One of the accomplishments I am most proud of in my real estate investing career is the success our Charm City Builders team has had purchasing properties through a fair, transparent, win-win process – and almost always for cash. This month’s CCB Real Estate the Right Way blog aims to help Sellers assess the fairness of a cash offer when approached by an investor interested in your home.
How Do I Know I Am Getting A Fair Price When I Sell My Home For Cash? We want to help you answer that question and sell your property equipped with knowledge and confidence.
Know Your Local Market Values – Comps, Comps, Comps!
The absolute first thing you should do when contacted by an investor is to log onto the internet and research! Yes, technology can be a double-edged sword, but one extreme benefit is access to information – and there is an abundance of it pertaining to real estate.
No computer or internet access? You can do all of the research you need by downloading a few apps on your smartphone.
Start by searching your property’s address on Zillow. Even while off the market, Zillow will show you what they call a Zestimate. Although Zestimates are a bit controversial and sometimes seen as inflated, they are a great starting point. Note the Zillow Zestimate but don’t stop there! Also, check RedFin, and Realtor.Com, both sites offer estimated values as well. I suggest using an average of the three as a reference when talking with a potential buyer.
In addition to finding estimates of your value on these sites, you can also look at past sales of homes in your area. When looking at past sales, look for properties that:
- Are located in your neighborhood
- Have the same number of bedrooms
- Have the same number of bathrooms
- Are similar in square footage. If you are unsure of your square footage, you can see what is listed in the public record by searching your property on Maryland’s Department of Assessments & Taxation website here.
- Have a similar basement situation – finished, unfinished, partially finished
- Similar type of house (i.e. rancher, end of group townhome, interior townhome, split level, etc)
- Were sold in the last 6 months
When looking at these comps, pay close attention to the photos and condition of the homes. Be honest with yourself in terms of how your property stacks up to it – for better or for worse. If a similar-sized house with the same number of bedrooms and baths has an updated kitchen and yours doesn’t, the other property will be more attractive to buyers and therefore more valuable. On the flip side of that, if a comp that is very similar to yours, but has an unfinished basement and yours is a more functional, finished space, you may be able to get a bit more for your property.
A couple of nuggets to also consider when looking at recently sold comps:
- Sites like Zillow will show the sold price, but do not provide information about a possible seller contribution. A seller contribution is an amount of money that the seller gives the buyer from their proceeds, that the buyer applies to their closing costs. If the buyer uses a conventional loan to buy the property, the seller contribution is capped at 3% of the purchase price. If the buyer has an FHA loan, the cap is 6%.
- Also, keep in mind that there is a good chance homes that were sold were done so using a traditional brokerage transaction with listing and buyer agents. If it was sold by a listing agent, that will be noted on the home’s webpage. Cash buyers want to circumvent the use of agents to help sellers avoid paying out commissions.
- Albeit more common in commercial real estate, finding an average price per square foot of recently sold comps can help you determine a fair price for your home. After determining the number, multiply it by your square footage and see how it stacks up to the other homes that have sold, and that are on the market. This method is worthwhile if you live in a neighborhood where homes are similar (i.e. townhouse neighborhood).
Does Your Home Have Any Value Adds?
If you are interested in selling your home for cash, knowing the highlights of your home will help. Have you replaced the roof recently? Does your home feature an extra half bath that is unique in your neighborhood? Are you in the city and have a parking pass? You will want to make sure you have these improvements listed and you should provide them to any and all potential buyers.
Is the Buyer Reputable?
The best cash buying investors are those who treat people right. We encourage you to ask for references of buyers who have worked with the investor you are engaging with. Whether you decide to contact them out or not, you at least want to make sure they are willing to provide them to you.
In addition to asking about references, it is completely just to ask the buyer to provide proof of funds for the property. This can be shown via a bank statement or letter from a lender verifying the seller has the means to purchase your property.
Lastly, a reputable buyer will also be willing to provide an earnest money deposit (EMD), also referred to as a good faith deposit. This deposit is held in escrow by the title company who will facilitate the transfer of ownership. It is fair to request an EMD of 1-2% of the purchase price.
Consider Seeking Other Offers
There is a very good chance that is one investor is interested in your home, others will be too. A quick Google search of “cash homebuyers in Baltimore” will produce a long list of results offering options for you to review. If you have the time and want to put the effort in, reach out to some of the companies in the search results and ask them if they have an interest in making an offer.
If you decide to go this route, make sure you have a summary of your home ready to provide. Size, type of house, bedrooms, baths, condition, and highlights are details you will want to provide. In addition to providing home details, we think it is important to be transparent about the situation. Tell all interested parties that you are gathering multiple offers to review. Doing so will avoid wasting folks’ time, and the competition may drive up the amount of the offers you receive.
Since 2008, our team at CCB has bought over 200 properties for cash throughout the greater Baltimore region. When doing so, we always propose a purchase price that factors in our renovation budget, holding, and resale costs. The goal is for this amount, along with the ease of a cash sale, to be seen as an opportunity for the seller, resulting in a win-win transaction. Just remember that as a Seller, the onus is on you to determine if the offer is fair. We hope the guidance above will position you to do just that – good luck!