How is the cash offer determined? This is one of the more common questions we receive.
Every situation and home we encounter is different from the next, so we cannot cover all of the intricate details that come into play in just one blog post but we can certainly explain our basic practice.
Our offers are based mainly on the market value for the home. We determine this value using the comparable sales in the same area. We assess houses of comparable size, condition and age. However, unlike a realtor, we always take into account the additional fees that are associated with a typical MLS sale, and subtract that from the ‘value’. These include not only the 6% commission a seller will pay — 3% going to the listing agent and another 3% to the cooperating buyer’s agent — but a typical sale will also require a seller to pay 1-2% in closing costs and 1-2% in concessions to the buyer, whether those concessions go to loan costs or inspection items or repairs. Taking these costs out brings us to the bottom line, the ‘net to seller’ amount.
With these value determinations, we take a close look at the condition of the property and account for any repairs needed. That’s right, we account for these BEFORE and we don’t ask the seller to lift a finger. As opposed to a typical financing buyer that will have the liberty to make an offer and then take 10 days to pick each and every item they’d like a seller to repair. Being investors, we look at repairs differently, many of the homes we acquire will get a complete overhaul after being purchased, so we are not concerned with a leaky faucet or creaky floor.
After we’ve assessed comparable sales and repairs needed, we put each property through our investment underwriting. After all, we are investors and buying properties is our livelihood. We look at resale values in the area and align the home purchase with our investment potential, either renting or flipping.
Lastly, we take into account any extenuating circumstances that we may need to accommodate for the sellers. If a seller needs to stay in the home a few weeks after closing or needs to close in a week, we will account for our costs in the offer. In a traditional sale process, it would be difficult to find a buyer willing to completely accommodate a seller’s timeline. Our process includes a lengthy discussion of the seller’s needs, and ensures our offer addresses those terms.
In summary, our cash offers are determined using market comparison, taking in consideration condition and repairs, running the property through our investment criteria and addressing seller’s terms. That’s it, it is really just that simple. We’ll visit the property, discuss the seller’s needs and deliver our cash offer — we’ll even show you the comps used to make the valuation.
Ready to hear your fair market value cash offer? Contact us today!