Here’s the rub: if you need to make even one repair to your house before selling, you might want to skip the the part where you hire a real estate agent. Depending on your specific situation, hiring an agent might prove to be more expensive than it’s worth.
This is no knock on agents. Not in the slightest. If you’re selling your house on the market, their knowledge and experience will be invaluable to you. But in many cases hiring an agent doesn’t work from a cost perspective. Yet people do it anyway, because it’s the way you’re “supposed” to do it.
If your house needs repairs, an alternative path might mean more money in your bank account.
The equation for selling your house
When selling a house, homeowners tend to focus on the sale price. What can they do to boost that number? In many cases that is misguided. The sale price is just one number on the left side of the equation.
Sale price – remainder of mortgage – repairs – commission – other fees = money in your bank account
Consider all of the costs you incur when fixing your house up for a sale:
- Fundamental repairs, such as foundation, roofing, and plumbing
- Cosmetic repairs and changes, such as patching cracks and repainting the interior
- Trinkets and other decorative items for staging
- Advertising that attracts the right kinds of buyers
Granted, a real estate agent will cover some of these costs. But not all of them. Every time you make a repair or incur a fee, you reduce the number on the right side of the equation.
When you set up your house to sell on the real estate market, you engage in a balancing act. The more you pay to improve the house — improvements you’ll never enjoy — the more you change the equation.
With necessary repairs, you might never see that money again. You need to make those repairs so the house passes inspection and the buyer can secure financing. It’s not as though you’re paying $5,000 for foundation repair so you can improve your asking price by $10,000. You’re paying $5,000 for foundation repair so you can sell the house in the first place.
Yet you still have to take that into consideration when deciding how to sell your house. If there were a way to get a comparable number on the right side of the equation without spending so much on the left side, isn’t that something you would consider?
Selling a house as is
In most markets, but especially in a sellers’ market, investors will offer to buy your house. Most of these investors will offer you cash without requiring you to make any repairs. As you can clearly understand, this simplifies the equation.
Sale price – remainder of mortgage = money in your bank account
This isn’t to say that the number on the right side of the equation is necessarily larger when you sell to an investor. But it does take some of the guesswork out of selling your house. You won’t need to make any kind of repair. You won’t need to spruce up the house so strangers will find it attractive. You just move your stuff out and deposit a check in your bank account.
In many cases, especially in those where the house has fundamental damage, selling as-is makes plenty of sense. Again, when you sell on the market, you’re not making the repairs to raise your asking price. You’re making the repairs so you can have an asking price. In many cases the repairs won’t make sense.
Let’s say your house has a crack in the foundation. It needs some reinforcements on the roof, and the septic needs a little work. We can peg these repairs at around $10,000, though the exact amount they cost will always vary from case-to-case. Now let’s say you call HoustonHouseBuyers.com and we offer you $50,000 cash for your house. And let’s say you can get $85,000 for it on the market.
In our case, you’d have $50,000, less your remaining mortgage, in the bank. But wouldn’t you be leaving $35,000 on the table? No, not really. Right from the start you’re down to $25,000, because of the $10,000 worth of repairs you’re performing. Then you have to fix up the house. Maybe that costs $2,000 out of pocket. What about the agent’s commission? Let’s set that at a conservative 5%, so $4,250.
Now you’re looking at $50,000, minus remaining mortgage, vs. roughly $70,000. No one’s going to sneeze at $20,000. Only, there’s one more snag: can you actually get that $85,000?
What if it takes you four months to find a buyer at that price? That’s four months of interest you’re paying on your mortgage. That’s four months that you don’t have the money in your bank account. Perhaps worst of all, that’s four months where you can’t put a down payment on a new house. How much is that worth to you?
What happens if you have to settle for $75,000 after six months?
These are all questions to strongly consider. Most people would still take the $75,000 after six months, and it’s hard to blame them. But even at $50,000, taking the cash up front might be the smarter move. It all depends on your situation. I think that this example makes it clear that the decision is anything but cut and dry.
And let me tell you, in many instances the math isn’t even as close as this example. I’ve seen situations where taking the offer from the investor amounts to more than repairing and selling with an agent. It’s not common by any means, but it certainly does happen.
Not only can you sell a house as-is, but in many instance it might behoove you to do that. The more problems with the house, the more likely it is that you will put more money in your bank account by selling it without making repairs. It might seem strange, since it is out of the ordinary. But what matters more: ordinary, or money in the bank?