“I lived out of the state and had to sell my dad’s estate quickly. This house has been in my family for 45+ years and there are a lot of memories but it’s time to let go because I was simply overwhelmed with it all.
Unfortunately, the house was not in its best shape and had a lot of damages that would have cost a fortune to fix up before I can list it on the market…”
Every single day we work with hundreds of different homeowners who need to sell their property quickly for similar reasons as above and you may be in the position.
But how exactly does selling your house, home, or property for cash work?
After all, on average in North American most homeowners would buy and sell property on average 3.5 times between the age of 25 to 60. This means, for most people if they are lucky they will only go through a real estate transaction every 6 to 10 years!
Yep, this means that unless you’re a professional realtor, real estate investor, or a cash buyer, chances are you’ll be inexperienced and probably clueless on how exactly a cash sale on property works.
How selling your house or property for cash works
Let’s imagine you have a house you want to sell… and it just so happens that your neighbor(Sue) has recently sold their property for $400,000 that is similar to your (same size, number of bedrooms, etc..) as your house. Except you know that Sue has been putting money into her house by remodeling her kitchen and redoing her roof.
So what does this all mean so far?
Well, it means that you’ve just figured out what the “Market Value” of your property could potentially be if you fix it up and listed it with a realtor.
However, unlike Sue, listing your property with a realtor and selling it the traditional way can be a long process and you’ll need to pay for expensive repair costs upfront. This is not ideal for your situation because you need to sell your house right away without all the hassles to clear your debt.
You start to look online and found a few companies that will offer you “Cash” for your property and can buy your house “AS IS”, no cleaning, no fix up and most importantly in just 7 to 14 days!
This sounds like the perfect solution for your current situation. So, you call the company to get an offer.
Company: “how may I help you?”
You: “Ya, I saw your ad that says you will provide a cash offer for any property?”
Company: “Yep, where is your property?….”
You: “You answer a few questions.”
Company: “Ok… we will give you $300,000 for your property!
You: silent and hangs up the phone…
“Gosh, I thought my house is worth $400,000, this company is trying to swindle me and they must be scammers! Why would they only offer me $300,000?????”
Here’s the thing.
First, understand that all-cash buyers and investors are looking to profit. That’s their business that’s how they make a living, even if you list your property with a realtor they’re looking to make a good commission from helping you sell it.
Of course, that is not to say every cash buyer and investor will make a fair offer, just like any industry their good companies and there are bad but to be fair most real estate investors we work with are not out there looking to scam homeowners and make low ball offers. After all, it doesn’t make much sense for them to do that as they don’t make any money unless you agree to their deal first.
However, all experience cash buyers and investors do have a formula that they follow to make their offer, some of them will explain it to you most won’t. So allow me to explain how it works.
How our investors make offers
(AFV- COR)*(SO+ MP)= Their Offer On Your Property. That’s typically how most investors come up with an offer for your property.
I know what you’re thinking, what is AFV, COR, MP or SO? I don’t understand…
It’s the (After Repair Value – Cost of Repairs)*(Selling Cost + Profit). This is typically how most investors make offers, some investors may consider some other selling costs they may incur but for the most part, this is how they make offers!
(We’ve included common terms that cash buyer and investors to help you below)
To use our previous example of Sue and the $300,000 offer.
($400,000[AFV] – $25,000[COR])*(0.15[SO] + 0.5(MP)) = $300,000
That’s pretty much how our investors make a cash offer for your property. Some cash buyers/investors may charge legal fees and such, don’t pay for them. While it is not illegal, most investors are happy to pay all closing/legal fees.
Now, I know what are you thinking? If I do the math right the investor will make a profit of (MP)18,750.
Yes, you’re correct but keep in mind that once the house is purchased all the risks are on the cash buyer/investor to fix it up and sell the property. They will have to spend all the time to clean and fix up your property and stage it and then list it with a realtor and pay them a commission.
If the house doesn’t sell at the AFV($400,000) they may end up losing money and time.
The Bottom Line
The whole cash offer selling process is pretty straight forward and simple, and good investors will know how to make the transaction smooth and effortlessly.
But of course, by selling your property for cash and quickly you won’t get top or retail value for your it but sometimes you may not have the luxury to wait around for the house to sell in 60, 90, or even 120 days.
If that is you, and you’re looking to sell your property quickly and get a fair offer from ethical, honest, and professional cash buyers/investors without all the stress.
Take our free 60-second and see if your qualify to get a cash offer from one of our investors. You just have to answer a few simple questions, and we will match you with an investor within your area.
Investors Terms That You Should Know
ARV (After Repair Value): After repair, value is kind of like market value which is the value of your property after it is completely fixed up and renovated. Unlike market value which can include factors such as timing, current market demand, the age of your house, renovation, condition of the property, etc… AFV only factor in the cost of repair that will be required to sell the property on the retail market.
Selling Cost (SO): The selling costs are the costs the investor or cash buyer will incur once they fix up your property and sell it on the retail market. This can include realtor commission, staging, renovation, clean up, marketing and photography, etc…
Cost of Repairs(COR): COR is the total cost that it will cost to repair and renovate your property to a state that it can be listed for market value. However, what most homeowners typically hugely understatement what it will cost them to repair and renovate their property due to hiring the wrong contractors, unseen/underestimating the number of damages, delays over time, etc…
Minimum Profit(MP): Minimum profit will different from investors to investors as every investor will have a different minimally acceptable profit in mind based on the time and effort they will need to spend on your property.