If your home is facing foreclosure, you’ve probably received calls, texts, and mailers with messages like, “Do you need to sell your home?”, “get cash for your house quickly”, or the ever common “we buy ugly houses”. These are all marketers trying to end foreclosure by extending cash offers.
In this article, we’ll discuss how to navigate the quickest way to get cash and end foreclosure. We’ll also teach you how to avoid people trying to take advantage of your situation.
What is a Cash Offer?
Cash offers are the quickest exit strategies for people facing many types of financial distress. These offers provide a lump sum on an accelerated timeline. Bad actors and inexperienced investors, have given cash offers a bad name. However, they are viable transactions that have the power to end foreclosure fast!
To set the scene: it’s dinner time at home with the family and the phone rings. On the other end of the line is a telemarketer asking to buy the house for cash. Enraged, you hang up the phone and go back to dinner. While call sounds like a scam, it could be a game changer if you need quickly to end foreclosure. Who is it making these calls, anyway? Wholesalers.
What’s a Wholesaler?
Wholesalers market to homeowners willing to sell their homes at a steep discount. Once under contract, the wholesaler finds an end buyer and assigns the rights to the contract for a fee. At closing, the seller gets cash (minus fees), the buyer gets a house, and the wholesaler collects the difference.
Rachel needs $30k to resolve a lien on her condo. The condo is worth $130k, but she can’t come up with the large amount. Anne finds the pre-foreclosure notice in public county records and contacts Rachel with an offer of $50k.
Rachel agrees and signs a purchase agreement with Anne, giving Anne the right to market and assign the contract. Anne markets and sells contract to, Skeeter, for $70k. At the closing, Skeeter pays $70k and buys the condo which he’ll renovate and rent out. Rachel collects her $50k cash, and Anne collects the $20,000 difference. We call this the “win-win-win”situation.
Cash Sale vs. Straight Sale
From the outside, a wholesale looks like a typical real estate transaction. The deal involves a buyer, a seller, a contract, and a closing. There are 4 big differences between a straight sale and a whole sale. The intention of the end buyer is usually an investor. The sale price in a cash deal is usually greatly discounted. The speed of the transaction in 30 days or less. There is usually no agent or broker involved. 99% of wholesale deals are purchased by investors looking to renovate and flip, or hold a property as a rental.
To account for the cost of renovations, holding, and transactional fees – investors need to buy the property at nearly 60-70% of the price they eventually want to sell at on the market, which is why wholesale offers are even less than that. Because the property is priced so low, it attracts a lot of buyers quickly which is why wholesale transactions happen close in 30 days or less.
The most notable difference between a wholesale and straight sale is the lack of an agent. Most wholesalers are not licensed agents. Wholesalers are not contracted by sellers to sell a house, and they’re not contracted by a buyer to find a home.
The Pros of a Cash Offer?
Wholesalers will try to sell perks like no real estate agent fees, no taxes, no closing costs. But the primary and ONLY benefit of a cash offer is the speed of transaction and the ability to resolve a foreclosure QUICKLY. Sever distress needs to be resolved on a quicker timeline than the 4-6 months of a traditional sale.
A major benefit of a cash offer, is that homes are usually sold sell as-is. In a traditional sale, sellers are responsible for fixing physical defects to the property. If you can’t afford to make renovations, the as-is terms of a wholesale deal will work to your favor.
The Cons of a Cash Offer?
The biggest downside to the cash offer is that you’re not going to get the price that you see on Zillow. As mentioned earlier, end buyers in a cash transaction are typically investors. Investors use specific formulas when analyzing properties and they all start with the same thing: a low purchase price.
As a seller, you can expect to receive about half of the asking price for your property, with the trade-off being speed. A helpful way to reframe the cash offer is to think of selling your Rolex at a pawn shop. While a Rolex is worth $20,000 at a retailer, the pawn shop will offer way less. Cash offers are a form of emergency cash relief, not a typical home sale.
Is a Cash Offer Right For Me?
Cash offers are great solutions for homeowners looking to sell their home fast, but not everybody is qualified. If you’re upside down on your mortgage, or the mortgage payoff balance exceeds the value of your house, a cash offer would be too low to serve you.
Remember Rachel’s house – if she needed $80k instead of $30k, that would exceed half of the value of the house, which is what Anne can offer half. If you want to sell your house and don’t need to do so quickly, the suggestion is list with a real estate agent to get closer to market value.
On the other hand, If you need to sell in 30 days or less, have at least 50% equity in your home, and want to sell as-is to avoid seller contingency – a cash offer is the best and fastest option. Typically the more equity there is, the more a homeowner benefits from the offer because less of the proceeds go towards mortgage or lien payoff.
How Do I Know Who to Work With?
It’s hard to vet the people who call you “out of the blue”. Many real estate wholesalers will jump straight into asking details about your property and try to make a sale before understanding your needs, all in pursuit of a fee. Don’t hesitate to ask questions and get all of the details you need.
If you’d like to discuss a cash offer and end foreclosure, head to Blue Tower FG or email us at [email protected]!
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