Needless to say, real estate investing has become popular again. Selling to a real estate investor was even embraced by tech companies that are called “iBuyers.” To get your attention, real estate investors post road signs, send direct mail, and inundate social media with a promise of getting cash for your home. But real estate investors are not all the same, and their intentions are not always fair: which begs the question “Should you sell your home directly to a real estate investor?”
Selling to a real estate investor
When most people think of a real estate investor, they think of someone who will renovate and resale the home. This is commonly called “flipping.” However, another type of flipping has become popular, where the investor, also known as a “wholesaler,” flips their purchase contract to another buyer (usually at a huge profit for them). Also, there are investors who buy and then keep the property to rent.
What’s the catch?
The typical lure from the real estate investor is a quick sale. Although many can close quickly, others not so much. The reality is that real estate investors offer the quick sale in lieu of a huge reduction in their sale price. After all, they never promised you top dollar. The truth remains that real estate investors pay a fraction of what you can likely sell your home on the MLS (and the irony is that the MLS buyer is likely to be to an investor).
What about the promise of cash? Although investors offer cash for your home, you won’t literally be getting cash at settlement. Rather, just like any real estate transaction, you’ll either get a check from the title company or a wire to your bank.
Many real estate investors tout “no Realtor fees.” Sounds good, right? Not so fast. Many real estate investors charge premiums and/or miscellaneous fees. Some make you pay their closing costs. In truth, your unexpected fees can exceed the average agent commission.
Real estate investors also promise “no contingencies.” However, many investors use a “study period” in lieu of specific contingencies for various reasons, including obtaining the funds to close. Wholesalers use the study period to find a “buyer” (usually another investor) for their contract (you may not have assurance that the assigned buyer has the ability to complete the purchase).
Before you sell directly to the real estate investor, consider your goals with the pros and cons. Due diligence on your part will help you obtain your goals. Don’t be afraid to approach a local real estate agent to understand the value of your home. Compare an investor sale to the MLS sale (which is typically getting your money a few weeks sooner for a fraction of the value). You should consult with an attorney to review the purchase contract to ensure you understand what you’re signing.
By Dan Krell
Copyright © 2022
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.