It’s no secret, real estate investors have a reputation for making low-ball offers on properties.
So much so, you may have had an investor call you about a property you own, and you just hung up on them.
For this article, we’ll mostly be discussing situations where an investor is making an offer to buy a property in need of repairs, a.k.a, a fixer-upper.
Let’s dive into the legitimate reasons why investors may not make you an offer as high as you had hoped.
Investors Take on Significant Risk
The recent explosion of house flipping shows on HGTV make it seem like renovating a house is so easy.
And reselling the property
Is boiled down into a one-hour television show.
Sure, every episode may have some drama, but they do not do a good job showing the significant risks investors take on each time they buy a new property.
When buying a fixer-upper, investors may have to deal with:
Old, dangerous, and outdated electrical work
Outdated, possibly leaky plumbing
Roofs that need replacing
Hidden foundation issues
Hidden pest and termite issues
There could be all kinds of hidden surprises behind the walls that are impossible to see
Dealing with all of these issues costs a ton of money.
A failing foundation alone can cost upwards of $30,000. Or, if it’s bad enough, the house may have to be torn down and rebuilt!
A house you’ve been living in for decades may seem fine to you, but in reality, it might need six figures worth of work to get it up to modern living standards.
Investors have to factor in these risks when making an offer to buy your property.
Most Homeowners Don’t Realize The True Cost of Rehabbing a Property
As I mentioned above, investors sink a ton of money into a property to bring it up to modern standards.
Are all your windows old, original single panes from the 1960s?
It can easily cost over $10,000 just to get all the windows replaced.
Does the house need to be fully repiped and rewired, so it’s up to code?
That can be another $20,000 right there.
Foundation issues? Foundation issues can cost more than renovating everything else combined, depending on the severity.
All these costs add up quickly, and this is before the investor can even think of making the house look pretty by installing new floors, countertops, vanities, etc.
Investors Offer You A Certain Level of Certainty Traditional Buyers Can’t
When an investor is interested in buying your house, they will do everything in their power to close on it.
They don’t have emotions tied to the house.
It’s purely a calculated business decision.
Investors buy with cash or specialized loans designed to close on investment properties.
You typically don’t have to worry about an investor’s financing falling through.
Unlike traditional buyers who may get scared off because an inspection cites foundation issues, most investors won’t care.
When unexpected major issues are found, an investor will most likely ask the price to be adjusted to reflect the additional work required.
Investors Will Offer To Pay Your Closing Costs
Commonly, real estate investors will offer to pay all your closing costs when they buy your house from you.
Closing costs can add up.
For example, when selling your house to a traditional buyer off the MLS, you often have to pay some combination of:
Note: Let’s use a house listed at $500,000 as an example.
Realtor Commissions at 6%: $30,000
Buyer Requested Repairs: $5,000 - $10,000
Buyer Requested Closing Costs: $5,000 - $10,000
City/County Transfer Taxes: 1% of the sales price - $5,000
Home Warranty: $500
Deep Cleaning Cost: $300
Recording Fees: $100
Every real estate transaction is different. And as such, some of these numbers may be higher or lower for you. Some of these numbers also may not apply to you.
As you can see, there are many costs the investor is paying for you, or become unnecessary, such as the commission.
Investors Can Offer You A Fast Closing
Professional investors aim to close on your property quickly. Sometimes as soon as a few days.
A traditional buyer will take at least 30 days to close if everything goes right.
Should something go wrong, forget it. Escrow can drag out weeks longer, or the deal could entirely fall apart,
If time is of the essence, selling to an investor may be your best bet, even if the offer is lower than what you could get from a traditional buyer.
Investors Will Help You Navigate Tricky Situations
Whether you like the idea of selling to a real estate investor or not, they have their place, and they do provide a genuine service to people in need.
Most often, people looking to sell their house can, and should, sell it on the open market to get the highest offer possible.
However, there are scenarios when selling directly to an investor is a smart move.
Many investors pride themselves as being “problem solvers,” which is a good thing for you if you’re in a pinch with your house.
For example, let’s say your house is scheduled to sell at auction in five days, and you have no other options left.
An agent can’t help you.
A traditional buyer will take too long to close.
Filing for bankruptcy may be ineffective.
But an investor could make you an all-cash offer, close on the house in just a few days, and get you out of that sticky situation.
In this hypothetical scenario, an investor is your best friend.
Real Estate Investors Don’t Make As Much Money As You Think
You may be under the impression that investors make an absolute killing on every house they buy.
Yes, investors may get an excellent deal now and again, but not all deals result in high returns.
According to ATTOM, the average gross profit on a house flip is about $65,000.
Does that sound like a lot?
Remember, that’s the gross profit. In other words, the difference between what they buy the house for and what they sell it for.
The gross profit does not take into account how much the investor has to spend to:
Renovate the property.
Pay for holding costs.
The 6% commission to sell with a realtor.
The net profit is typically significantly less.
Many investors flip houses on the side and hold a full-time job to make sure the bills are paid.
It’s important to understand investors aren’t making you low offers just to make a huge return.
Although, some might, and you should be wary of them! We’ll talk more about that in a bit.
Unlike Traditional Buyers, Investors May Offer To Help You Move
Often, selling your house is followed by moving.
Maybe it’s across town, or perhaps it’s across the country.
Either way, it’s going to cost you money to move from your old place to your new one.
There are investors out there who will offer to help pay your moving costs, which can add up to thousands of dollars.
Investors who offer moving assistance likely factor that into their offer.
Investors Don’t Use Online Estimates To Make You An Offer
The emergence of online home value calculators can be both a blessing and a curse.
In some instances, they can be accurate, but in most cases, they can be way off.
Online calculators do not take into consideration the interior and exterior conditions of the property.
Sure, your two neighbors' houses that are identical in:
Bed and bath count
To your property may have just sold at $300,000, but what if those houses were freshly remodeled?
And what if your house was never renovated and was completely trashed by tenants?
I hate to say it, but your house will sell for less.
Online calculators can’t possibly take conditions and situations like this into consideration.
If an estimate is much higher than what the house is worth, it can work against homeowners by causing them to decline offers at a reasonable price.
Investors Need To Make A Profit
Yes, investors are a business, and yes, they have to factor a worthwhile profit into their offer.
But as you can see from above:
Investors are (typically) not making a fortune off of buying your house.
Investors take on significant risk, and isn’t it fair to be compensated for the time and risk you put into any given project?
Most investors earn a living by genuinely helping homeowners sell problem properties.
Some Investors Are Sketchy And Should be Avoided
Hopefully, you have an understanding of why investors have a reputation for making low offers.
Most often, there are real, genuine reasons to support the lower-than-expected offer.
However, there are investors out there who are only motivated by profit.
There are investors out there who only care about getting your house as cheap as possible.
If you find yourself in a situation where selling to an investor is the best option, do your research and find a reputable company to work with.
Look for reviews from other happy clients, and check out their online presence.
True, you may still receive a lower offer than if you were to list the property for sale on the MLS, but if you work with a reputable company, you can rest assured you are getting a fair offer that had thought and consideration put into it.
Need To Sell Your House Quickly? Consider Selling To A Direct Home Buyer Like Contenza Properties
Do you need to sell your house and feel like selling to a direct home buying company is the best option?