Why sell to an iBuyer?

People who need to relocate fast, hate the idea of showing their home, or don’t want to deal with home prep may be inclined to pursue an iBuyer offer.

An iBuyer study by real estate consulting firm 1000Watt found that 77% of surveyed homeowners would “probably” or “maybe” take 5%-10% less for their home in exchange for the conveniences of an iBuyer sale.

Buy-and-hold investors

In real estate, a buy-and-hold investor is someone who buys a house and plans to keep it for a while, typically for the purpose of collecting rental income. A buy-and-hold investor can be a real estate beginner who’d like to try their hat at becoming a landlord or a large Wall Street-backed institution such as Invitation Homes.

These types of buyers usually have more capital than the typical buyer due to their real estate portfolio, enabling them to pay for properties with all-cash.

“Many of those buy-and-hold investors will still finance the properties later, using a cash-out refinance to pull money out to fund further investments — but paying cash upfront gives them a meaningful advantage in the current highly competitive market,” Hughes says.

Generally, buy-and-hold investors will look for certain location cues that would make a property easy to rent and result in strong cash flow. A home located near a university, for example, could become an in-demand student rental.

Properties in great school districts or easy access to business, amenities, public parks, grocery stores, restaurants, public transportation, and shopping centers may also be in the buying parameters of the buy-and-hold investor.

House flippers

House flippers typically buy homes for cash as-is at a sharply discounted rate, with the intent to make improvements and repairs and then resell the property at a profit. One of the most well-known house-flipping companies is the “We Buy Ugly Houses” franchise.

Flippers generally have the loosest standards for the types of projects they’re willing to take on, whether a house looks like it’s straight out of the 1970s or has expensive issues to remedy like code violations. Flippers often embrace a home or situation that other buyers find unattractive.

A flipper’s cash offer is often going to be dramatically lower than market value to account for rehabbing expenses. Flippers often follow the 70% rule, which means they will offer no more than 70% of what they anticipate a home will be worth after it’s fixed up.

This model allows a house flipper to buy homes “as-is,” reducing the burden on the seller to make pricey fixes that a traditional buyer would usually require.

Individuals with cash on hand

While rental investors, iBuyers, and house flippers do account for a decent portion of cash sales, they aren’t the entire story. Robert Taylor, a seasoned property investor in Sacramento, California, notes that the large portion of cash buyers in his market are not investors.

This could stem from an increasing number of retail buyers choosing to make cash offers as a means of winning bidding wars in today’s competitive market.

Below are some of the types of non-institutional buyers who may have the cash on hand to transact without a financing contingency:

The creative buyer

HomeLight’s 2020 agent survey found that buyers who would traditionally use a mortgage are finding ways to pay cash however they can.

Fifty-seven percent of agents have seen buyers leverage their own retirement or securities funds, 49% have seen buyers take out a home equity loan or home equity line of credit, and 38% have seen buyers receive short-term loans from family members in order to buy a house with cash.

An additional 17% say buyers are using fintech “power buyer” platforms like HomeLight Cash Offer and HomeLight Trade-In to act as a cash buyer in today’s market.

The extreme saver

Although these types of buyers are rare, Travis Steinemann, a property investor and rehabber in the Baton Rouge area, does sometimes see people who live frugally, have never had a credit card, and pay for everything in cash.

“These people may offer close to full list price, since they aren’t trying to make a profit on the property,” he says.

Buyers who re-invested their equity

An increasing number of people will sell their homes, make a significant amount of profit, and then put that money toward the purchase of their next home.

“Think of all the people downsizing from $500,000 houses in the suburbs and buying $300,000 townhouses — they’re cash buyers,” says Kyle McCorkel, a Pennsylvania real estate investor with Safe Home Offer.

These might also include retirees who have little to no debt and excess savings. A study from HomeLight echoes that 61% of agents have seen almost-retirees cash out of their homes a few years earlier than planned given recent equity gains.

Out-of-state buyers

Steinemann notes that some investors in expensive markets that don’t produce enough rental income will opt to go to other states, usually in the Midwest and the South, to invest in buy-and-hold properties.

“People in San Francisco and New York City are good examples of this type of cash buyer,” he says. “They usually have higher incomes and want to invest in real estate, but can’t do so in their markets.”

In line with this trend, 43% of top real estate agents surveyed by HomeLight saw remote workers relocate to a more affordable city where their funds would stretch further in the year of 2021.

Can I get a cash offer if I’m working with an agent?

If you like the conveniences of a cash offer but would prefer to work with a real estate agent, that is also an option. Some real estate agents routinely connect with iBuyers and other types of investors to help their sellers field cash offers.

In HomeLight’s 2022 housing preview survey, nearly 400 real estate agents said they served areas where iBuyers are operational. And 49% of those agents in iBuyer markets have helped to inform sellers about the iBuyer model.

In addition, 29% of agents in iBuyer markets have helped to negotiate down an iBuyer’s repair credit to a lesser amount, find an iBuyer who is willing to charge the lowest service fee or on the low end for the market (27%), or negotiate a longer occupancy in the property if the seller needs it (30%).

If you’d like to connect with an agent today who’s connected to local cash buyers, HomeLight makes it easy and fast to find a top real estate agent near you with your preferred qualifications.

Reasons to sell your house for cash

So it’s clear that the number of buyers with cash on hand is growing — but the majority still need to secure financing before purchasing a property. If the following advantages are important to you, it might be worth it to hold out for a cash buyer:

You’re in a hurry.

One of the most commonly cited advantages of selling for cash is that the transaction usually closes faster — as quickly as seven to 10 days, compared to the average 50 days for a transaction involving financing.

This can be a huge benefit for a seller who is facing foreclosure or needs the funds to close quickly on their next house.

In addition to the time it takes to underwrite and process a mortgage loan, one of the biggest time savings with a cash sale is the elimination of the appraisal step, according to Owen Dashner, a partner at Red Ladder Property Solutions.

Lenders almost always require an appraisal to fund a property purchase, and this step has become more time-consuming since the pandemic due to a backlog of appraisal requests.

“This means an appraisal could possibly take 30 to 60 days or more, depending on the type and location of the property,” Dashner says. “This is obviously not ideal if you are looking to close on a sale quickly or on a specific timeline.”

You want certainty of the deal closing.

When a buyer adds contingencies to a real estate contract, the risk of a delayed or cancelled settlement increases. A cash buyer will generally not use a financing, appraisal, or home sale contingency, and many cash buyers will inspect the property for informational purposes only.

Taylor summarizes the “what ifs” with a financed transaction:

“The appraisal could come in under contract, making it likely that the seller would need to reduce their price,” he explains. “Your inspection could reveal a big repair that you did not anticipate, forcing a renegotiation. Or the house that the buyer needed to sell first hasn’t sold yet, causing a delay.”

“With a cash buyer, they typically do their own inspection, don’t have to worry about lenders, appraisals, or selling another house, and often will be ready to close as soon as the title is clear.”

You’re overwhelmed with prepwork.

Clean, declutter, paint, repair this or that — when selling on the open market, sellers typically must complete a flurry of tasks to get the house ready for showings.

A study HomeLight conducted found that sellers spend an average $5,500 on common pre-listing preparations, but this number can be higher if your house needs serious work.

“Cash buyers often look for houses that need work, and typical home buyers don’t want a project,” notes Steinemann. “If your house needs updating or a lot of repairs, a cash buyer will be your best friend.”

You need quick access to cash.

If you’re struggling to pay your mortgage or facing potential foreclosure, an all-cash offer may provide a quick way out of a financial jam and the opportunity for a fresh start.

“Often, the process has already started and the homeowner only has a few weeks to a month before they lose their house to the bank and their credit score is destroyed,” says Steinemann. “They need an out immediately.”

Dashner adds that cash buyers are much less likely to include requests for seller assistance with closing costs compared to offers with certain types of financing, which can also help improve the seller’s cash position.

Some cash buyers may go so far as to help cover a seller’s closing costs knowing that a seller facing financial hardship doesn’t always have the funds to do so.

You have major anxiety about showings.

HomeLight’s research found that 23% of agents in iBuyer markets cite the “need to move quickly” as the top motivation for sellers to pursue an iBuyer offer. Second is “prefer not to do showings” (21%). Another 17% say the biggest driver is “don’t want to prepare or stage the home.”

The fact that a hatred of showings is nearly tied with “need to move fast” is telling as to just how much many sellers loathe this step in the process. The last-minute tidying-up, the discomfort of having strangers through the home — for many, the prospect of skipping showings is enough to consider a cash offer from an online platform.

Should you ever avoid selling your house for cash?

A study from the University of California, San Diego found that mortgaged homebuyers pay an 11% premium compared to all-cash buyers in residential real estate transactions.

“Even in a retail bidding war scenario, a financed offer will typically be higher than a cash offer, to compensate for the chance that it might fall through due to lender contingencies or appraisal contingencies,” explains Andy Kolodgie, real estate investor and owner of Cash Home Buyers Georgia.

“Offers that use financing are almost always higher, which is why a cash offer doesn’t make sense for homeowners who don’t want to leave any money on the table.”

However, be sure to factor the costs of home prep and the real estate agent commission into the equation. If you have to invest a lot of money in the home and then pay agent fees of 5%-6%, you may end up with a similar amount of money from a cash buyer as you do with a traditional listing process. HomeLight’s net proceeds calculator can be a useful tool in this decision.

Your home is in impeccable condition.

Turnkey homes are in especially high demand. According to a 2020 survey of over 2,000 adults from Coldwell Banker, 80% of Americans say they would prefer to buy a move-in ready home over one that requires renovations.

In addition, 70% of millennials and 71% of Gen Xers would be willing to sacrifice the size of their home for one that required no updates.

If your home is in great shape with little risk of potential inspection repair requests, Dashner points out, you may not want to miss out on the chance to give your listing the full competition of the market to see what happens. You might start a bidding war and receive an offer that’s more than you ever dreamed of.

You’re able to find workarounds with your agent.

A real estate agent can help you negotiate contract terms that make sense for your situation, such as arranging for you to stay in a home past closing in a low-inventory market and finding solutions where they are available.

“Seventy percent of the sales I do have a long rent-back; the sale closes and a seller has up to 60 days, which is what conventional lenders are allowing people to do,” says Jordan Matin, a top real estate agent in Portland. “So once a seller has an offer on their place, they can write an offer on a new house. If it takes one month or two months to find the right property, they have time.”

The magnetic draw of cash

People today can order food to their doorstep and have virtually any product under the sun delivered to their house in 48 hours. It stands to reason that a trend toward more convenience in real estate would follow suit.

When weighing the possibility of a cash offer, consider what your top priorities are and run some back-of-the-napkin math on your net proceeds. If you’d ultimately prefer to skip showings, staging, and home prep — and recognize the possibility of selling at a lower value — consider requesting a cash offer from HomeLight’s Simple Sale platform, which provides cash offers for homes nationwide in almost any condition.