Selling House To An Investor

by | May 16, 2024

Selling your home is a significant life event. In a perfect world, you’ll sell your home for maximum value. You’ll find a realtor who lists your home and helps you market it to traditional homebuyers. Soon after listing, you’ll receive offers, negotiate, and choose the next owner of your home.

That’s in a perfect world.

Sometimes, this process isn’t as smooth or cost-effective as one would wish. In this situation, selling to an investor becomes an option.

Before selling your property to an investor, read this article to learn about the process.

Your Answer:  This is a lengthy article, so use the table of contents to skip to sections you need to read.

Why Does An Investor Want My Property?

Firstly, single-family real investors look for properties generally for one of three reasons.

  1. They can purchase your home at a lower cost, renovate it, and then sell it for a profit. A process known as “flipping.
  2. They can purchase your home, maybe renovate it, then rent it out to a tenant.
  3. Larger real estate developers look for properties in desirable locations that they can rezone for multi-family housing or commercial property.

If your home needs foundation repairs or updates, it could be an attractive option for this kind of investment. From your perspective, the more repairs your home needs, the fewer offers you’ll receive. Most buyers want move-in-ready homes.

You may need to sell your home fast due to foreclosure, divorce, or relocation. In this case, you can sell your house as-is to a real estate investor. 

What Is A Real Estate Investor?

A real estate investor is an individual or entity that purchases properties to generate a return. We’re guessing you already know that, but you may not be familiar with the different types of real estate investors.

  • Flippers: These investors buy properties needing repair, renovate them quickly, and sell them at a higher price for a profit, capitalizing on the added value.
  • Wholesalers: Wholesalers secure contracts on properties and sell these agreements to other investors without actually owning the property, making a profit on the contract assignment. 
  • Commercial REIs: They focus on buying land or old properties to develop or renovate into commercial uses like offices, retail spaces, or hotels.
  • Vacation Rental Investors: These investors purchase properties in high-tourism areas and rent them out short-term to vacationers, often managing them through platforms like Airbnb or VRBO.
  • House Hackers: House hacking reduces mortgage costs by renting out portions of a lived-in property, leveraging lower residential mortgage rates and smaller down payments to build equity and generate passive income.

These are the main types of real estate investment avenues people choose. Investors aren’t required to disclose what they want your property for. However, if they do, knowing your way around their strategy may help with negotiating.

When Should You Sell To An Investor?

Selling to an investor is not always your best option. We’re telling you this as investors ourselves. We’ll outline a few situations that make selling to a real estate investor viable.

Your Home Needs Extensive Repairs You Can’t Afford To Make

We all know about the increase in the cost of buying a home and the huge increase in the cost of repairing a home. Coinciding with the pandemic, material suppliers couldn’t keep up with the increase in demand for building materials. The strong real estate market, population growth, and stimulus checks all contributed to shortages.

The labor market couldn’t keep up with the demand either. Skilled labor is a crucial component of property repairs, and labor costs have been rising due to increased demand for construction workers, labor shortages, and the need for specialized skills in areas such as plumbing and electrical work.

Inflation is the last nail in the coffin.

We (remember, we’re real estate investors) buy properties all the time that have these issues:

  • Foundation issues
  • Mold and water issues
  • Construction liens
  • Fire damage
  • Roof damage
  • Defective septic system

You Need To Sell ASAP

If you’re experiencing financial hardship like bankruptcy or foreclosure, you may not have time for a traditional sale.

You can sell your home anytime during the foreclosure process until the auction is completed. From the day you default on your loan, the process will take 120-200 days. As that time ticks closer, your options for who you can sell to will get smaller.

If you’re relocating, you may find yourself in a similar situation. With the internet and cell phones, it’s possible not to be present for the sale of your home. However, that’s not always an ideal situation.

It’s A “Problem” Rental

While many tenants are responsible and respectful of their rental agreements, there may come a time when a landlord encounters tenants who fail to meet their obligations, engage in disruptive behavior, or breach the terms of their lease. If you’re tired of dealing with this, it may be time to contact a cash homebuyer to purchase your property.

Do you own a single-family property with disruptive tenants or holdover tenants (also known as squatters)?

You’re In A Buyer’s Market

Selling property in a buyer’s market sucks, especially if you have no choice. In these markets, buyers have the upper hand due to the surplus of available properties and fewer competing buyers.

You Inherited The Property

Probate can be an exhausting and dragged-out process. The loss of a family member alone can be an emotional and stressful experience, but dealing with the estate and belongings left behind can be straight-out overwhelming.

You may find yourself in a scenario where the home has value, but you can’t afford to maintain it. If it’s not move-in ready, you may have difficulty selling to a real estate investor.

You’re Tired Of Realtors

Not all realtors are built the same. Some will go to the ends of this earth to help you while others will just waste your time. The longer our home is on the market, the harder it may become to sell.

What Does The Process Look Like?

Step 1: First Contact

Generally, most inquiries come to us through the Internet or our advertising around town. I say this to explain that it’s ok to reach out to a real estate investor instead of waiting for one to reach you. If you need to sell ASAP, go on Google and search “we buy houses + your city.” This will give you a list of investors specializing in helping people in your situation.

The courting process is the same if you aren’t planning on selling but considering an investor’s offer.

They need to convince you with an offer that motivates you enough to sell.

Ways Investors Find You

We buy houses companies may find you, or you may find. If you’re reading this blog (and thinking of selling), then you probably found us through our many means of advertising. You’ll find real estate investors through Google searches. You may also see “bandit signs” that advertise selling your house for cash.

Real estate investors also look at public records for foreclosure, probate, and bankruptcy listings. If you’re in any of these three situations, then know that your information is public record, and you’ll likely receive calls.

Do Not Pass Go Until Doing Due Diligence!

Most real estate professionals are honest, hard workers. Our top tip for due diligence is checking government records. Never work with a real estate investor who doesn’t have a registered business with their local, state, and federal government. Also, look at places like the BBB. 

Don’t let a real estate investor rush you through this process. In fact, if they do for any reason, they’re likely a scam.

Step 2: Walkthrough/Meeting

After you finish due diligence, meet with the investor at your property. They’ll want to accomplish two things in this meeting.

  1. Discuss your options and how they can help, and possibly make an offer.
  2. Walkthrough your house to understand why it may not be fit for a traditional sale and how much it’s worth.

Step 3: Inspection

All real estate investors will want to inspect the property before formally making an offer. They’ll either perform the inspection themselves or hire an inspector. Their inspection will look for structural damage, foundation issues, and parts of the home that need major repairs.

Many real estate investors and We Buy Houses companies may waive their right to an inspection. This doesn’t mean that they won’t perform an inspection. It simply means they’ll buy the home as-is and won’t request the seller to make any repairs based on their inspection findings.

Step 4: Offer

The investor will make you an offer based on their inspection findings, the property’s value, and your urgency to sell. Curious how much an investor will pay for your property? They’ll pay up to 70% of the ARV. ARV stands for after-repair value. If the ARV of your home is $1,000,000, then an investor will pay no more than $700,000 for your home.

Step 5: Investor Due Diligence

After making an offer on your home, an investor performs due diligence to ensure the property’s value and legality. This process includes reviewing the purchase agreement and conducting a title search to confirm clear ownership and identify any liens or encumbrances. 

Additionally, they may evaluate the property’s financials, such as outstanding taxes or HOA fees, and verify zoning laws and permits. This process is a lot faster for real estate investors. Title search can take as little as a few hours but usually takes 1-2 weeks. Liens, divorces, property line disputes, typos, and the property’s age.

Step 6: Investor Financing

Investors typically have multiple financing sources, allowing them to secure funds to buy properties quickly. They’ll rarely use traditional mortgages from banks that can take weeks for approval.

Step 7:  Closing And Transfer Of Ownership

Your closing appointment will take anywhere from 30 minutes to two hours.

Things That Can Slow Down The Process

  • Low Appraisal: Some investors may request an appraisal to verify the property’s value. They may request that you accept a lower bid if it’s lower than their offer. This is a tactic that some real estate investors use. Even hiding things they find in their inspection until the last minute hoping you’ll just accept their lower offer.
  • Liens: A lien indicates that some form of debt remains unpaid. Selling your home may result in debtors receiving part of the sale proceeds, which can slow down the sale process.
  • Seller Dishonesty: Can lead to mistrust, prolong negotiations, necessitate additional inspections, cause legal complications, and ultimately deter potential buyers, slowing down the sale process.

How Much Will An Investor Pay For My House?

Investors will pay up to 70% of the ARV (After Repair Value) for a home. Investors, as their name suggests, have one goal.

We have a formula for determining the value of properties we buy. You can use this formula to determine the value of your home as a seller.

ARV (After-Repair Value) – This is the market price of your home after we buy it, fix it and go to sell it. This price is calculated based on the recent sales of similar houses in your neighborhood.

COR (Cost Of Repairs) – This is the amount that we estimate that it will cost us to fix your house after we buy it to get it to market value. This can include a new roof, siding, kitchen and bath remodels, electrical and plumbing updates, painting, flooring, etc. Buyers expect renovated homes to be brought back to life to match the modern homes in the neighborhood and we must make the necessary updates to keep them happy!

SC (Selling Costs) – This is the amount it will cost us when we resell your house after we fix it. When we resell your house we will have to pay those ugly realtor commissions and closing costs that you avoided by selling to us. We also factor in our minimum profit here as well. Unfortunately, we are a business and need to make money to keep helping homeowners in time of need!

Pro Tip: Attend the inspection to ensure the inspector does a thorough job. It should last 2-3 hours. Tell the inspector your plans for the property (move-in ready vs. fixer-upper) and read the full report. 

Massachusetts-Specific Home Requirements

  • Title 5 Inspection: Massachusetts requires a Title 5 inspection for properties with private septic systems. This inspection ensures the septic system meets state environmental standards and must be done before selling a property, expanding its footprint, or building additional bedrooms.
  • Lead Paint Law: Massachusetts requires homes built before 1978 to be inspected for lead paint. If lead is found, it must be disclosed, and landlords must remove or cover lead paint hazards if a child under six resides in the property.
  • Smoke & Carbon Monoxide Detector: Before a property can be sold, it must pass an inspection to ensure compliance with Massachusetts’ smoke and carbon monoxide detector regulations. Certificates from local fire departments are required at closing.
  • Transfer Tax (Stamp Tax): Massachusetts imposes a real estate transfer tax on property sales, commonly known as a stamp tax. The tax rate is $2.28 per $500 of the purchase price, paid by the seller at closing.

Step 8: Homeowners Insurance

Homeowners insurance is mandatory if you have a mortgage and must be in place before closing. This insurance covers various risks, including damage from fire, theft, and natural disasters, as well as liability for accidents on your property.

Standard policies often include dwelling coverage, personal property coverage, liability protection, and additional living expenses if your home becomes uninhabitable.

There are different levels of coverage, such as:

  • HO-1: Basic policy covering specific perils.
  • HO-2: Broad policy covering more perils than HO-1.
  • HO-3: Special policy that covers all perils except those explicitly excluded.
  • HO-5: Comprehensive policy offering the most extensive coverage.
  • HO-6: Condo insurance.
  • HO-7: Mobile home insurance.
  • HO-8: Older home insurance.

By comparing different policies and providers, you can ensure you get the best protection for your new home.

Step 9: Closing And Walkthrough

The final walk-through typically occurs on the closing day to ensure the property is in the agreed-upon condition. During this inspection, confirm that all personal items have been removed unless specified otherwise in the contract, and check for any new damages. Conduct the walk-through during daylight hours for better visibility. 

Be thorough:

  • Flip all switches
  • Turn on faucets to check for leaks
  • Run all appliances
  • Test the garage door opener
  • Open and close all doors
  • Flush toilets
  • Run the garbage disposal and exhaust fans
  • Inspect ceilings, walls, and floors.
  • Test the heating and air conditioning systems.

At The Closing Table

You will review your Closing Disclosure form at closing, which you should receive three business days before closing. Compare it with your Loan Estimate to check for major changes or inconsistencies. Some fees are legally restricted from increasing by more than 10%.

Consider having a real estate attorney review these documents if desired.

On closing day, meet at the title company. Being on time is crucial, as appointments are often scheduled back-to-back. Bring your photo ID, a cashier’s check (if required), Closing Disclosure, and any other requested documents. 

During the closing, you will sign several key documents:

  • Closing Disclosure: Details all the costs and fees associated with your mortgage, received at least three business days before closing for review and comparison with your Loan Estimate.
  • Promissory Note: A legal document where you agree to repay the loan amount over a specified period, including the interest rate and payment schedule; your promise to pay back the loan.
  • Mortgage (or Deed of Trust): Secures the promissory note and gives the lender a claim against your home if you default on the loan; outlines the mortgage terms, including the loan amount, interest rate, and repayment terms.
  • Deed: Transfers property ownership from the seller to you; includes a property description and is signed by the seller.
  • Settlement Statement (HUD-1 or ALTA): Provides a detailed list of all costs associated with the home’s sale, including buyer and seller costs; reviewed and signed by both parties.
  • Affidavits: Various affidavits may be required, such as confirming your identity, stating the property will be your primary residence, or ensuring no undisclosed liens or judgments.
  • Title Documents: Ensure you receive clear title to the property; may include documents related to title insurance, which protects you and the lender against potential legal issues with the property’s title.
  • Initial Escrow Disclosure: This document outlines the escrow account details, including the amount you need to deposit and what it will cover (e.g., property taxes and insurance).
  • Loan Application: Review and sign a final version of your loan application to confirm that all information is accurate and up to date.
  • IRS Form W-9: Used to provide your taxpayer identification number to the lender for reporting interest paid on the mortgage.
  • Homeowners Insurance Verification: Proof that you have secured homeowners insurance for the property, typically required by the lender.

Get One-on-One Guidance

Contact us below or call (978) 228-1068 to speak with us about selling your home fast.

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Elie Deglaoui - Author

Author

Elie Deglaoui

Elie is our office admin who handles all our day-to-day tasks and makes sure we always stay on track. He brings his love of music and sports into the office everyday to always liven up the environment. His outgoing personality makes it easy and fun for him to talk to homeowners, homebuyers, and everyone in between.

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