Simple. Sell your home to a real estate vulture and get screwed. You can always sell your home fast enough if you are willing to let it go really cheaply. But why would you when you have much better alternatives?
Sell Your Home Fast And Cheap To Flippers/ Real Estate Vultures
You’ve seen the signs for We Buy Ugly Houses. Their promise is that they will buy any house for cash and close quickly. Apparently they’ve purchased 85,000 houses since 1996. Honestly, I don’t have any personal experience with their offers but c’mon…how do you think they do that? They have to be lowballing their purchases.
While I don’t have any personal experience with these particular guys there are many similar operations out there that I have interacted with and they indeed offer the seller a pittance. And one of the ways they try to get away with it is by looking exclusively for homes that are not on the market. I get calls from these guys all the time, wondering if I have any pocket listings. I always tell them that I don’t believe in dealing pocket listings but I would be happy to show them my listings once they are on the market. They ALWAYS decline because they tell me they are looking for a deal – i.e. striking a deal outside the MLS works to the buyer’s advantage. So then why would I help THEM get a deal when I represent the seller? They often point out to me that I can get both sides of the commission. OK. So basically they are hoping to corrupt me with a conflict of interest to their benefit and to the detriment of my seller. And, sadly, this argument works on many, many listing agents.
We once had a bungalow that we were about to list as part of an estate sale. The executor of the estate had been deluged with calls from probably 10 different vultures. I don’t recall the exact offers he was getting but I remember them being under $300K. I told him to collect all the contact information for us and to not respond. Then we listed it just under $350K and, just for grins, contacted every vulture on the list. None of them even wanted to look at it. We ultimately sold it for $330K in 9 days to someone who was going to live in it.
However, the best, and most entertaining, example of how these buy-your-house-for-cash guys operate was when we had a 3-flat for sale for just under $700K at 2823 N Albany a couple of years ago. I was contacted by one of these vultures who had reached out to us on several of our listings in the past. After explicitly asking me if we would be interested in dual agency they told me in an email that they would pay $380K + closing costs for it, sight unseen. That wasn’t really a formal offer and their proof of funds was not credible so I told them outright that their offer was “stupid low” but I would submit it if they formalized it and that I would strongly recommend that our client ignore the offer. Needless to say this pissed them off. They called me unprofessional and tried to scare me into believing that this would be the best offer we would get. I emailed our seller to notify them of the exchange and recommended ignoring them. Our seller was amused.
BTW, a “sight unseen” offer is always to be viewed with skepticism because they are always contingent on an inspection. What are the odds that the buyer’s impression of the place isn’t going to change once they see it? Pretty slim. In fact, it’s a fairly common strategy to put a sight unseen offer out there and then renegotiate it once the inspection occurs. By then the property has been off the market for a week or more and if it goes back on the market the seller has a lot of explaining to do.
A month later this same buyer came back with a $529K + closing cost offer and again reminded me of the dual agency opportunity. I asked them if this was their best and final offer after pointing out that we were about to lower the price to just below $675K, which I expected to generate a lot more interest, so I would recommend declining a best and final at this level. I also explained that we would need credible proof of funds and a formal offer. They raised their offer to $532K, explaining that they never pay retail (so why would I want to sell wholesale?). They also called me rude and pompous, and accused me of not having the seller’s best interests in mind and only being concerned with my commission. Apparently they talk to 20 agents per week and nobody has ever told them that their offers were too low before?!?!? I pointed out that if all I cared about was my commission I would not offer discounted commissions and would jump all over their offer for a quick sale.
Two months later we sold the building for $635K, more than $100K higher than their best and final. I replied back to the last email from the real estate vulture with the following:
I just stumbled on this old email thread and thought I would share with you the final outcome of this sale. We ultimately sold this property for $635,000 – more than $100,000 higher than your last offer. Despite your suspicion below I think it’s clear that we in fact did have our client’s best interest in mind. Perhaps you would like us to help you get really good prices for some of your properties. Let me know if you would ever like us to help you sell anything.
The 70% Of ARV Rule
In corresponding with me that vulture mentioned that they follow the 70% of ARV Rule, which is a rule of thumb for how flippers can make money. The idea is that the key to successful flipping is buying smart and the simplistic formula for buying smart is to pay no more than 70% of the After Repair Value (ARV) – Rehab Costs.
Let me make a really simplistic assumption and then do a little algebra to show you what this means. Let’s assume that the ARV = Current Market Value (CMV) + Rehab Costs. That would mean that the rule comes down to:
Purchase Price = .7 (CMV + Rehab Costs) – Rehab Costs
Purchase Price = .7 CMV – .3 Rehab Costs
Purchase Price = CMV – .3 (CMV + Rehab Costs)
Purchase Price = CMV – .3 ARV
In other words the rule dictates that a flipper discount the current market value by 30% of your target sales price to cover holding costs, transaction costs, and provide a profit for your troubles. That’s a pretty hefty discount. On the other hand someone who is planning to live in the home probably won’t be looking for as much “profit” for their troubles. They are looking at it more as a home than an investment and that’s why they will pay a higher price. That’s your ideal buyer.
It looks like I’ve gone on long enough in this particular blog post so I’ll continue next week with a follow up on some recent disturbing home purchase trends in the real estate industry and a smart way to sell your home fast.
#HomeSelling #RealEstate #Flipping
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.