Selling a home can be costly, not to mention, a stress-filled period. Finding ways to save money during a house sale may involve cutting a few corners. However, finding the right buyer might be a better solution than scrabbling around for ways to save a few dollars.
Locating a cash home buyer might result in significant savings for any seller. Even with a slower housing market, cash purchases for homes increased last year. Rising mortgage rates resulted in more buyers using cash to purchase homes outright.
Around 10 percent of all house purchases in 2022 were completed with cash. But, how do sellers save money by finding cash home buyers?
What is meant by a cash home buyer?
A cash home buyer might be an individual or an entity. Typically, an individual who is buying properties for cash might be involved in fixing and flipping homes. Businesses that advertise cash purchases for homes will also be looking for real estate investment.
For example, Home Buyers USA might buy a house for cash to make renovations and market it. Or, they may buy homes for cash to develop into rental properties.
Regardless of the motive, a cash home buyer is able to purchase properties without the need to secure additional financing. Having available money for buying homes results in quicker sales, and can be very beneficial to sellers in other ways too.
What sort of properties appeal to cash home buyers?
Cash home buyers will be interested in any property. But, typically, cash home buyers look for motivated sellers. This means someone eager to sell a home quickly. Often the properties involved will be distressed and in need of repair. Yet, there are many causes for property owners wanting a quick sale.
The reasons someone needs to sell a home quickly might include these:
- Divorce
- Financial distress
- Relocation
- Unwanted inheritance
- Medical bills and illness
- Downsizing
- A need for extensive repairs
- Cash flow concerns
- Growing expenditure
- Foreclosure
Some homes are simply money pits, and an owner might no longer be able to cope with the increasing outgoings. When repairs and renovations become too much, selling a home might be the best choice.
An owner facing foreclosure would need a fast sale if they were to realize any equity they had. In 2022, there were 324,237 properties filed for foreclosure.
For cash home buyers, there are several benefits to purchasing these types of properties. A cash home buyer will instantly get equity when they buy property. They will also boost their property portfolio, usually at below market value.
How could you save money by selling to a cash home buyer?
If cash home buyers are purchasing houses below the market value, how do sellers save money? To answer this, the bigger picture of the costs involved with selling a home need to be looked at.
When a house sale goes through, one of the costs may involve mortgage repayment penalties. The benefits of paying a mortgage early include peace of mind and less interest over time. But, early repayment may involve a penalty fee.
Some mortgage lenders charge an early repayment fee if the loan is repaid during the first three years. Federal law is helping to remove these types of fees but some mortgages still include them. Unfortunately, this fee may be unavoidable, but the others listed here are not if a home is sold to a cash home buyer.
Inspection fees
Many sellers now will carry out an inspection before the buyer conducts their own. A seller’s inspection helps to spot any potential problems before a buyer does. Anyone selling through a real estate broker would be advised to carry out an inspection first. The average cost of a home inspection is $350. Selling a home to a cash buyer will negate the need for an inspection.
Legal fees
A real estate attorney will typically be involved in any home sale. Sellers using the traditional route of selling through a real estate broker will need to hire a lawyer. Real estate attorneys might charge an hourly rate or a flat fee. A flat fee for selling a home might run as high as $1500.
Repairs and renovations
There are many ways to add value to a home. And renovations are often seen as a good investment for sellers. However, renovations can be costly.
HomeAdvisor estimates that even a small kitchen remodel may cost up to $15,000. Many homeowners will be unable to finance this kind of upgrade. But, a home in disrepair will be difficult to market without at least some repair work being done to it.
Individuals and entities involved in buying homes for cash are less likely to worry about repair work. Distressed properties often appeal to cash home buyers as they have the potential to be upgraded and used for rental properties or sold for a profit. The seller benefits from not having to find money for repairs or remodeling.
Brokers’ fees
One of the biggest expenses when selling a home is the real estate broker’s fees. A listing agent’s commissions will usually be around 5% to 6% of the sale value. To be fair, this fee is negotiable, but the seller will still pay a hefty commission.
Zillow puts the typical house price in the US at about $354,000. A commission of 5% would mean the seller paying $17,700 to the real estate broker.
Selling a home for cash removes the real estate broker from the equation entirely.
Appraisal fee
Yet another fee associated with property purchases is the appraisal fee. This fee will typically be paid by the buyer and is required by the mortgage lender. However, a homeowner desperate for a quick sale might agree to foot this fee. The national average appraisal fee is $339 but could be as much as $1,000.
Closing fees in general equate to between 2% and 6% of the property’s value. On average, this means the seller spends about $6,905. That’s without taking into account renovations, repairs, or broker’s commissions.
Why not sell by another option such as auctions?
Selling through a real estate broker is the usual way for homeowners to market their properties. But, two other channels are becoming popular. For sale by owner, and property auctions, allow homeowners to sell independently of an agent.
Pros and cons of FSBO
The pros of selling by FSBO include complete control over the sale and marketing. The owner can set the price, choose preferred marketing channels, and save money on an agent’s commission.
The cons of FSBO are plenty though compared to selling to a cash home buyer.
- Lack of experience
- Lengthy house sale
- Time involved
- Cost of marketing and staging
- Carrying out repairs
- Conducting comparables
Most people trying FSBO will have limited knowledge and experience in selling homes. The time involved in selling this way will impact other areas of life. And the sale may take months.
Pros and cons of property auctions
Property auctions are also becoming popular for buyers and sellers. Houses can be sold at auction houses, but frequently now, auctions are carried out online.
House buying at auction involves bidding against others while trying to purchase the home for as little as possible. A bidding war is great for anyone selling a home, but buyers use auctions hoping to seal a bargain.
Like FSBO, a property auction gives some control of the sale to the homeowner. But, there are also cons.
- Auction period
- No guaranteed sale
- Fees
- Buyer may pull out
- Might not meet the reserve fee
In some types of auction, the buyer can walk away with no breach of contract. Therefore, a sale at an auction may not be a guarantee of receiving payment. Auction periods are set, and a quick sale is possible, but again not guaranteed.
Summary
There are numerous costs associated with any property sale. The closing costs in general involve legal paperwork, penalty fees, insurance, and more. Selling to a cash home buyer eliminates most of the costs involved with selling a home.
Other advantages include expedited sales and closing. While a cash purchase usually means dropping the value of a home, when compared to renovations and listing agents’ fees, there are numerous savings.
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