The emergence of cash buyers in the residential real estate space has only recently become mainstream in the last 15 years. From our vantage point at Urban Street Ventures, it is a phenomenon that is here to stay.
There will always be property sellers who want to extract top dollar for their real estate, But there is a segment of buyers, who for a myriad of reasons, will forego top dollar in order to obtain the advantages of selling to a cash buyer.
The Drawbacks Of Selling Real Estate The Traditional Way
Loss Of Privacy
Listing a property with a realtor and setting a retail price is the generally accepted way to market a piece of real estate. This method, however, isn’t without its drawbacks. Typically, when a new listing is posted on a local listing board, the post is automatically propagated across the internet and eventually lands on sites such as Zillow and Redfin. The good and bad of this is that neighbors, strangers…everyone, now knows your house is up for sale. By design, this “spray and pray” marketing strategy, employed by most real estate agents, involves massively exposing a property to as many people as possible. Once the property has “gone public,” the agent’s next imperative is to get “showings.” To accomplish this, most agents utilize open houses where the public en masse is invited to tour the property during set hours. Inevitably, some of these visitors include curious neighbors, “looky-loos” or others drawn in by the promise of freshly baked cookies or other snacks. Selling one’s property the traditional way is not for everyone. Each prospective property seller needs to ask themselves how much lack of privacy can they tolerate.
Property Disrepair A Source of Embarrassment
If the property has fallen into disrepair, not only may not qualify for lender financing, but it can be a source of embarrassment for the seller. A prime example of this is hoarder houses. Hoarder houses are a more common phenomenon than most people realize. At Urban Street Ventures, we estimate that roughly one in every hundred properties purchased we would classify as a hoarder house. These houses are obvious to spot. Walking up to a house, there can be items stacked outside the house. In the interior, items are accumulated in every room. We have found items stacked high in attics, under the house in the crawl space and also on top of roofs. In our experience, many times it’s a relative who is selling off a house they just inherited. They may be from out of town and don’t have the time or resources to make the house presentable.
The Unpredictability Of A Traditional Sale
The real estate market can be unpredictable, and it can take a long time to procure a buyer. It could sell the first week, three months later, or perhaps not at all. This can be frustrating for the seller, who may be eager to move on to their next property. Even if a buyer’s offer is accepted and escrow is opened, there is no guarantee the transaction will close. It can be the final days of escrow and a last-minute lender condition can blow up a deal.
Higher Costs With A Traditional Sale
Cost is another consideration when deciding to sell traditionally or with a cash buyer. In a traditional sale, the seller will have to pay a commission to the realtor, which can range between 5-6% of the sale price of the house. In preparation for listing a property, there may be long-needed repairs that the seller would be advised to fix. Ignoring these needed repairs will usually come back to bite the seller as a buyer’s inspection will almost certainly unearth these issues and illicit a large credit in lieu of repairs from the buyer. In order to show a property in its best light, staging a house has become a popular strategy. Property staging is fairly expensive and can run $1,000 to $2,000 per month or more. All these things can eat into the profits from the sale of the house.
The Advantages Of A Cash Buyer
Selling To Cash Buyer Minimizes Public Display
Some sellers want to avoid the public exposure of a traditional sale. Selling to a cash buyer may be a great alternative for these buyers. With today’s technology, cash buyers can use satellite maps, street views, online permit portals, etc., to generate remarkably accurate cash offer quotes. That leaves only one home inspection to verify the property’s condition which is considerably less intrusive than the multiple visits from a standard buyer. Also, where the seller wants to avoid the embarrassment of a house in disrepair (like a hoarder house), a cash buyer can assume responsibility for the trash-out of the property and any needed repairs.
More Certainty With A Cash Buyer
For many reasons, a seller may elect to sell via a cash buyer. With a cash buyer, there is no need to worry about loan issues, and the seller can be confident that the sale will be completed once the terms of the sale have been agreed upon. Typically, the seller receives a cash price, with no loan or appraisal contingencies. In return, the cash buyer takes the property in its as-is condition and assumes responsibility for any property repairs. Also, the cash buyer is typically a principal, so there are no buyer-side commissions to pay.
Whether selling a property the traditional way or with a cash buyer, there are advantages to both. What is evident is that cash buyers service a niche in the property market for those buyers who require the anonymity or certainty of a cash buyer.