How Much Will an Investor Pay For My House?

• 

  Written by Michael Warford

• 

  Edited by Katy Byrom

Written by Michael Warford

Michael Warford is a content writer at Clever Real Estate. He covers the latest trends and technologies in real estate, with a focus on consumer advocacy.

Edited by Katy Byrom

Katy Byrom is a content writer at Clever Real Estate, the nation's leading real estate education platform for home buyers, sellers, and investors.

How investors price homes l Weighing the costs and benefits l How to get offers l Negotiating tips l Will I get more with an agent?

Investors generally pay less than the typical home buyer because their goal is to earn a profit, either in the short- or long-term.

While house flippers typically pay about 70% of your home’s after repair value (ARV), some offer more, especially in strong markets or if estimated repair costs are low.

Some buy-and-hold investors (like long-term rental property owners) may pay as much as 85% of your home’s estimated resale value, adjusting for repair costs.

However, other rental investors go with what’s called the 2% rule: monthly rent should equal 2% of the purchase price. In other words, they’ll offer no more than 50x the expected monthly rent.

While many investors use these rules as general guidelines, actual offer amounts vary from one house to the next. 

Conditions that affect your offer price

Your offer amount from an investor will depend on the following:

• The strength of your local market
• The scope of repairs needed
• The investor’s business model
• How quickly you need to sell

Financial complications with the house (i.e., unpaid taxes or foreclosure) may also lower your offer price.

Despite below-market offers, there are some situations in which selling to an investor might make sense, such as: 

• To get out of debt if you’re facing foreclosure
• To sell a home in poor condition
• To sell an inherited home you can’t afford
• You need money fast (e.g. less than two weeks)

How different investors price houses

Investors price houses depending on a variety of factors, such as local market conditions, how soon the home can be resold, the cost of potential repairs, and whether the property will be resold or rented out.

Many investors — especially house flippers who are looking to resell quickly — base their offers off of what’s called the 70% rule: Don’t pay more than 70% of the home’s after repair value, minus repair costs.

But there are plenty of investors who offer more, especially if the local market is strong or the investor plans to hold onto the property long-term.

Real estate investors generally fall into four categories:

• House flippers
• Rental property owners (also called buy-and-hold investors)
• Wholesalers
• iBuyers

To understand how different types of investors might establish an offer price for your home, let’s look at a few examples.

House Flippers

Many — but not all — house flippers use the 70% rule when pricing their offers. This means they’ll pay 70% fair market value for your home, minus renovation costs. For example, if a house flipper believes your home is worth $350,000 after renovations, but will need around $50,000 of work, the flipper would pay no more than $195,000 for the home ($350,000 x 0.70 – $50,000 = $195,000).

But many house flippers have more nuanced pricing strategies and may offer more than 70%. In markets with strong buyer demand, house flippers can make higher offers. Brett Johnson of Cash For House Pro says, “In Denver, investors typically acquire properties at around 72% of their after-repair value, without factoring in the rehabilitation budget within the formula.”

Likewise, some house flippers can offer creative selling solutions, such as novation agreements that can net you as much as 85–90% of fair market value. The difference between a novation and a traditional cash offer is that the amount is only paid after the investor has renovated the property and resold it.

Rental Property Investors

Rental property investors, also called buy-and-hold investors, employ a couple of different pricing strategies. 

Some investors cap their offer price at 50x the estimated monthly rent. “If a house is going to rent for $1000 a month, that caps me at $50,000 to buy it and renovate it” says Don Chambers, Owner of Double K Property Management in Georgia.

However, in areas with more competitive rental markets or where home prices show strong appreciation, buy-and-hold investors may make more competitive offers. 

Mathew Pezon, CEO of Pezon Properties, focuses on buying properties to generate long-term rental income. “We can usually offer more than other potential buyers because we don’t need to make a short-term profit,” he says. “Most of the time we can offer up to 85% of the market value less repairs.”

Let’s say a property’s estimated worth is $350,000 after completing $50,000 worth of repairs. A rental property investor offering 85% of fair market value would pay about $247,500 ($350,000 x 0.85 – $50,000 = $247,500).

The exact percentage a buy-and-hold investor will pay for your home depends on many factors, including local rental demand and how much money they’ll need to put in to turn it into a viable rental.

Wholesalers

Wholesalers obtain contracts to purchase properties and then resell those contracts to other investors for a profit. Wholesalers are essentially intermediaries. These types of ‘we buy houses’ companies make low offers, usually on distressed properties, and then resell the purchase agreements to property investors for more. The wholesaler then pockets the difference, while the investor takes care of repairs and reselling or renting out the property.

Because wholesalers focus on distressed properties and are looking to assign their contracts to other investors — who are also looking to make a profit — they tend to make the least competitive offers. 70% or even less of fair market value is normal.

Pay attention to the closing timeline when negotiating with a wholesaler. Reputable wholesalers with established networks of buyers are usually able to close quickly. However, novice wholesalers may require longer closing timelines, which is often a red flag that they don’t have a buyer lined up and that the deal could fall through.

iBuyers

iBuyers, such as Opendoor and Offerpad, are large companies that make all-cash offers and can close quickly — sometimes in less than two weeks. 

Like house flippers, iBuyers aim to buy houses that they can resell for a profit. However, they don’t buy distressed homes. Instead, iBuyers focus on homes that are in relatively good condition and which are located in markets where home prices are likely to rise. 

In addition to the profit they make on individual homes, iBuyers make money by charging service fees, usually around 5%. As a result, they usually pay much closer to market value. However, an iBuyer’s final offer may be lower than their initial estimated offer after assessing for repairs.

Weighing the costs and benefits

Upside of selling to an investor

• Fast closing: Most investors can close faster than the average homebuyer — sometimes in as little as 1–2 weeks.
• Flexible timeline: Cash buyers often let sellers choose their own closing date, which makes it easier to coordinate your sale with moving into a new property. 
• No repairs: Investors are less likely to care if your home isn’t in pristine condition. Their overall goal is to make a profit by adding value to the home, so they’ll happily make repairs and then flip your house for its full worth.
• Closing costs are covered: Most cash buyers, except for iBuyers, will cover closing costs like transfer taxes and title fees themselves, which otherwise typically amount to 1–3%.
• No realtor commission: So long as you don’t have a realtor, you won’t have to pay any real estate agent commission, which otherwise adds 5–6% on average (split between the buyer’s and seller’s agents). If you do have a listing agent, you’ll have to pay their commission, which is usually around 2–3%.
• No showings or house prep: You can skip the hassle that comes with selling the traditional way, such as preparing your home and dealing with showings.
• Avoid financing delays: Most investors pay cash for the properties they invest in, so there’s no possibility of delays due to financing. According to the National Association of Realtors, when there’s a delay in a real estate transaction, 33% of the time it’s due to issues obtaining financing. 
• Resolve difficult situations: Cash buyers are often willing to buy properties that typical house buyers won’t, such as those facing foreclosure or in need of extensive repairs.

Downside of selling to an investor

• You make less money: An investor is unlikely to offer as much as your house is worth on the open market. In some cases, you could make less than 70% of your home’s potential market value. 
• You may have little room for negotiation: An investor will only bite if there’s a good profit margin for them. This makes it harder for you to haggle over price. However, if you get multiple offers then some buyers may be willing to put more money on the table.     
• You represent yourself. Selling to an investor allows you to avoid hiring a realtor. The downside is that you don’t have anyone looking out for your interests during the sale. If you do hire a realtor, you’ll need to pay them a commission — so we recommend looking into well-rated low-commission real estate brokers with experience in distressed home sales. At the very least, have an attorney or CPA read over your contract to ensure you’re getting favorable terms.
• Not all cash buyers are reputable: While most investors aren’t trying to rip you off, there are a handful of dishonest or inexperienced ones. Disreputable cash buyers may not have the cash on hand to close without finding another buyer to sell the contract to. Others may try to lower their offers substantially after an inspection.
• Some investors use questionable sales tactics: Similarly, some cash buyers turn up the pressure to get you to sign a contract. While some sales pressure is to be expected in any type of deal, you should avoid investors who try to rush you into signing a contract before you’ve had it professionally reviewed.

How to gather quotes from investors

Look for “we buy houses” companies in your area

“We buy houses” companies can be found in most towns and cities and you’ll usually have multiple options. Our team has compiled a list of some of the best companies that buy houses for cash across different cities and states. Get offers from a few companies and choose the best deal.

The downside, however, is that you’ll have to do a lot of research yourself, which can be difficult when you have so many options to choose from. Plus, you’ll have to vet each company, such as by asking for testimonials and proof of funds, to make sure you don’t get stuck with a novice or disreputable buyer.

Use a cash buyer network

An easier and faster way to get offers from investors is to use a cash buyer network, such as Clever Offers or Homelight’s Simple Sale. These services will find investors you can sell your house to, so you can easily compare offers and choose the best one.

For example, when you contact our team for a cash offer, we’ll ask you about your property, including its condition and your timeline for selling. We’ll then uses that information to present you with the best cash offers from buyers in your area. The service is free to use and comes with zero obligation to move forward, so if none of the offers appeal to you, you can walk away.

Another advantage to a cash buyer network is that they can offer creative solutions for your needs. Alternative selling options include novation agreements*Through a novation agreement, an investor will fix and flip your home on your behalf, then split the profits with you when it sells. Sellers benefit from a higher sale price while avoiding paying for repair costs, which are covered upfront by the investor and recouped at closing. and seller financing,*Seller financing is essentially a long-term payoff option that earns you interest on top of your agreed-upon sale price. You receive a standard down payment and additional monthly payments from the buyer, but avoid the expenses and upkeep associated with being a landlord. Payment terms are flexible, and generally range from 2–10 years, after which you get a balloon payment for the remaining balance on your home. which can be useful for getting the most cash out of your property while still avoiding a traditional sale.

Request a cash offer from an iBuyer

iBuyers like Opendoor and Offerpad are an option if you live in a market where they operate and your home qualifies. Like investors, they can close quickly and allow you to skip the showings and home prep of a traditional sale.

Requesting a preliminary offer from an iBuyer is free. The application usually begins online, although you’ll likely need to talk to a representative over the phone to get your preliminary offer.

Keep in mind that the preliminary offer can and often does go down following the in-person inspection, especially once repair estimates are deducted. Plus, you will have to pay a service fee — usually 5% — that’s comparable to typical realtor commission. As a result, your final profits may be quite a bit lower than your home’s fair market value.

Hire a realtor

A real estate agent is the best way to get the most money for your home. By listing your house on the MLS with a realtor, you reach the largest pool of potential buyers. That way, you’re more likely to sell for what your home is worth.

A realtor can also help you find a cash buyer. Many experienced real estate agents have extensive networks of buyers that they can tap into. By consulting with a realtor, they may be able to help you sell quickly for cash if they already know a buyer who may be interested.

However, there’s no guarantee that a given realtor will already know an investor who will want your house. Plus, you’ll have to pay realtor commission, which is traditionally 5–6% (half paid to the buyer’s agent and half to the listing agent). However, you can reduce that rate by using a reputable discount broker instead.

Discount brokers charge a lower listing fee, which helps reduce your overall real estate agent commission to around 3.5–5%. You’ll still get the same service as you would with a traditional realtor — and you’ll sell for market value — but you’ll be saving potentially thousands on realtor fees.

How to negotiate the price with investors

Once you’ve reached out to see what various investors will offer for your house, you’ll want to be armed with negotiating tactics to help you get the best possible deal. 

Here are some strategies you can employ as a home seller:

Know your home’s fair market value

Your home’s fair market value is what it could sell for on the open market if it was listed with a realtor. Investors don’t offer fair market value, but you should have an idea of how close they are coming to it.

Knowing your fair market value also gives you greater negotiating leverage. Since you’ll know what your home could get on the open market, you can use this information to pressure investors into increasing their offers. You can find your home’s fair market value by consulting with a real estate agent.

Stoke the competition

There’s no obligation or cost for getting an offer from a cash buyer, so you should get multiple offers to increase your chances of finding the best deal. By getting multiple offers, you increase the competition on your property and the amount it could sell for.

“Don’t just call one investor; call multiple investors and let them compete for your home, advises Susie Brant of Exp Realty. “All will start out with a low offer, but when they know there’s competition they will try harder to earn your business.”

Look beyond the offer price

While the offer price is important, you should consider other factors like who pays closing costs, how quickly they can close, and whether they’re willing to waive the inspection.

According to Brant, “A good investor will offer to pay everything so as to make the process as easy for you as possible.” If the investor is trying to pass on closing costs to you, that may be a red flag.

Don’t feel pressured to accept an offer

While investors are looking to make a living and may apply some sales pressure, you shouldn’t feel like you’re being forced into a deal.

Investor Mathew Pezon says, “Be wary of buyers who try to pressure you into accepting their offer quickly. Take time to consider all options.” You should be especially cautious of any investor who tries to get you to sign a contract without giving you time to have a real estate attorney read it over first.

Don’t sign before the inspection

Some investors will make a strong offer only to reduce it following an inspection. If the buyer requires an inspection, then you should only sign a contract after that inspection has been completed and you know what the final offer will be.

As Brant says, “Hold firm that you won’t sign on the dotted line with anybody until they can give you their final offer and that you’re willing to wait if they need time to inspect the property.”

Ask for proof of funds

Reputable cash investors will be happy to provide proof of funds, which will show they have the cash on hand to buy your property. If they can’t provide proof of funds, they likely need to secure financing, which dramatically increases the risk of the deal falling through.

Real estate investor Mike Bennett says that an investor who can’t provide proof of funds is a “major red flag, and should be avoided at all costs. If a buyer or wholesaler cannot provide POF, stay far away from them. They are a novice and likely have little to no experience as an investor.”

Get your contracts reviewed

You should always get your contract reviewed by a professional. If you have a realtor, then they can review the contract for you. Otherwise, we recommend bringing the contract to a real estate attorney or a CPA to look over.

As Matthew Coan, owner of Cash Savvy Home Buyers, says, “The number 1 thing any seller should do when working with a cash home buyer is have a professional read any contact that you are given to sign. It is well worth the investment.”

Secure an earnest money deposit

Just like you would if you were selling to a traditional buyer, you should get an earnest money deposit from an investor. A cash deposit demonstrates that the buyer is serious about purchasing your home and has the means to do so. A refusal to provide a deposit is a major red flag.

As Bennett explains, “If the buyer is buying direct, typical cash sale standards are $5k–$10k earnest money deposit.” However, Bennett notes that a novation agreement doesn’t typically include an earnest money deposit.

Will I get more if I list with an agent?

Real estate agents can put your home on the market and probably get you more money than you could with an investor, even if they market the house for sale as is. 

When you list your house on the market, you’re able to attract more buyers who may make multiple offers on your home — especially if the market is hot. You could end up getting the full market value of your home and potentially more if it goes above the asking price. 

Even if you think you can’t afford the renovations needed to get your home market ready, some brokerages are able to help with presale concierge services. These are programs in which repairs are completed before listing. The cost of those repairs is then deducted at closing.

Suzanne Seini, CEO and owner of Innovate Realty in Irvine, CA, offers a program called InnoEquity. “The program enables homeowners to tap into their equity with no out-of-pocket costs and have pre-listing renovations done to their homes,” says Seini. “The homeowner would then pay for the work when they close escrow.”

With such programs, you have a better chance of selling for market value. You don’t need to worry about the upfront cost of renovations or about qualifying for a home equity loan for repairs.

Bottom line: How much will an investor pay for my house?

Many investors aim to offer around 70% of fair market value, but plenty will go higher, especially if the local market is strong or they’re planning to rent the property long term. In some situations, investors may offer 85–90% of fair market value.

The specific amount an investor will pay for your property depends on many factors, including your local market, the home’s condition, and the investor’s goals. That’s why comparing offers from multiple investors is a good idea.

If you’re considering selling to an investor, but want to make sure you’re getting a fair deal, our team can help.

Through our cash offer network, you can compare up to 10 cash offers from reputable buyers to the sale price you’d get with an agent — all for no added fees or commissions.

If you decide to list instead, you’ll get the added benefit of saving on realtor commissions — $7,000 on average — through our agent matching network. Our partner agents come from well-known brokerages like Keller Williams and RE/MAX and are selected based on customer reviews and sales history.

See how much cash buyers will pay for your home

Recommended reading

Are “We Buy Houses” Companies a Rip-Off? Depending on your situation, cash buyer companies could provide a hassle-free way to sell a distressed property. But if you want to get the maximum value for your home, an offer from a “we buy houses” company might leave you feeling ripped off. Learn more!

How Can I Sell My House Fast? Whether selling fast is a necessity or a preference, we gathered the top things to consider when you need to get rid of unwanted property quickly.

What You Need to Know Before Selling an Inherited Home: Inheriting a home can be a financial windfall, but selling an inherited property can be a long and tricky process with lots of legal hoops to jump through along the way. Learn the facts about taxes, timing, and more.

What Companies Offer the Lowest Real Estate Commission Fees? One of the best ways to save money when you sell your home is by working with a low cost real estate brokerage. Learn how to choose the right company for you in our complete guide to the best low commission real estate agents.