How Investors Price Homes l Benefits l Downsides l Finding An Investor l Negotiating Tips l iBuyers l Listing With An Agent
Investors will typically pay around 50-70% of what you could get if you sold on the open market.
Why are their offers so low?
Investors have only one goal in mind when purchasing a property: making a profit. Therefore, they usually only buy homes for rock-bottom prices that they can flip (fix up and sell) or rent out.
Despite the low offers, there are some situations where 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)
Our advice: Before you sell your house to an investor, be sure to check out offers from multiple local companies. Then, consult a realtor or two about what you could realistically sell your house for on the open market, and how quickly. This lets you compare options side by side to ensure you get a fair price for your home.
A hassle-free way to explore your options
If you’re under pressure to sell, but want to make sure you’re getting a fair deal, Clever Real Estate may be a good place to start.
With Clever Offers, you can work with a top local real estate agent to compare offers from reputable cash buyers against what you could get on the local market. Clever partner agents come from well-known brokerages like Keller Williams and RE/MAX and are selected based on customer reviews and sales history.
If you decide to list instead, you’ll get the added benefit of saving on realtor commissions — $7,000 on average.
Clever’s service is free, and there’s no obligation to work with their agents.
- Investors generally pay less than the typical home buyer because their goal is to earn a profit, either in the short- or long-term.
- House flippers generally won’t pay more than 70% of the home’s after repair value (AVR) minus repair costs.
- Rental property investors aim to earn 2% of the home’s purchase price in monthly rental income (e.g. $2,000 per month for a $100,000 home).
- If speed is your priority, then you should consider listing with an agent and pricing your home aggressively or working with an iBuyer before resorting to selling to an investor. These options can also offer quick sales and typically net you much more money.
How Investors Price Houses
There are no set rules or guidelines that investors use when pricing a home. However, the majority of investors consider the home’s age, location, and condition when determining how much they’ll pay.
While these standards are used by many, each investor’s goal and income strategy will determine how they approach pricing a home.
Real estate investors generally fall into two categories:
|Goal||Make money by buying low, doing repairs, and selling for a much higher price||Generate monthly income|
|Pricing Strategy||The 70% rule - Don’t pay more than 70% of the home’s after repair value, minus repair costs.||The 2% rule - Don't pay more than 200x the monthly rental rate.|
To understand how an investor might use these rules to establish an offer price for your home, let’s look at a few examples.
🛠 House Flippers
A house flipper believes your home is worth $350,000 after renovations. But, the house currently has a lot of problems and will need around $100,000 of work before it’s ready for listing. Using the 70% rule, the flipper would pay no more than $145,000 for the home ($350,000 x 0.70 – $100,000 = $145,000).
🏘 Rental Property Investors
If a rental property investor was considering buying a property, they would first calculate the estimated rental income. If the house could be rented out for $3,200 a month, it makes sense to offer $160,000 for the house using the 2% rule ($3,200 is 2% of $160,000).
Rental property investors will typically pay more for a house than a flipper because they consider it a long-term investment. Flippers buy homes in poor condition to renovate and sell for a much higher profit.
Benefits of Selling Your House to an Investor
- Fast Closing: Most investors can close faster than the average homebuyer — in as little as two weeks.
- No Repairs: Investors, especially flippers, are less likely to care if your home isn’t in pristine condition. Their overall goal is to make a profit, so they’ll happily make repairs and then flip your house for its full worth.
- No 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.
Downsides of Selling Your House to an Investor
- You Could Get Ripped Off: An investor might lowball you even though they know the home is worth way more than they’re offering.
- No 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.
- You Represent Yourself. When you sell to an investor, you don’t have a realtor to represent you like you would in a traditional sale. You would have to do your own research to make sure that the offer you’re receiving from an investor is fair.
How To Find an Investor to Sell Your House To
If you’re looking to find an investor to sell your house to, there are a few ways to get in touch:
- List your home on real estate websites or forums
- Contact a cash buyer company or network
- Find investors who have sold in your neighborhood
Post on Sites Like Craigslist and BiggerPockets
You have a good chance of connecting with an investor on sites like Craigslist and Bigger pockets because this is where they typically look for investment opportunities.
On Craigslist, you could list your home as is to help it stand out to investors. This can also help you weed out any non-serious buyers who don’t want to make any repairs to a home they purchase.
And on BiggerPockets, you could post on the forum expressing your interest in selling to an investor in a specific city. The website is built specifically for the real estate investing community, so there’s a good chance you’ll be able to connect with a motivated buyer.
Contact a Cash Buyer Company or Network
If you’re looking to sell your house to an investor, you should consider contacting a cash buyer company.
Cash buyer companies purchase homes in poor condition to fix them up and resell them for a profit. Since there is typically no financing involved or need for repairs, you can close in as little as two weeks.
However, before you commit to one of these companies, it’s important to do your due diligence and make sure you aren’t walking into a scam. Legitimate cash buyer companies will never ask you for money and will always provide proof of funds before purchasing your house.
Find Investors Who Have Sold in Your Neighborhood
Homeowners can find investors who have sold in their neighborhood by:
- Searching local real estate listings
- Looking through public records
You can start by looking at homes that have recently sold in your area on sites like Zillow or Redfin. One of the easiest ways to spot a house that was sold to an investor is if it sold in as is condition or was already vacant.
You also may be able to identify an investor by searching through your county’s public records system. This can be time-consuming but rewarding if you find the investor’s name and primary residence to contact them.
Once you find an investor to purchase your home, you’ll want to be armed with negotiating tactics to help you get the best possible price for your home.
Here are some strategies you can employ as a home seller:
- Provide Utility Bills. You should provide utility bills to an investor whether you’re required to or not. This way you can prove exactly how much you are paying in expenses in case the investor is overestimating them.
- Focus on Your Net Profit. If the investor won’t budge on their overall offer price, try and get them to cover some of the closing costs. This will help you walk away with more money in your pocket from the sale.
- Look at Similar Properties in Your Area that Have Recently Sold. Investors will research what properties have sold for in your area before they make an offer. If you know your home’s fair market value, you can call the investor’s bluff if they’re lowballing you.
» LEARN: How to determine the fair market value of a home
What About Selling to an iBuyer?
iBuyers are another alternative when it comes to selling your home. iBuyers make all-cash offers and can close quickly — sometimes in as little as two weeks.
When it comes to iBuyers like Opendoor, all you have to do is submit an online form with your information. If you qualify, the company will reach out with a free, no-obligation offer.
The only tradeoff is that iBuyers don’t typically buy distressed homes, so this might only be an option if your home needs minor repairs.
Should I List With an Agent Instead?
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 it 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 in the area where you live. You could end up getting the full market value of your home and potentially more if it goes above the asking price.
If you need to sell quickly, an agent can place your home on the MLS and market your home aggressively to attract buyers. Agents can do multiple open houses or even send out direct mail to a targeted audience about your house.
If you’re looking for advice before making the big decision to sell your home, our friends at Clever can connect you with top agents in your area who’ll work for discounted commission rates.
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