Should You Take a Cash Offer for Your Home?

The idea that a company or investment firm will provide a cash offer for your home is instinctively positive, what’s not to like? To be clear, this is called a “direct sale” as the home isn’t offered for sale in traditional ways. Usually a buyer contacts a seller directly (often initiated by the seller) with an offer and terms of sale. Executed correctly, an off market or direct sale cash transaction can be completed very quickly; about as long as it takes to clear title and get the closing docs prepared. The wild card of course, is having an idea of what the home might be worth on the open market.

A “cash offer for your home” isn’t new. Over the last few decades, the greater Atlanta area became and remains one of the top markets for these transactions. There’s always been a significant presence of wholesalers and large and small investors. Prior to the '08 crash, the “flipping” craze took off leading to grants and loans that become a haven for fraud, misuse of funds and other nefarious endeavors. Fast forward a decade into the current boom, all of the players are back joined by some traditional brokerages and “iBuyers” (internet buyers). These include familiar names that everyone knows and sees daily; major companies looking to buy homes for cash. Know however, that iBuyers tend to be more disciplined, they do not make offers on every home considered.

These waters are crowded and each segment has their own agenda. Some look to buy and hold/rent, some to wholesale and daisy chain, some to fix and flip and some to establish a brand. Some iBuyers overpay for homes to have the ability to put a sign up and gain name recognition. As they become public companies, pressure ramps up and they need to show results. Some traditional brokerages are also jumping into the cash for houses arena with the gimmick “if we don’t sell your home, we’ll buy it”. Of course that will be at 60% of market but they’ll buy it.

Does a Cash Offer Make Sense?

If the goal of selling a home is speed and ease, a direct to seller transaction is tough to beat. It can’t get much easier than having a buyer come in, evaluate the home and provide an offer. Key benefits of a cash offer for a home:

• Quick, flexible close
• Cash deal
• High degree of certainty
• No showings
• “As Is” sale
• Minimal effort to sell

Speed, convenience, certainty and overall ease are the main motivators when considering a cash offer for a home. Sellers typically have some flexibility on closing date, don’t need to worry about updates or maintenance and don’t need to deal with the parade of potential buyers and agents. For sellers in financial distress or those that just want to move an asset, this can be a very easy and simple way to sell and move on.

Money or Speed?

You don't get both. There are no benevolent buyers; this is a business and the math has to work. The wildcard for sellers is how much extra will be left on the table? How much more could the home bring if conventionally listed; do the ends justify the means? Actual costs vary and can range from about 4% to 12% with median cost around 8-9%. However, mix in the small investors and wholesalers and costs can get lower but usually offer price does as well. In some cases, owners may need to make repairs or updates before closing; some want HVAC and roofs under a certain age. In many cases, traditional brokers are in the 5-6% cost range but open competition among buyers can push up price...but then the litany of things so nice to avoid return.

So should you take a cash offer for your home? Yes, if you value speed and convenience over the possibility of a higher sale price. No matter how a home is sold, sellers need to thoroughly read every line of the contract, fully understand exactly what the terms are, what's expected and what it will cost. These are fast moving waters...

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