Difference between Using a Realtor vs a Cash Buyer
So you have probably seen the billboards, signs on the road, and websites that advertise “We Buy Houses Chattanooga”, “We Buy Ugly Chattanooga houses” or “Sell my Chattanooga house fast” and wonder how these services work. Are they reputable? Can they really buy my house in 2 weeks and pay me cash? What’s the difference between using a realtor vs a Cash Buyer? These services are called “professional buyers” or “cash buyers”. Today, I’m going to give you an overview of the differences between listing your property with a realtor versus selling to a cash buyer. There are pros and cons to both and the choice that works best for you will be based on your goals and current situation.
What is a “Professional Buyer” or “Cash Buyer”?
A professional buyer is someone who is in the business of buying properties for a profit. Most “professional buyers” will do one of the following 3 things when they buy your house:
- Flip the house – Buy the house from you, then fix and repair the house so that it is in market-ready shape. Then sale the property with a realtor to a new buyer.
- Rent the house – Fix the house up and rent it to a tenant.
- Wholesale the Property – A wholesaler is a professional buyer that puts your property under contract to buy the property from you at a defined price (say $100,000). This is the amount you will receive at closing. They then typically find another buyer and “assign” the contract to them for a fee (say $2,000) so that the 3rd party closes on the property. The wholesaler never actually buys your house, but earns a $2,000 spread between the amount you get for your house and the amount the final buyer pays ($102,000).
Since professional buyers are buying Chattanooga houses fast for a living they have to purchase the property at a price below the appraised value. The difference between what the buyer can eventually sale the property for and the amount the spend buying it and getting it ready for sale is their profit. This spread is so they can make a profit, have funds available to rehab the house, have reserves set aside for unexpected expenses, carrying costs (loan interest, property taxes, utilities, etc), and realtor fees when the professional buyer eventually sells the house. Contrary to what the house flipping tv shows advertise, flipping houses is difficult, has lots of expenses and transactional costs and requires a house flipper to purchase the property at a discount in order to stay in business. Oftentimes, the offer price is well below market price.
Let’s take a look at the numbers of typical cash buyer deal and compare the amount of money a cash buyer will pay to buy your house within two weeks versus what a buyer using a real estate agent will pay for a property.
Example of “Cash Buyer” Purchase Numbers
$150,000 After Repair Value of House (value of house after the property is renovated)
($10,000) Cost of Repairs to make house ready for sale.
($3,000) Closing Costs
($5,000) Holding Costs (Loan interest, property taxes, utilities, etc. the Cash Buyer incurs between the time property purchased and sold)
($30,000) Potential profit and reserve for unexpected expenses
$102,000 Amount Paid to Seller
Example of Selling House Using a Realtor Purchase Numbers
$140,000 Final Negotiated Price of House with Buyer
($15,000) Cost of Repairs for a homeowner to on their own to make property market ready. Repairs done by homeowners cost more than by a professional rehabber that has employees that do rehabs on a weekly basis.
($3,000) Closing Costs
($5,000) Mortgage payments and property tax paid during 6 months property is listed with realtor.
($8,400) Realtor Commission 6%
$108,600 Amount Paid to Seller
As you can see, selling the property with a real estate agent is going to get the seller more money most of the time. The Cash Buyer will be able to pay $102,000 and close quickly. If the property is listed with a realtor and closes within 6 months, the seller will receive $108,600. In this case, $6,600 more money is saved by using a realtor. If you don’t need to sell your property quickly, are sensitive to getting the absolute most money from the property, and have a property that is already market-ready I recommend hiring a realtor to market your property.
Advantages of Selling to a Cash Buyer
So why would anyone in their right mind not use a realtor to sell their house? Easy, there are lots of reasons why someone is better off selling to a professional buyer.
- A professional buyer can close quickly… Often in 2 weeks or less. If someone has a headache of a property and just wants to be out of the property and get their money, this is a great option.
- Selling using a realtor can take 6 months to a year to find a buyer. Oftentimes, no buyer will ever be found and the sale won’t even happen.
- Using a realtor requires showing your property to multiple potential buyers. This can be a hassle if you are living in the property and are constantly having to clean your house and leave each time the realtor wants to show your property.
- If the property is not in market-ready shape and needs cosmetic or structural repairs, these repairs will need to be completed prior to listing the property and selling with a realtor. Professional buyers rehab properties for a living and have employees that can repair houses for cheaper than what a typical homeowner will pay. Working on rehabs is stressful and contractors can rip you off. Someone that doesn’t rehab for a living is more likely to be taken advantage of and overpay and take longer to rehab the property than a seasoned rehabber.
- A good professional buyer pays cash, buys the property “as-is”, keeps their word, and will close on the property after the contract is signed. Average homebuyers that a realtor brings to the table will often back out of the contract over small home inspection findings or not be able to get financing. This is frustrating, can tie up your property, delay the sale of the property, and happens more than most people realize.
As you can see, while you may not get as much for your property selling to a Cash Buyer it is easier, quicker, and less stressful than selling with a realtor. If you’d like to get a free, no-obligation quote on your house click on the following link and fill-out the form and I’ll let you know in as little as 24 hours what price I can offer for your house.