You’ve seen the hand-written signs at intersections. Your mailbox has been filled full of postcards and letters. Your phone has buzzed to life at odd hours and even though the handwriting and phone number may change, the pitch is still the same: “We buy houses! Sell for cash today!”
Since we began in real estate more than 5 years ago, we’ve seen sell your home for cash horror stories play out in real life. To be clear, Good Vibes Homebuyers was not the reason for such real-life horror, we were instead each seller’s solution. Even so, this got us thinking: is it a bad idea to sell your house for cash? According to the National Association of Realtors, roughly 30% of all home closings in 2023 were cash transactions. This strongly suggests that selling a house all-cash was not a bad idea for nearly one-third of Americans, however, answering the above question largely depends on your individual situation and to help you decide we explain the most noteworthy disadvantages of selling your home to a cash buyer.
What’s in it for you
If you’re lucky enough to find a reputable home investment company, selling for all-cash could present you with massive upside. Contact the wrong company though, and any potential upside can quickly turn into a time-sucking, costly problem. To help you avoid the this, here’s a breakdown of the top 3 reasons why you should not sell a home all cash:
For most homeowners, the top reason why it’s a bad idea to sell a house for cash is that cash offers, including offers from our investors, will be for less than any other way of selling. When you sell for cash, a discount is not just common but necessary as cash buyers must account for the money they’ll spend on repairs, holding costs, and sale fees.
“Fixed costs average 20% of a homes after repair value (ARV) and that doesn’t even include the cost of repairs, which is different for every home,” says Matt Treece, owner of GMT Investments, a house flipping company in Killeen, TX.
Selling all cash for a discount seems like a bad idea to just about everyone, however, before you jump off this webpage you should consider another logical question: how much do you lose when you sale a house for cash? “Most cash companies expect at least a 15% profit to make the investment worth it,” says Michael Vowell, acquisitions manager of Houston Capital Home Buyers. In short, fixed overhead costs and a cash buyer’s profit, when combined, means that the best cash price for a house is 65% of its ARV.
→ With just a 10% margin, it’s not a bad idea to get a cash offer from our homebuyers!
Nearly as good as our small profit margin is our investors are creative financing experts who have developed multiple ways to sell a home that pay up to 150% of its after repair value.
Submitting a short online form, making a quick call, or shooting a simple text is all it takes for you to see if it’s a good or bad idea to sell a home all cash. Within a matter of minutes, investing companies like Good Vibes Homebuyers will make you a no obligation offer in cash to buy your home. The offer can be accepted or declined but no matter your choice, the cash price has little room to be negotiated. Why? The buyer, especially institutional cash investors, make investments based on the presumption of realizing a return and paying too high a cash price would be too great of a risk to realizing that return. Their cash offer price is therefore, within 2% to 3%, unable to be negotiated.
Little space to negotiate can be considered a negative part of the cash house selling process as it can feel like you’re leaving money on the table, or worse, that you’re being taken advantage of. If you work with a reputable cash buyer, the investor should be willing to show you how much profit they project and open to walking you through how they arrived at that figure. Conversely, no negotiating can also be a positive for sellers who fear the negotiation process, for those who lack negotiating experience, or in comparison to the headaches and hassles of a traditional sale.
Wire fraud, fake closing fees, home equity stripping, stop foreclosure rip offs, wholesaling houses. This is just a partial list of scams that pervade the cash buyer industry and is a major cause for the ubiquitous sentiment of it being a bad idea to sell a home for cash.
Although not fool proof, there are ways to protect yourself against cash buyer scam artist. Begin by familiarizing yourself with the warning signs of potentially fraudulent activity, which include not having an online presence, few or no customer reviews, and an unwillingness to share information about their projected profit. Moreover, exercise extreme caution when dealing with buyers who try to pressure you into a hasty sale, or who ask you to sign an agreement before you’ve had ample time to review and fully comprehend its terms.
As 1 of Texas’ top rated cash buyers, we’ve had the opportunity to buy thousands of houses over the years. With those opportunities, we’ve had the pleasure of working with and answering the questions of hundreds of homeowners. From those questions, 2 have remained consistent: what are the pros and cons of accepting a cash offer on my home? And why is it a good idea when I’ve always heard that selling my home to a cash buyer is a bad idea?
In this section we highlight some of our more oft received questions and offer answers on the cons of an all-cash home sale.
When compared to a traditional listing, selling all-cash offers a variety of benefits. For example, you can sell a house that needs thousands in repairs, you can sell on your schedule, there’s little risk of the deal not closing, and sellers save thousands in closing costs and realtor commissions. For virtually all sellers, the worst part of a cash deal is the cash value of your home, but if selling for the most money isn’t as important as the convenience, speed, and certainty of a cash transaction, then selling a home fast to a cash buyer is not just a good idea, it’s the best idea.
Within every market there are hundreds of traditional buyers but there are only a few cash buyers, so another disadvantage of selling a house for all-cash is it will likely limit your options as you will not receive as many offers as you would with a traditional sale.
We already talked about holding and rehab costs, but we’ve not talked about opportunity cost and how it pushes a home’s cash price down. Opportunity cost is the cost of investing cash into 1 home instead of another potentially more lucrative home. To help clarify, consider that even billionaire cash home buyers have a finite amount of capital so where it’s invested ultimately limits their ability to do another deal and that foregone investment could be financially superior. Therefore, an investor’s cash price must be lowered to account for the temporary loss in financial ability to do more cash deals.
The formula for how investors calculate the cash value of a home is actually quite simple, it’s: (After Repair Value) x 70% – (Repair Costs). This seems like a bad deal to many sellers, and depending on your unique situation, it really may be. Of note, however, is that many sellers believe an investor’s cash price is just a low-ball offer rooted in greed / an attempt to enlarge the investors profit. The thing is the formula for calculating a home’s cash price for most investors results in just a 15% profit. So, when hundreds of thousands of dollars are at stake is an investor’s cash price really an unfair deal?
Sometimes we can boost our cash offer, but it's unlikely we'll be able to up it more than 2% to 3%. If our cash price seems like a bad idea to you, we have 3 alternative home sale methods that can significantly increase your sale price without you having to give up any advantages of an all-cash deal.
→ See how much profit you can make with 1 of our alternative home sale methods!
If getting the most money is your top priority, you shouldn’t sell your house for cash. But if you’re running out of time, need quick cash to ease financial stress, or if you just want to make a quick sale, accepting an all-cash offer for your home is the way to go. It simplifies the selling process, saves time, and will bring in the easiest profit you’ve ever made. Get the best cash offer from Texas’ best cash home investment company today!
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