Home sellers can avoid the stress of a complicated home transaction process and sell directly to a traditional investor or an iBuyer. Generally, these types of sales may give the seller an opportunity to bypass things such as inspection contingencies and avoid appraisal concerns or buyer financing issues.
Even if you begin by intending to sell to a conventional buyer, you might end up getting a captivating offer from an investor, maybe one with minimal contingencies and the promise of a pretty rapid close. Prior to you accepting it, it is crucial to understand how the process is a bit different from a traditional transaction.
Keep on reading to find out what you need to know about selling your home to a professional home investor.
What You Should Know About Selling Your House to An Investor
- Selling to an investor saves time and hassle, but it is not necessarily for everyone.
- Personal situations, such as a job relocation, divorce or potential foreclosure, are some notable reasons individuals end up quickly selling a home to an investor.
- There’s a new type of home investor, called an iBuyer.
- Whether you sell to a traditional investor or an iBuyer, you can usually expect a quicker close, an as-is sale and an all-cash offer.
- When selling to a private investor without a listing agent, you need to do your thorough research to protect yourself from scams. There are plenty of companies that purchase homes — make sure to use a reputable and experienced one.
How Do Traditional Buyers and House Investors Differ?
The term buyer is used to vaguely to describe people who purchase homes, but buyers can come in varying forms — traditional buyers, traditional investors and iBuyers. The type of buyer you accept an offer from can drastically impact the rest of the transaction process.
Who Are Traditional Home Buyers?
Traditional buyers are individuals just like you, similar to when you bought your current home. They are looking to purchase a property to live in, either as their primary home or as a vacation home.
A traditional buyer will make an offer based on their perception of your home and their research on its market value. In addition, there’s also an emotional component to the purchase. Maybe your home has a distinct quality they’ve been seeking out, such as a big yard for their kids or the ideal layout for their needs. Traditional buyers may pay more than market value for the features they crave, or they may be willing to pay above asking price in a multiple-offer scenario.
Who are home investors?
A professional home investor is either an individual or a company that buys residential properties as an aspect of a business or investment strategy. Solo investors may own just one or two investment homes (that they either keep and rent out or flip and quickly resell), but companies that purchase houses usually do so in bulk. Home buyer investors typically employ one of four key strategies.
A buy-and-hold investment strategy aids an investor in growing a real estate portfolio over time. In addition, an individual might use this strategy to buy a home to rent for side income. They use something called a cap rate to figure out their yearly expenses versus their potential profit and see if an individual investment pencils out before buying. A larger corporate investor may purchase a home without renting it if they’re simply trying to grow their portfolio or want to wait for improved market conditions.
Investors who buy properties and then resell them very rapidly (and without making any improvements) are using a strategy called wholesale investment. Furthermore, they buy homes at well below market value, with the goal of selling to another investor for a higher price. Successful wholesalers generally have a large list of buyers lined up beforehand and use direct marketing to help identify inactive or off-market homes they can buy at an affordable cost.
Individuals or companies who purchase homes, renovate them, and then sell them at a higher price are known as home flippers. While the level of renovation needed and completed varies by the individual home and the local market, the goal is to make a profit on the resale, even after clearing all renovation expenses.
This type of investment is a hybrid of some of the other strategies mentioned above. In this case, individuals or companies purchase a property, renovate it (in either minor or major ways), and then rent it out at a premium, while maintaining ownership.
Who are iBuyers?
Similar to other professional home investor companies, an iBuyer is a house-buying service (not an actual individual). What makes an iBuyer uniquely different is that they use technology to streamline the selling process, which can sometimes mean less hassle for you as the seller. iBuyers typically rely on a wealth of data and comparable home sales to confidently make offers, often sight unseen.
Common Reasons to Sell to An Investor
While a majority of individuals sell their home the traditional way, there are a handful of scenarios where selling to an investor might make the most sense.
If you’ve inherited a property from a family member and you don’t plan to live in the home, you won’t want it to sit empty for too long. Not only can a vacant home be a target for vandalism, but if you sit on the property in a fast-moving real estate market, you could be caught with capital gains taxes.
If you have fallen behind on payments and need to sell right away, an investor might be a great option.
If your home requires a lot of updating or repair work to be attractive to traditional buyers, it may be appealing to sell your home as-is to an investor.
No financing possible
If the home you’re selling doesn’t meet safety or permitting standards, a majority of lenders won’t finance a loan for the property, which can make it hard to sell to a traditional buyer.
Need timeline flexibility
If you’re selling on a very specific timeline, you generally have more control over the close date with an investor, since they ate not timing a move-in date the same way a conventional buyer is.
Currently in escrow
If you are attempting to time a sale and a purchase at the same time and your new purchase is contingent on your old home selling, going with an investor offer can often times help speed up the process.
Relocating for work
Often a job relocation requires a quicker-than-average timeline. Selling to an investor can be faster than waiting for the ideal buyer.
Usually, divorce settlements require both parties to divide the assets, and selling fast and splitting proceeds can often be an easier way to go.
Doing repairs, taking listing photos and scheduling showings with tenants living in a house can be a bit complex at times, so individuals owning rental properties often turn to investors when it’s time to sell.
Tips On How To Avoid Scams From Home Investors
If you choose not to have a listing agent represent you, you will need to do a good amount of research to make sure the offer you are thinking about is legitimate and that you aren’t being taken advantage of. Here are a few essential steps you should take:
- Call their office using the published number you were provided. Ask for a list of recent purchases.
- Check their website. If they don’t have a website, ask the investor if they have any materials to support their business claims.
- Read reviews online. Most professional investors, even if not part of a large investment company, have some sort of online presence.
- Check your local Better Business Bureau for warnings.
- Never give any money to the investor until the closing date, and even then, all transactions should take place through a closing or escrow agent.