How Cash Homebuyers Determine Market Value In Texas

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How Cash Homebuyers Determine Market Value In Texas

If you’re thinking about selling your home, you have 2 practical options: list your house with a realtor and wait or sell quickly to a local Texas cash homebuyer. Either way, how can you be sure that the market value calculated for your home is correct and fair? In this article we explain the factors that cash homebuyers use to price Texas homes, how they calculate their offers, and we provide real examples for how much all-cash buyers can pay for houses in Texas.

What’s in it for you

  1. What it means to sell a house in Texas for all cash
  2. The factors cash buyers consider when calculating home value
  3. How to estimate what an all-cash buyer might pay for your Texas home

What Is A Cash Homebuyer In Texas?

Cash buyers are home buyers who can finance the purchase of a house without a mortgage or having to sell another home. To be an all-cash buyer, the person must have enough available cash-on-hand to buy the property at their offer price, at the time they make the offer. Cash only offers are often more attractive to sellers, as there’s no buyer financing fall-through risk and they typically have an expedited closing.

How Do Texas Cash Home Buying Companies Calculate Market Value?

Simply put, market value is what a fully informed, willing buyer would pay for a home. Nonetheless, when it comes to how homebuyers who pay all-cash figure out home value, there are no industry standards or set guidelines. If you contact 10 companies, however, chances are that the market value calculated by each cash home buyer will be similar (within 5% of others). How can this be? Most real estate professionals agree that there are just a few factors to consider when valuing a home. In order of effect on market value, these include: the pricing comparisons in your neighborhood, the current state of the real estate market, the location of your house, and its size, age, and features.

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How comps determine a cash buyers home valuation

To determine a home’s value using comparable sales (i.e., comps), cash buyers select 3 to 7 comps and group them together. This compilation then results in a report that estimates a home’s market value based on the sale price and details of the comparable homes. Keep in mind that what is valuable to one buyer isn’t necessarily valuable to another meaning that the value of certain features often boil down to individual preference. For example, if a swimming pool is factored into a seller’s price but the buyer plans to fill it in (which is what cash buyers often do), it doesn’t make sense to pay extra for it. Alternatively, if a buyer loves new hardwood flooring, it may be worth paying slightly more for a house with new, high end, hardwood floors. Also worth remembering is that where multiple quality comps are available, all-cash buyers who purchase homes in Texas might select different comps, which inherently affects a home’s market value calculation.

When Good Vibes Homebuyers calculates market value for a Texas house, we select comps the same way that we would if were purchasing it via, for example, owner finance. In short, no matter how we acquire an investment we look for homes that were sold within the past 1-6 months that have similar features (e.g., beds, baths, stories, square footage, etc.), are within the same neighborhood, and that are situated similarly (e.g., corner lot, quiet street, on golf course, etc.).

The impact of the current state of the real estate market on home values

The housing market is anything but stagnant – it’s constantly changing, and these fluctuations can have a dramatic impact on the value of your home. At the time of this article, for instance, rising interest rates have reduced the purchasing power of traditional home buyers by 30% and inflation has hit 40-year highs, resulting in the average American spending $6,120 more each year on everyday items. Consequently, home supply and demand has inverted from its historic rise in 2021 and fallen back to, and in many markets below, pre-pandemic levels. As a result, more homes are available for sale than there are buyers and when more of ‘something’ exists, that ‘something’ becomes less valuable.

How location affects what a cash buyer can pay for a house

You can change how a home’s exterior looks. You can remodel its interior. You can even add square footage. But you cannot change where a home is located, and it affects how much a Texas cash buyer can pay for houses. Real estate historically appreciates in value about 3% every year. However, a home that’s located in an improving area, in general, will experience a much faster rise in value. Conversely, homes in declining areas will often experience declining property values. How can you ensure that the location of your Texas home is in area where cash buyers will pay a premium? Look for these key location factors to positively effect property value: (a) close proximity to city center and everyday consumer conveniences, (b) far from railroad tracks, airports, heavily trafficked roads, and electric distribution lines, (c) nearby parks and recreation opportunities that are walkable, (d) availability of and close proximity to public transit, (e) the quality of nearby public schools, and (f) waterfront, water, and/or greenspace views.

How a home’s size, age, and features impact market value

When all cash buyers in Texas estimate a home’s market value, size is an important consideration. But being bigger in Texas is not always better (despite the idiom). Instead, a home’s usable space is what matters when figuring out its value. Garages, attics, and unfinished basements are generally not considered usable areas. This means that if you have a 2,500 sq. ft. home and a 700 sq. ft. garage, that’s just 1,800-sq. ft. of livable space, and livable space is what’s most important to Texas cash buyer home assessments.

Valuations for newer homes are generally higher due to their critical components (i.e., plumbing, HVAC, roof) having much more life left in them. This can generate massive savings and in turn often produces a higher home value by cash buyers in central Texas. For instance, if a roof was recently replaced and it has a 20-year warranty, that’s money an all-cash buyer will save over the next 2 decades, compared to an older home that needs a new roof replaced this year.

When it comes to home features, updates and upgrades can add value, however, not all home improvements are created equal. For example, installing high-end hard wood flooring in a home that’s located within an average neighborhood will do little to improve its value but installing them within a high-end, expensive neighborhood will often have the opposite, but positive, effect. This is because a home’s market value in Texas is determined predominantly by its comps, and if the comps in an average neighborhood primarily have tile flooring, their sale price will not be reflective of high end, expensive hardwood floors. As such, it would be challenging for sellers to substantiate a buyer paying a premium when the comps do not support a premium home value.

How Do Cash Buyers In Texas Calculate Home Offers?

Cash homebuyers who figure out the market value of houses in Texas are making offers with 1 thing in mind: making a profit. Not all cash buyers, however, are created equal and the price offered depends often on which of the following 3 categories they fall into: wholesalers, flippers, or landlords:

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To understand how a cash only homebuyer in Texas might establish an offer price for your home, let’s look at a few examples.

How wholesalers create cash offers for homes

First things first, Good Vibes Homebuyers are not wholesalers and never will be. We have multiple articles on how to snuff out a wholesaler masquerading as a legitimate Texas cash homebuyer. Disclaimer aside, based on all those factors we’ve been discussing, a wholesaler who claims they buy homes all-cash estimates that your home’s market value, all fixed up, is $280,000. To fix it up and modernize it in a way that’s similar to recent comparable sales, the wholesaler estimates that it will cost $50,000. Using the offer strategy above, a wholesaler would be able to pay for your house a maximum of $136,000 ($280,000 x 70% - $50,000 – [variable fee] $10,000).

How house flippers determine what they can pay

When flippers calculate what they can pay all cash for a home in Texas, their process is no different than a wholesalers’ except for 1 key factor: there’s no ridiculous wholesale fee. Using the example above where the after repair value of the home is $280,000 and repair costs are $50,000, a flipper would be able to pay for your house a maximum of $146,000 ($280,000 x 70% - $50,000).

How landlords calculate all-cash offers on homes in Texas

If a buy and hold as a rental house cash buyer was calculating an all-cash offer for the same home, they would first determine its estimated monthly rental rate. Through their property management company, they determine that the rent rate is $2,000 a month. But because they’re landlord cash buyers and will be renting instead of quickly selling the home, estimated repair costs to make the house rent ready are just $30,000. Using the offer strategy above, a Texas landlord calculating an all-cash offer would be able to pay a maximum of $170,000 ($2,000 x 100 - $30,000).

FAQs – What Cash Buyers In Texas Use To Determine Home Value 

1. Why is my cash offer different from the value of my home estimated by sites like Zillow?

Sellers often revere and consider the valuation given for their home by online platforms fact. They are however, rarely, if ever, correct. These tools, like Zillow’s Zestimate, take averages from home sales in your area (instead of just your neighborhood) over the previous 6 months. They don’t assess the condition and features of your home meaning that these online platforms assume it’s in top-notch, listing and showing ready condition.