Should you take a cash offer for your Austin house?
I’ll tell you how to sell any property for cash, some reasons to refuse a cash offer….. and when you shouldn’t say no.
The cash value of real estate is generally 70-80% of the retail value. The discount is off-set by a secure and fast payment in the form of cash.
But why would anyone take a discount on their property? This question comes from a framework of someone whose situation allows them to take the time to list a property with a real estate agent, market the property to the maximum amount of buyers and get the max amount of money available. However, sometimes life can intervene. For example, a friend of mine lost their job recently and had just purchased a home. With no current income he’s living off of cash reserves to pay his bills, the largest being the mortgage. Let’s fast forward 6 months… Cash reserves running low and still no job, but a mortgage payment due in 30 days. What should he do? He has two choices:
Hold on to the house and likely go into delinquency
Sell the house
Let’s examine the first option: hold on. If he misses a mortgage payment there will be fines and his credit score will be negatively affected. But he’ll remain in possession of the house. If he misses a couple more payments the foreclosure process will begin. This is a situation he’ll want to avoid because the effects of foreclosure are long lasting. They will affect his ability to buy another home, rent an apartment, buy a car, get a credit card or even get certain jobs. The mortgage lender will file a deficiency judgement against him to collect whatever they can after the fact. The IRS can garnish his future earnings to collect on any lost taxes. Not to mention he’ll be hounded day and night by creditors and real estate investors looking to get a smoking deal on his house.
Now let’s examine selling. Home buyers have access to cash that allows them to buy properties quickly, even within 7 days. If he sells quickly it will be at a discount, usually 70-80% of fair market value. But once he sells it’s over and he’s free of the burden. There are no lingering effects and his future is not adversely affected. This is complete contrast to holding on to the property which can have far reaching effects well into the future. Will it be painful? Of course but it’s like pulling a Band-Aid. Holding on is like a cancer, it will effect everything and with no quick or definite treatment.
When to sell a house for cash
I always recommend homeowners sell their property on the MLS as long as the situation permits. Here are a few situations where selling quickly for cash could be beneficial:
Financial distress: job loss, health, divorce or death
Inheritance: you’ve inherited a property a long distance from where you live
Property is in bad condition
Tenant issues – particularly when family is involved
Moving and don’t want two mortgage payments
In the situations above it’s best to listen to the advice of a world class investor like Warren Buffett. In his most famous quote Warren lists his rules for investing. Rule #1: don’t lose money. Rule #2: don’t forget about rule #1. Based on these rules what would Buffett do if faced with a similar situation as my friend? I’m confident he would sell quickly and live to fight another day. Holding on is going down with the ship. You may love the house but it doesn’t love you back.
Benefits of selling for cash
The primary benefit of selling your house for cash is that you can get your money as quickly as you need it. But there are a couple other benefits of selling for cash.
You don’t have to deal with the hassles of waiting months for a buyer to get a mortgage, only to be told they couldn’t get financing. Now you have to start the entire process over again.
You don’t have to list your house with a real estate agent and pay a huge commission. As I’ve touched on in previous articles agent commissions can take a significant chunk out of seller’s pocket at the closing table. 6% commission is typical.
You don’t have to deal with a lot of people just “kicking the tires” and checking out your property for fun. We don’t waste your time. This is our business.
You don’t need to paint, make repairs, or even clean up. You’ll be able to sell it as-is. You won’t waste money on junk haulers or contractors. Sellers are notorious for thinking everything in their house can be fixed with a couple hundred dollars. But most have no idea what repairs cost. $20,000 on a house that needs significant repairs is like throwing a pebble into a raging river. It will be gone before you know what’s happened. Now you’re only 1/3rd finished. But no one will buy a house that’s 1/3rd renovated.
In general selling a property for cash makes the process much simpler than conventional transactions. When properties are listed on the MLS you’ll be subject to the market conditions. For instance if the average days on market for a given area is 25 then a homeowner can expect at least 25 days between the time the house is listed and when they’ve accepted an offer. Now let’s add to that the time the buyer needs to secure financing. This process usually takes 45-60 days. So from the time the house is listed to the time of closing a seller should expect it to take 60-90 days. That’s why I recommend those facing financial hardship to sell to a cash buyer. If they don’t they’ll rack up late fees and their loan will likely be accelerated by the lender. The worst case is the lender foreclosing prior to a conventional buyer closing.
Cash doesn’t always mean cash
No matter what they tell you very few investors close deals with their own cash. Most of the cash deals are either from private individuals, hard money lenders or from conventional banks. There are two reasons most investors don’t use their own cash to close deals. First, they don’t have the money. Real estate is expensive and even experienced investors may not have the cash to close a $300,000 deal.
The second reason is borrowing money allows investors to spread some of the risk to the lender. Real estate is one of the riskiest investments and mitigating this risk is always top of mind for savvy investors.
Working with a reputable investor
Always make sure that your cash buyer is reputable.
At Logic Home Solutions, we offer references of past sellers we’ve helped, we can show you examples of some of the latest projects we’ve worked on, and we’ll be happy to answer any questions you have so you feel comfortable.
We pride ourselves on being a strong part of the Austin community. We exist to help local Austin Texas homeowners who need to sell their Austin house fast , at a fair price.
If you’re wondering about selling your house for cash in Austin or just need to sell a property near Austin, we can help you.