need significant repairs are the bread and butter of real estate investors and house buying companies (sometimes called we buy houses companies). In many cases, you are better off going straight to them rather than trying to list the home on the open market. Let’s talk about why.
Investors use cash or special financing
The average buyer is sometimes completely excluded from being able to purchase a home in serious need of repairs since banks may not provide financing for them. As a result, the only buyers with the expertise and capability to purchase these homes (using cash or special investment property loans) are professional real estate investors and house buying companies. In our case, the price we can offer for such a home that is listed in the open market is identical to the price we can offer if we are contacted directly by the home owner. The major difference is that the owner may receive less for a home listed through an agent, as commissions and some closing costs are taken out of a seller’s proceeds in a traditional sale. In a direct sale to us, you pay no fees, commissions or closing costs whatsoever.Repairs cost home sellers more than they cost investors
We buy houses companies and investors are able to negotiate lower prices from contractors because of the volume of repeat business they provide to these professionals. Additionally, many house buying companies have in-house repair crews allowing them to perform the repairs at huge cost savings. For instance, the foundation repair that costs a home owner $15,000 can easily cost an investor close to half that amount. As a result, it is common that after completing significant repairs yourself before selling, you may walk away with the same amount of funds as if you had sold the house as-is to a professional home buyer. Here’s a quick example:- Let’s assume you have a home that needs its foundation fixed.
- Option 1: You have the foundation repaired for $15,000 then list the home for sale for $100,000. You receive a full priced offer and pay 6% ($6,000) commissions and another 2% ($2,000) in closing costs (title insurance, escrow fees etc). You walk away with $92,000. Don’t forget to subtract the $15,000 you paid for the foundation. You are left with $77,000.
- Option 2: A professional house buyer offers to buy the home as-is for $77,000 in 10 days with no fees or commissions. You make no repairs and walk away with $77,000. The investor spends $7,500 repairing the foundation and lists the house for rent or for sale.
Home repairs can be risky
What many owners of homes that need a lot of repairs don’t consider is the level of difficulty and risk sometimes involved with completing these repairs. What happens if something goes wrong during construction? What happens if the contractor walks off the job after collecting a down payment? What happens if the house starts sinking again after foundation repairs are completed? What happens if extensive termite damage is discovered when that wall is opened up? In each of these situations, you can forget about your repair budget as it just went up tremendously.