How to Determine a Fair Cash Offer for your Home
How to Determine a Fair Cash Offer for Your Home
The buying and selling of homes is without a doubt one of the most exciting, and also stressful, times in anyone's life. A lot of things to think about and prepare for, from finding the right home and making an offer or considering one - then going through inspections and waiting for the closing date.
But what if a cash offer came in on your home? How do you know if it's a fair offer? Although it sounds like a great deal on the surface - no waiting for financing to come through and a shorter timeline; You must consider a few things when reviewing a cash offer by we buy houses Tampa.
Cash offers are becoming more and more common as the housing market continues to grow. This is due to the fact that buyers want properties that they can purchase outright, without having to obtain a mortgage. In most cases, these offers come from investors, iBuyers looking to buy the property for a quick flip. However, a fair number of individuals consider making a cash offer on a home they wish to live in as well.
While a cash offer may not be the highest offer that a seller receives, it is often seen as more attractive because it eliminates the risk of the deal falling through due to financing issues and they don't have to worry about the buyer getting cold feet.
In the last 2 years, 22 to 24 percent of single-family and condo/co-op sales were cash transactions across the U.S, according to ATTOM Data Solutions. That shows us how large of a role cash buyers play in the housing market and just how difficult it can be for traditional buyers to compete.
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A cash offer is an all-cash bid, meaning a homebuyer wants to purchase the property without a mortgage loan or other financing. These offers are often more attractive to sellers, as they mean no buyer financing fall-through risk and, usually, a faster closing time. (1)
What is the current market value of your home?
The first and foremost thing you must do is find out what your home is currently worth on the market. This will give you a baseline to start from when considering any offers that come in, whether they are cash or not. Look out and research the prices of similar properties in your area that have sold within 6 months recently; take note of things like the number of bedrooms and bathrooms, finished basement, lot size, etc - because all of these factors will play into your home's value.
Online home valuation tools like Redfin, Zillow, or Realtor.com provide you with an estimate but remember, these are just estimates and may not be accurate. So, it's always wise to take matters into your own hands and get a professional opinion from an expert.
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What are the selling points of your home?
With your home's market value in mind, it's time to start thinking about what makes a home attractive to buyers. These are called selling points and can be anything from a cozy fireplace to a beautiful backyard or maybe even the fact that your home is in a great school district.
Every buyer is different and will value some things more than others.
Location - If you live in a desirable neighborhood or close to good schools, parks, or shopping malls, these definitely play a strong role in increasing the home's value.
Size - Smaller homes, like a condo or townhouses, may not get as much as someone who lives in a larger single-family home.
Age - Newer homes will almost always be valued at higher prices than older ones because the latest updates and features are appealing to today's buyers.
Condition - A house with updated appliances, a new roof, or a fresh paint job will sell for more than one that needs work.
Amenities - If your home has a pool, a nice backyard, or a finished basement, this will attract buyers who are looking for those things specifically.
Recent updates or remodeling projects - Any recent major projects like a new kitchen or bathroom, an addition, or a finished basement will likely result in a higher offer.
After considering all the above key points, one can have a clear view of what makes buyers want to purchase a home and the offers they might give.
What is the current state of the housing market?
In real estate, timing is everything - a strong housing market with a low inventory of homes for sale will result in buyers having to compete against each other, often driving up prices. On the other hand, a weak market with an overabundance of homes will allow buyers more negotiating power and they may be able to get a lower price.
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Evaluate Cash Offers Coming in
Keep in mind that cash offers are slightly lower than mortgage-financed because cash buyers generally want a bit of a discount for the convenience and speed of an all-cash deal - and they are investors after all looking to make a profit.
Different housing companies have their own standards, but a good rule of thumb is to expect cash offers to be about 20% - 25% less than what you would get from a traditional buyer. Depending on the home's condition, location, price and other factors; your house will be more preferable for some buyers than others.
Following are a few examples of different buyer types in the market and how your home might fit into their buy box:
First-time homebuyers: They are usually looking for a starter home that is in good condition, but may not have all the features on their wish list.
Move-up buyers: Selling their current homes and wanting something bigger and better.
Luxury homebuyers: They are the ones most likely to pay top dollar for your home because they can afford it and are looking for a certain lifestyle that your home provides.
Investors/house flippers: Fixer upper homes that are in need of repair or updating - they generally offer the lowest price since they plan to put money into fixing it up to sell it for a profit later.
70% Rule
The 70% rule is a guideline that investors use to estimate the after repair value (ARV) of a property - 70% of what the property will be worth once repairs and renovations have been made. iBuyers pay closer to 90% - 95% or equal to the market value and sometimes even exceeding it; because they target new homes in good condition. But they charge a service fee that is extremely low in the current selling market.
Buy and hold investors come in at a much moderate percentage - between 80% to 90% of a property's actual market value and pay less than iBuyers but more than flippers - make around 8% - 12% in estimated ROI.
Is it a smart move to sell a house for cash?
The idea of getting full cash without any commissions or closing costs sounds great and lures sellers in - and home buying companies won't stop the cash buying method in the near future.
But is selling your home for cash really the best decision? It depends on every person's unique circumstances. Sellers who want a quick and easy sale will likely accept a lower offer because they don't have to go through the hassle of listing their home, showings, and waiting for a mortgage to be approved. Although this method has several benefits, it may not be the suitable choice for everyone.
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We here at Traction Home Offer are dedicated to getting the most cash possible into your pockets for your home as-is, so that you can get the most out of this situation and prepare to move on. We will buy houses in any condition without you needing to fix your home before sale.