If You Need to Sell Quickly, a Cash Buyer Needs to Make Money, Too

Jason Hull of We Buy Johnson County, Texas Homes at the Johnson County line

Realtors truly do their clients a disservice when they price the properties incorrectly. Pricing the house far too high wastes everyone’s time, and it’s a cost for the homeowner in that they have to stay in the house (and pay all the associated costs) as well as the Realtor who has to spend money on marketing when they’re really tilting at windmills.

When I’m looking for properties, this theme pops up over and over again.

A property will be priced at fair market value.

The description says “INVESTOR SPECIAL” and lists all of the things that need to be upgraded with the property to get it back to a livable condition.

Then, it says “seller is selling AS IS and will make no repairs.”

Here is a good example.

Let’s look at Zillow listing 28640714 in Cleburne.

The Zestimate on the property is $139,259, which might be pretty optimistic given that 2 neighbors of similar size on that road in the same block sold, within the past 3 years, for $115,000 and $125,000.

But, let’s assume, for a moment, that the listing of $139,000 represents fair value for a move-in ready property.

The listing also goes on to mention:

Seller has started some remodeling but is unable to complete.

and

Needs some TLC and master bath needs completed.

Without even looking at the property (and the Realtor, conveniently, forgot to include any pictures of the remodeling in process), I’m thinking that there’s at least $20,000 of work still to be done on the house.

So, if I buy that property and then do the rehab, I’m all in for $159,000, give or take, on a property that will sell for, on a good day, $139,259.

Therefore, it’s utterly unsurprising to me that this listing expired and remains unsold.

Some Realtors are slightly smarter than the previous example.

As an example, some will take the fully renovated price, subtract the cost of repairs, and then list the property at that price.

Let’s look at Zillow ID 29113982 in Fort Worth (yes, I know it’s not Cleburne or Burleson, but it’s a good example).

This house is listed at $115,000.

Let’s be generous and ignore the $112,294 Zestimate for a bit.

The house isn’t in terrible shape. It probably needs $5,000 to $10,000 in repairs.

Let’s say that we can negotiate better than the Old Man in A Christmas Story and can get the work done for $5,000.

A buyer would be all in for $120,000.

A home one block over sold for $120,000 with an existing tenant, meaning it was in habitable condition, which this property is not.

So, in for $120,000, and can sell for $120,000, meaning $0 profit for the buyer. Maybe it will sell. Maybe it won’t, but if it does, it’s likely to go to a conventional buyer who will need at least 60 days to close, and the lender might require the repairs to be done before it sells. I can put $120,000 in the stock market and make a risk-adjusted 7% per year, so I’m going to need to do better in buying a house and accepting the risks involved with owning investment properties.

So, if you need to sell your house quickly to a cash buyer like we are, you need to price it so that there is sufficient profit for the buyer to be able to make a profit.

Yes, there’s opportunity that you’re missing out on. You’re going to have to trade time and risk to the buyer to get out of your house in 7 days. Otherwise, you will be in a position where a buyer has no incentive to purchase your property because there is nothing in it for the buyer.

Yes, sometimes buyers are going to throw out true, utterly discreditable offers, and you should rightly reject them.

However, if we make an offer, we’re making it trying to get to a number that is feasible for you, the seller, while also making it worthwhile for us to invest our money and time into the house so that we can make an appropriate risk-adjusted profit.

If you want to sell your house quickly to a cash buyer, you have to understand the buyer’s motivations for buying from you when you set your asking price.

If you need to sell your Johnson County, Texas house quickly, we are cash buyers. Contact us today to see if we can help you.

    You can also call us at (972) 808-6913.

    Published by Jason Hull

    Jason Hull is a graduate of the United States Military Academy and a graduate of the University of Virginia Darden Graduate School of Business. He was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He also blogs at Hull Financial Planning.