Sell Home For Cash vs. Conventional

[jacob dillon]

Sell Home For Cash vs. Conventional

November 21, 2019

By savviproperties

 

Is it better to sell my house to a buyer who will pay CASH instead of a conventional buyer who would most likely use a conventional form of financing? What’s the difference?

 

The differences between selling for CASH and selling Conventionally are described below:

 

CASH VS. CONVENTIONAL Home Sale – Contractual Terms Comparison

 

	CASH	CONVENTIONAL
TIME TO CLOSE	7 – 21 Days (MAYBE SOONER)	30 – 45 Days
APPRAISAL	N/A	YES
SURVEY	N/A	YES
REALTOR FEES	N/A	6% of Sale Price
CLOSING COSTS	$0	1% – 2 % of Sale Price
CONCESSIONS	NONE	1% – 2 % of Sale Price

 

So those are the differences…. Which one is better for you?

 

A homeowner must first make an honest assessment with themselves as to what their goals are for selling and what the condition of their property is in. Here’s a scenario:

 

Person A – He lost his job 3 months ago. He has missed his last 4 mortgage payments and the bank is giving him less than 30 days to repay his missed payment and the current month’s payment. Time is of the essence. If he does not make his next payment or the previous payments, then he will go into foreclosure. He has lived in his home for 15 years; he has not done any updates or replaced any major components such as the HVAC or the roof. The foundation is cracking and is severely uneven. Some holes in the wall. Just a worn-out house, not run down, just needs a few major components worked on or replaced and some cosmetic TLC.

 

Person B – She purchased her current home 2 years ago. She bought the property at the near top of market value. Rightfully so, since in this case, the property was completely up to the market standards. She needs to move from Dallas, Texas to Miami, Florida to be closer to family. She is not under the gun to sell her home but would still be interested in selling as soon as possible. She expects to sell her home near the top of current market value, most likely more for what she bought it for, due to appreciation.

 

These two people, Person A and Person B, would both have completely different goals and expectations in mind that would need to be met to be able to successfully sell their home and transition to the next chapter in their lives.

 

When asking themselves some crucial questions regarding the sale of their home, they may have different answers which would pertain to the type of buyer they sold to.

 

QUESTION	PERSONA	PERSON B
When do I need to sell my property?	Less than 30 Days to avoid foreclosure	Soon, but no rush. Could be 60 days and that’s no problem with her
Is my property in the TOP market condition for 2019?	NO	YES
Do I expect the top of the potential market value for my home?	NO	YES
How much will repairs on the home cost?	$30,000	$0
What is the potential market value for my home when it is all fixed up to match market standards?	$100,000	$100,000
How much do I expect to sell my home for? What is a FAIR OFFER?	$50,000	$100,000

 

Woah Woah Woah… wait… Why is my home only for $50,000 if the potential value is $100,000 after putting in $30,000 worth of repairs and updates? Read more on “What is a fair cash offer for my home?”

 

Essentially, since the home needs significant repairs and there are many risks associated with repairing homes, the CASH BUYER, who is most likely an investor, will need to purchase the home at a discount for it to make any sort of financial sense. Even if the cash buyer was not an investor and wanted to live there, the house would still be worth $50,000 to the conventional buyer, generally speaking.

 

No one would take on a risk by paying the difference in the price of the home from the repair cost without any spread because it doesn’t leave any sort of value for whoever purchases that home compared to what they’re risking, which is their time and money. They would be better off purchasing a market-ready home at market value and assume no risk. Make sense?

 

Think about it.

 

If the cash buyer were to some reason pay $70,000 for the property described, they wouldn’t make any money at all if they put $30,000 worth of work into it and sold at $100,000, In fact, the investor would lose money because of having to pay closing costs and realtor fees. So, it does make sense to leave some money on the table for the investor to account for their costs.

 

After considering the two different types of buyers, CASH and Conventional? Which form of home sale would make the most sense?

 

Person A would benefit most from selling the home to a CASH BUYER who is most likely a real estate investor or a buyer who would live in the home. Nonetheless, an investor of some sort.

Since the cash buyer can close quickly with little to no contingencies, this can help solve the problems that Person A had, which was to sell his home in less than 30 days to catch up on late mortgage payments to avoid foreclosure. PROBLEM SOLVED.

 

Person B would benefit most from selling the home Conventional. Most likely selling to a buyer who is working with a real estate agent to assist them in finding a home for them to live in. Conventional buyers would most likely use a conventional form of financing, from the bank, to purchase the home, which is why closing would take about 45 days and requires appraisals, surveys, possible concessions, a lot of time, etc. Remember Person B was in no immediate rush to sell, so having the closing process take 45 days or so would be no issue to her. PROBLEM SOLVED.

 

Which one is the best though?

 

There isn’t a better one if you’re directly comparing it to the other. IT ALL DEPENDS ON THE GOALS AND NEEDS OF THE SELLER AS WELL AS THE CONDITION OF THE PROPERTY. Everyone is different and so are their homes. By being honest and transparent with yourself, as a homeowner, you will get the best insight as to which type of home sale is the best for your situation.

 

Still unsure? Think about it a little differently…

 

Make up a random scenario or put yourself in the shoes of someone you know and compare it to the information provided above, you’ll quickly get a good sense of which type of home sale would be best.