Selling Your Home to an Investor?
There are basically two types of residential real estate investors. The 1st type buy real estate for their portfolio to rent out in the long term (Commonly known as “Buy and Hold”), and the 2nd type who buy at a discounted price and sell, or rehab and sell to make an immediate profit. (Commonly known as flipping)
The obvious goal of an investor is to make the biggest return on their investment and to achieve this they need to buy at the absolute lowest possible price.
The real estate investor we are referring in this article is an investor who is buying a home as an investment to rent out and secure a long term return from that home.
When selling a home to an investor, a home owner must understand that the investor will never live in the home and will not have any emotional attachment to the house he/she is buying. It is all about getting the best deal possible to achieve the biggest ROI.
Investors will focus on buying from motivated sellers as these are the people most willing to negotiate.
The “system” of the investor is more or less as follows:
- The investor will get their real estate agent to find the most motivated sellers. These are sellers that need to get out of their homes as soon as possible due to job transfer, medical condition, moving to assisted living, etc. Terms such as “Motivated Seller” or “Bring all Offers” or “All offers will be considered” or “Cash Only” will be some of the trigger words they will focus on.
The investor then submit an all cash offer at a price fairly close to the listing price of the home, with a fast closing to ensure the seller accepts. In many instances the investor will submit the offers in his/her own name.
- At this time the seller may be under the impression the investor is buying the home to live in it and may open up to the buyer or the buyer’s agent to provide more information about their motivation. This disclosures by the seller will put the investor in a better position to negotiate a price reduction later.
- The contract will in most probability be assignable to ensure the investor can close in the name of their business.
- The investor then get his home inspector in to do a home inspection. Most likely this home inspector works for the investor and in many instanced may get additional compensation based on the extend of the problems he/she can identify. The extend of the “Damages” is exasperated to such an extent that the seller will now starting to believe their home is a “dump” and that it will be difficult to sell to anybody else and that the cash sale is the best possible solution.
- The investor presents the inspection report to the seller claiming to deduct cost for repairs from the price. These costs will normally be an “estimation” by the investor so that the investor can use that to “Negotiate” a better price. The investor knows that the seller is vulnerable at this time and will ask for the reduction or threaten to walk away.
- The seller then accept the price terms and sells his/her home at well below market value.
Avoid becoming a victim of the above. Some Pointers
- Never let the buyer know your motivation for selling.
- Avoid communicating with the investor or the investor’s real estate agent (They work for the investor and will use that against you) and offer just the necessary information. If they ask some thing, refer them to the seller disclosure and request they work through your listing agent.
- Avoid direct communication with the investor/buyer. If they ask something refer them to your listing agent.
- Avoid communication with the home inspector (They work for the investor and will use that against you)
- If the agent or investor/buyer comment on something in your presence ignore it, and tell your listing agent about this.
Home sellers must remember that every bit of information they offer may have an impact on the sale and more importantly, may have an impact on the price and terms.
Selling to an investor the seller must understand the investor will do all in his power to get the home at a discounted price and will use your special circumstances to achieve that.
Although selling to real estate investors offer a great opportunity to sell a home fast, just realize that your home will not sell for top dollar. The investor’s business plan is to maximize profits and to achieve that they must buy at discount and sell for top dollar.
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