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You can sell your home to an investment company, but at what cost?

Portrait of elegant businessman looking at camera with blind shades on background

It is very likely that you have seen or heard an advertisement, or received a letter in the mail, from a company that promises to buy your home for cash at a great price, saving you the hassle of putting your home on the market and allowing you to move out on your schedule.  But the question is whether this is a good deal for you and whether you should take them up on their offer.  Let’s take a look at who these companies are, how they operate, and whether or not their offers are good for you as a homeowner.

In the Phoenix metro area, there are two large companies that operate on the model of offering cash to buy a home, which allows the seller to move out at their convenience, and then they remarket the home for sale.  I won’t mention their names, but I’m sure you’ve seen or heard their ads.  These companies are very large, well-funded companies that invest in the real estate market, and like all for-profit companies, their goal is to buy low and sell high to maximize their profits.  They are not emotionally vested in the decision of whether to purchase a home—it’s all about the numbers and their bottom line.  (For what it’s worth, I do not fault them for that…in fact, I applaud them.  That’s just good business.  It’s also the way that homeowners should look at their home investment).  What is important for homeowners to recognize, however, is that by default, this model means that homeowners who sell to these companies are not realizing the maximum possible gains on the sale of their home.  These homeowners are trading many thousands of dollars of their own proceeds for convenience.

A homeowner contacted one of these big two companies to solicit an offer on her home.  The offer breaks down as follows:

 

Property valuation
Operating costs
Closing costs*
Net seller proceeds

$339,400
$27,152
$4,096
$308,152

 

*Closing costs were not included in the offer, but were included as part of the table to show the total costs of closing the sale, as these closing costs are inherent in any transfer of real estate.

 

The property valuation is the value that the company’s “team of local real estate professionals and proprietary data model” determined was the market value of the home.  The operating costs represent the holding costs and costs of minor repairs that may need to be accomplished on the home, and represents an additional revenue stream for the company.  The company does not buy the home as-is, which means that the company will ask for major repairs, such as roof, pool, or HVAC system issues.  In the end, this homeowner received a cash offer for $312,248 for her home.  Oh by the way, the seller still has to pay for closing costs, such as title insurance, escrow fees, reconveyance fees, recording fees, property taxes, and HOA disclosure fees, which total another $4,096.  To be fair, these costs are a part of ANY real estate transaction and are typically described within closing costs.  In the end, the investment company’s offer nets the seller $308,152.

Fast forward a month and a half.  Our real estate brokerage put the homeowner’s house on the market, had it under contract in 12 days, and closed it within 30 days of the contract.  Here’s how the numbers broke down for our client:

 

List price (valuation)
Closing costs
Net seller proceeds

$351,000
$25,496
$325,504

 

Our valuation of the market was based upon our decades of local knowledge and experience within the seller’s market and our expertise told us to place a much higher value on the property.  Additionally, because the seller used a professional real estate broker, the seller’s operating and closing costs were lower by $5,752 when compared to the investment company offer, even with commissions figured into the equation.  Our client made $17,352 more by using our services when compared to selling to the investment company.  Let me say that again: The seller made $17,352 more with us.

Let me say that again: The seller made $17,352 more with us.

So the next time you receive a letter in the mail from an investment company saying that you can sell a home for the most money with them, you will know how the numbers really work out for you.  Your best opportunity to maximize your real estate profits is to use a local real estate professional with years of experience and who is has an interest in seeing you and your neighborhood thrive.