Weighing pros, cons of selling to ‘as is’ company
Q: I recently came across one of your columns on using a company to sell your home on an “as is” basis. You pay no real estate commissions; you get a fast closing and easy terms. Why don’t more people use them? Does the math work out?
A:
Well, every seller has the option to go to one of those companies. But you’ll likely get a much lower price than if you sell your home conventionally.
Our view: A company that is willing to buy your home from you without asking too many questions would only buy it if they could turn around and sell it for a good profit.
Let’s say you decide to sell your home. You decide to list it for $250,000. There’s work to be done before you list it — if you want to get the most money possible for your home. You’ll likely need to declutter it, make some of the simple repairs to put it in good shape and paint some portion of the house.
All these activities will take time and money. But at the end of the day, you’ll likely sell the home for close to your asking price. In a slower market, you’d probably sell faster than homes that don’t do anything.
Now, if a company offers to buy the property in “as is” condition, their bet is that they’ll get a lot more for the property if they do the work you didn’t do and flip it. So they’ll offer you an extremely low price with a quick closing.
Let’s say they offer $175,000 and take the home in “as is” condition. You get $75,000 less but have cash within a short period of time.
For some owners, that may be a good deal. The company does the work and sells, collecting the full $250,000, or even more.
Instead, let’s say you spend $10,000 putting the home in order. You spend a few weekends getting rid of the clutter and sell for $250,000. You will have also paid a commission of around 6% on the sales price. That 6% could be $15,000.
After the repairs and commission, you’d net $225,000 from the sale, or an extra $50,000. Serious money.
Is it worth it? Depends. Each person is different.
You have to balance the time and effort spent to put the house in order and commission paid versus a quick, but lower-priced, sale.
We suspect most owners would prefer to put in the time and effort in order to net an additional $50,000 (which might be tax free). We certainly would.
“As is” companies make their money on the flip. They can only make that profit by buying homes for less than what other buyers would pay.
On the sale side, they can only make as much money as the market will bear. So their profit is limited to how cheaply they can buy your house.
There are at least a few scenarios where we could imagine selling quickly to an “as is” company would make sense.
For those heirs who inherit a property they’ve never lived in, don’t have time to fix up and are just looking for the cash, selling quickly can be a good option, even if they receive less for the sale.
Other homeowners may have to move quickly for a new job or because school is starting. These sellers may end up getting less for their homes, but they also get to move on with their lives.
What you wind up receiving for your home depends entirely on the local market. Are you in a market that favors buyers or sellers? Are fixer-uppers selling much faster than those homes in “as is” condition?
Before taking an offer from a buyer who offers to close a cash deal quickly, do some research. Understand the opportunity. Talk with some local real estate agents. See what they think your home is worth.
As with everything in real estate, you need to be careful and knowledgeable about your home, the market and the selling process. That knowledge will translate into you getting the most money possible given the timing and condition of your property.