Why are cash offers LOWER than what my neighbor sold their house for?

“Wow…that’s a low ball offer”…

“My neighbor’s Cartersville house sold for $160,000! Why would I sell it to you for $115,000!”

Jack was getting a little ticked at me…

I had walked through his house…and his house looked great…just needed a few updates (about $16,000)…we had sat and chatted about his family, his favorite football team, everything.

I gave him a call with my offer the next day after I ran the numbers…

I’m excited to hear my cash offer, Joe!”

‘Well, Jack”…I started…

“We both agreed the house needed about $16,000 in repairs…” based on comparable homes in the area, I could close on your house in 2 weeks, all cash, no repairs, no showings…for about $115,000. How does that sounds?”

…the phone went silent.

Dead silent.

$115? That is way, way too low. My neighbors house sold for $160 just a few months ago. I would never take a dime below $150.”

You may have felt this kind of blind-siding from a homebuyer in North Atlanta before. It feels like a punch to gut…and it seems to be unexpected.

Why would you take an offer for $115k when you could sell for $160k? It doesn’t make sense, right?

It’s at this point, I have to peel back some layers.

That’s not me ‘man-splaining’ anything…I know most people in the US only buy/sell 1-3 homes in their life. It’s a big deal. And it can be complicated if you’re not “in” real estate all the time.

Let’s first start with some differences between a CASH BUYER vs. LISTING WITH A REALTOR:

CASH BUYER:

  • We are buying the house ‘as-is’ —> you will not have to do any repairs at all.
  • We are buying the house in any condition —> We just cleaned two houses in Kennesaw and Woodstock that the owner left literally everything in the house (as if you walked out your door today and never came back…)
  • We do not require a bank to ‘approve’ the house through an appraisal or a loan —> it’s cash (meaning, no banks)
  • We do not have dozens and dozens of showings plus open houses —> no ‘making the house look perfect’ and having to get up and leave multiple times per day so buyers can walk through
  • We can close fast (as little as 9 days) —> no waiting around…cash to you fast
  • We can close on your schedule —> if you need to close in 9 days or 9 months…that’s fine

LISTING WITH REALTOR:

  • You have a licensed professional helping you —> this person works with a brokerage (by law)
  • Your house is marketed across the state —> the house lists on the “MLS” (which is fed to Zillow, Redfin, Realtor etc.) so as many people as possible can buy
  • Your house can be upgraded to get maximum value —> spending $5k-$10k on kitchen updates could increase the price of your house by $10k-$20k.
  • You have someone negotiating on your behalf —> if negotiating is not your thing…your realtor can do it for you
  • You gain the most exposure —> as most people buying a house use a realtor, realtors are scouring listings for their buyers

So there’s really some key differences…

Cash buyer = fast close, no hassle, but less money at the end

List with Realtor = slower close, more hassle, but the most money at the end

I tell seller like yourself when I meet you…” You will make the most money listing with a realtor. Everytime. Never let anyone tell you different.”

So then why would you ever want to choose a cash buyer or a realtor?

  • Convenience (people with $500k+ houses sell to cash buyers all the time simply due to convenience)
  • Too many repairs to do —> you get the best price with a realtor when the house is updated for a retail buyer aka John and Jane Smith and their 2 kids want a nice house to move in. Too many repairs automatically lowers your buying pool
  • Deadline to hit —> You may need to avoid foreclosure. You’re moving out of state. You need to sell your house first before buying another.
  • Don’t want neighbors to know they’re selling —> Neighbors are nosy. Half of the people that show up to open houses are just nosy neighbors snooping. Maybe you don’t want your annoying neighbor who stole your hedge clippers to come stomping through your house judging your decor.
  • Need money fast —> Sometime, you just need money fast. Rather than go to a payday loan place charging you 30% interest on your stuff, you could sell your house.
  • Bank denied refinancing —> Banks are getting tighter and tighter restrictions about who they give loans to. If you need a refinance to push through to pay your bills…and it doesn’t come…a cash offer may make sense.
  • Sellers don’t care about price —> This can happen for probates. Sometimes the heirs would rather just get some money instead of every last penny out of the house.
  • House will be foreclosed on —> Nothing could be more embarrassing than being thrown out on the street in front of all the people you know. If a house receives notice of foreclosure, that means in 90 days or less…the bank will send the sheriff to remove you from home. A cash offer pays off mortgage and saves you the foreclosure fees the bank will charge.
  • Tenants aren’t paying/destroyed house —> Sometimes being a landlord ain’t fun. Especially if you’re out of state, your tenants aren’t paying, and the cops are calling wondering why your house has 10 cars parked out front everyday (like it’s a co-op…which is illegal unless county approved).
  • [Insert any reason to sell fast]: Sometimes there are other reasons to sell fast. It might be a terrible situation, or simply you own a vacant property that’s just been sitting there and you don’t want to deal with the taxes or dumb teenagers breaking in. There’s always new reasons.

Everything is not all about price.

And there’s no shame to sometimes admit that “Hey, I know I’m selling my house for less than my neighbors, but I don’t need this stress in my life anymore.”

Some sellers are very prideful about selling at a discount, as if it is a blemish against their character. It’s not.

Have you ever sold your car to someone like Carmax? It’s really easy to do. But you get less than if you polished that baby up yourself and listed it on Craigslist.

It’s the same thing here…except houses are bigger and more complicated.


Ok, back to Jack.

He’s reeling because he had mentally packed his bags to be gone from the house in 14 days…

He had done the math.

His mortgage is $22,000…

He would get offer for $150,000 (he felt his house was worth $160, but he’d take $150)…

He’d walk with $128,000.

That’s when I have to walk Jack through the “#REALTALK MATH.”

I don’t call it that to you on the phone…but it’s #realtalk what the numbers will be.

“Ok, Jack…let’s walkthrough the numbers of what you will actually end up getting in the end. Is that fair?”

‘Fine.’

Let’s start with the #realtalk numbers for the CASH OFFER. It’s pretty simple.

$110,000 = Offer

– $22,000 = Jack’s mortgage

You walk with $88,000.

That’s

  • No hassles
  • No repairs
  • No picky buyers
  • No 20+ showings where you are going in and out of house
  • No staging the house
  • No fees/commissions
  • No closing costs

The process is really that easy.

Don’t believe me, watch this testimonial.

Rocking Porch Homes - "It was so easy" We buy houses in Kennesaw

PROCESS for this specific house we bought in Kennesaw:

  1. Sign an agreement electronically
  2. Seller talked with attorney through email about any title questions
  3. Seller came to closing and picked up check

That was it. She was shocked how easy it was.

Okay…

Now, let’s do #realtalk numbers listing with a realtor

Again…and I’ll tell you this everytime…you’ll always make more money listing with a realtor.

$160,000 = LIST PRICE online

– $22,000 = mortgage

– $9,600 = realtor commission (SELLER PAYS BOTH SIDES OF COMMISSION)

– $3,000 = buyer’s typically ask seller to pay for some of their mortgage costs, as they have a large cash outlay with their downpayment

– $16,000 = repairs Jack and I agreed on to get it to full price

– $1,500 = estimated additional repairs buyer will ask after inspections

– $350 = insurance for 90 days as Jack holds house to sell (selling with realtor can take 30-90 days…or longer if house doesn’t sell)

– $300 = property taxes accrued at this time (cash buyer covers all property tax…not so with listing house)

– $500 = utilities during that time

– $1,000 = closing costs due to attorney etc. at end

– $1,500 = mortgage payments Jack must make during 90 days to sell

Jack walks with $104,250

To get this extra cash:

  • Jack must do all the repairs
  • Jack must stage the house properly and make it clean so it attracts the best buyers
  • Jack must go through waiting for bank approvals, bank appraisals, etc.
  • Jack must leave his house for every showing and every open house (one house we listed recently had almost 30 showings in 2 weeks…imagine leaving your house 30 times in 14 days…gets annoying)
  • Jack must clean out everything

DIFFERENCE BETWEEN CASH BUYER AND LISTING WITH REALTOR:

Listing with realtor (in this example) gets Jack an extra $16,250.

Suddenly, the numbers make a bit more sense.

See…before Jack assumed he’d walk with $128,000 remember?

NOPE.

Instead, it’s $104,250. That’s almost $24,000 less! Plus, he has to do all the repairs and make it look nice.

The big misconception about cash buyers.

“Oh…you’re going to make $34,000 off of me flipping this house?!? OH NO YOU DON’T!”

That’s taking the $160,000 price subtracting $16,000 in repairs and landing at $144,000.

Then subtracting my offer of $110,000 to get to $34,000.

When really…

We’re making much, much less than that.

Think about it.

We have the same expenses as you. Insurance. Taxes. Utilities. Repairs.

Except…

Add in:

  • We have to pay $1,500 to actually buy the house
  • We also have private lenders who fund the projects…they don’t charge 2% like a mortgage…try 8-10%. That’s instead of a mortgage payment of $500…it’s $1,200 per month. Most of that interest.
  • We are still paying realtor commissions, picky buyer closing costs…everything.

In this instance, we may make $14,000 on the property if we’re lucky. Not $34,000.

Sounds like a lot?

Actually, there’s a couple things to remember:

  1. A cash offer is a convenient solution = a service to you
  2. There’s risk putting a lot of money into one property

On top of that, we must hedge our risk from any problems the house may have.

We just bought a house recently that turned out to have foundation problems that we found out AFTER we bought the house in cash.

Yeah…it’ll cost a nice $4,000 to fix…money we didn’t expect to pay.

That’s the type of risk we take on with every property.

For you, you’re signing an agreement, answering questions from the closing attorney, then signing the closing documents…and collecting a check.

That’s the beginning and end with a cash buyer.

No cleaning out the house. No repairs. No nosy neighbors.

Anyway, that’s why there will be differences between a cash offer that I may give you and what you see your neighbor sold on Zillow.

REMEMBER:

  1. A house sold with a realtor isn’t the bottom line
  2. You will make more money with a realtor…but you have more work to put in. More work = more money. It’s your choice
  3. I will always tell you point #2. I never hide that fact.

So if you’ve ever felt “Oh, you’re just trying to ‘steal my house’, come back to this post and walk through the numbers yourself.

If after all this, you’re still interested in hearing a cash offer…click here, put in your address, and I’ll have an offer to you ASAP after we talk.

We buy houses in Cartersville, Acworth, Woodstock, Canton, Kennesaw, Marietta, Holly Springs, Roswell and Alpharetta.

Any questions…email me at joe@rocking-porch.com

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