In the last few weeks I have noticed a giant increase in the amount of calls, letters, and “We will buy your house, fast and for Cash” signs. Assuming that I am not the only one who has noticed these, I thought it might be helpful to my fellow neighbors to explain who these people are, what they are trying to do, and why they are targeting Texas Beach and Maymont.
My goal for this is to help our neighbors with information so they can make informed decisions with as much knowledge as they can.
Most of the people who are calling you are what we call Whole-Salers. These are people or companies that operate outside of what most people understand is the normal Realtor and Zillow based buying and selling marketplaces. Some of these groups buy properties, renovate them, and then sell or rent afterwards. Others get a property under contract and then sell the buying rights to a third party for a fee, usually around $10,000 more than they originally got the house under contract for. Think of that as a finders fee. Then others will canvas an area, looking for people who might be willing to sell and then sell the contact info to third parties that do the first two avenues. For ease of use I will lump in flippers, people who buy and hold for rentals, and wholesalers into the same buying group.
The vast majority of the properties that these whole-sales buy never see the light of day for public purchase until they have been completely renovated, torn down, or available for rent. As you can see, this can become problematic for both the seller and any potential buyers that are looking in our neighborhood. As on average we are seeing 3 or 6 offers to buy per home. The majority of these buyers claim that they will close fast on the house, pay cash, and won’t ask for any repairs to be done before they buy it. Sounds great right?
Well unfortunately, I think people tend to view these transactions in the rose colored glasses rather than logically for what they are.
When you look at a typical transaction from a whole-saler or flipper this is typically what happens:
Whole-saler canvases a neighborhood with signs, flyers, mailers, and sometimes door knockers asking if you want to sell.
If they find someone who is willing to sell, it is usually someone who doesn’t know the true value of their house, They will typically offer 40-60% of what they house is actually worth on the open market. Then they will purchase the house, usually completely tear out everything in the whole house and put in a new kitchen, new bathrooms, paint, and probably redo the flooring. Once that is finished, the new owner will either rent the property out at the top of the rental market, or try to sell the house for as much as the market will bear. Usually making a profit of 40,000 to 70,000 depending on the size of the house. They target neighborhoods that usually have an older population, or have a large amount of first time home buyers looking in the area. Think of areas with a higher than average demand for a lower than average entry fee.
At the end of the day, I think it is pretty obvious that I fundamentally disagree with the wholesale process. The whole draw to selling to a person like this is a quick sale that doesn’t cost the seller and they won’t have to do any work to the house before they sell. The owner of the house doesn’t have to clean, move out old furniture, or leave the house for annoying showings. All this for a discount of 40-60%? That doesn’t sound like a deal to me.
At the end of the day, selling isn’t the easiest thing in the world, but it isn’t brain surgery. You have to clean up the house, be ready to vacate the house a few times during the week and for a weekend or two. At the end of the day, you might need to spend a few thousand dollars to repair things that need to be fixed, or if you do not have the cash to fix an issue, reduce the price to cover the repairs. Attorneys fees and a few thousand for Realtor Fees if you choose to be properly represented will make up the final costs of selling a house, but you do not have to pay those until you have the money from closing. When you look at it you still end up making a lot more money when you go this option, and I think we all have a price on our time and this does not come close to not being worth it.
When you look at the larger economic picture of the neighborhood it also adds an element that I do not think a lot of people take into account.
A house that is in need of some work, be it a new kitchen or new baths it might be allows for someone to buy in a neighborhood at a lower price and slowly over time build in equity. When you take the time to paint, or put in new tile, there is something that ties you to the house and the neighborhood. When you put your fingerprint on a house it really helps turn it into yours. I don’t have the stats on this, but I could imagine that people who slowly renovate homes over time tend to stay in the neighborhoods longer, and if you stay longer, you probably become more invested in that neighborhood. When someone comes into a neighborhood with completely finished and redone houses, the sense of ownership is just not as great and I think those people tend to be a little more transient than the former buyer.
Additionally you see a slower rise in the appraisals of the homes. When a new home goes for sale for $200,000 over the average sales price in the neighborhood, wether people want to accept it or not, all of our assessments tend to go up. The slower and more consistent rise in prices seems to be more palatable for people. You can see this to a greater extent when you look at neighborhoods like Northside and Church Hill. Assessments and taxes have gone up 3 fold in a very short time. If we remove the wholesalers, I think it would slow this process down to a more natural and sustainable level. A natural 6-10% equity gain per year on a home is what we are seeing in desirable areas that are not being over run with quick flips and renovations.
My goal is simply to have people think about why these people are offering to buy your house. When they will offer you cash, a normal real estate transaction will provide you with the same thing. Some offers may have financing contingencies, but who of us has hundreds of thousands of dollars in cash? Normal people want to get loans, and at the end of the transaction you as the seller still get the same check as if you sold it to a person for “Cash”. Lending has changed dramatically within the last 10 years and the amount of loans that do not go to closing are few and far between.
The other offer of no inspections or closing quick, can also happen with the normal avenues of selling your house. We are getting multiple offers in most neighborhoods if the house is priced correctly, and many people will waive inspections or buy the house as-is where-is to make their offer the most competitive it can be. Quick closings as well can happen within 30 days of a contract getting ratified and some lenders can get it done even quicker.
Moral of the story is this: If you are approached by a Whole-Saler, they are not the only way out of a house. You have many avenues to sell, be it with a Real Estate Agent, sell it yourself, or with an attorney’s help. All of which can net you more money than with a Whole-Saler and usually are just as easy, or worth the extra elbow grease. Talk to someone who has sold in the normal, public avenues before signing a whole-sale deal. My team and I are happy to sit down and discuss options that you could take before you sign anything at all. We just hope that people make these decisions about their homes with all of the information and understanding of how the process works on all sides.