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How Much Do You Lose Selling a House As-Is?
The time has come when you need to sell your home-- perhaps you need the cash pronto, or you need to relocate for a job.
But then you realize it is not move-in ready: paint has faded, the wallpaper is peeling, water stains are present on the ceiling. You neither have the time nor the funds to spare for these repairs. And then, someone told you that you can skip all that by selling as-is.
So now you may be wondering: how will selling as-is affect me financially, and how much money can you lose selling a house as-is?
Well, there's no hard and fast answer for this, but one thing is for sure: it is not likely that you'll be getting more than the market value for your property in an as-is sale.
Let's dive into the pros and cons of selling your home as is, and what you can do about it.
Pros of Selling As-Is
Time saved is perhaps the biggest advantage of selling as is.
In a typical home sale, you need to spruce up your home to make it attractive to potential buyers. You may have to update the façade, change the windows, or do some basic landscaping. That takes time and energy, which you may not have.
Selling your home as is means putting it on the market and calling it a day as you wait for the offers to roll in.
In the end, you can sell quickly because the process won't be drawn out like in a conventional sale, where discussion of who pays for the repairs is part of the negotiation process.
Finding out what needs to be repaired or rehabilitated is a whole process in itself. After that, you need to look for contractors that can do the repairs for you. Plus, they need to submit bids for the project so you can get the one that nets you the best price for the scope of work.
But the work doesn't stop there, you need to be present onsite from time to time so you can be sure that all the necessary repair work is carried out accordingly.
Afterwards, there's the cleaning and staging to deal with, before you're able to present your home to potential buyers, which then requires you to leave your home during open houses and showings.
Organizing all of this can be stressful but is avoided when selling a house as is.
No Risk or Costs for Renovations and Repairs
In addition to saving time and sparing you the headaches of dealing with renovations, you don't have to spend a dime. Potential buyers looking into your property already know what they're getting into.
This means you don't have to take on the risk of a small repair uncovering larger more expensive issues before putting the house for sale. Further, you don't have worry about spending money on repairs that you don't recoup the costs on during the home sale.
Cons of Selling As Is
Receive Fewer Offers
Most first time homeowners are looking for move in ready properties. If you sell your home as is, there's the underlying expectation that making repairs is definitely on the horizon, so these types of buyers are immediately removed from your buyer pool.
Additionally, mortgage lenders are wary of approving a loan if a property needs major repairs. Therefore, financed buyers are also out of the picture unless they can get a government-backed mortgage called an FHA 203(k) loan.
Your best bet now is selling to a cash buyer such as real estate investors, house flippers, and cash offer companies.
Sell Below Market Value
When you sell as is, the buyer accepts everything essentially warranty free. Thus, they need to buy your house at a lower price to factor in the risk and repair value to bring the house up to market standard.
Factors that Affect the Offer Price on As-Is Home Sales
Trying to find out exactly how much money you miss out on when selling as is can be complicated. So let's break down the factors that influence buyers in making the final offer for your property.
Type of Buyer
Home buyers have different goals for the property that they are looking to purchase.
Prospective buyers who would like to live in the property might be turned off by the amount of work that they're faced with if they buy as is. They would want a property where all they have to do is unpack their boxes, plug in their appliances, and go on to live their lives in their new home. While this is also possible in an as is home sale, this is going to be tied to the current condition of your property.
Real estate investors and house flippers aren't going to shy away from a fixer-upper. In fact, most of them are on the lookout for as-is homes that they could purchase for less than the market value and then renovate before turning it into a rental property or selling for a profit.
These types of buyers typically pay cash and can close on a deal in just a few weeks compared to traditional buyers which may take anywhere from 45 to 60 days. On top of that, cash buyers usually handle all the closing costs.
To illustrate this, say you have a property that would have an after repair value (ARV) of $250,000. A cash buyer estimates the repair costs to be $25,000, and they would also pay for the closing costs which amount to roughly $7,500 (up to 3% of the ARV). Further, you don't have to pay 6 percent commission to real estate agents.
Although you aren't going to receive a $250k selling price when selling as is to a cash home buyer, you also won't have to spend any time or money on repairs and fees.
Factoring in both hard and soft costs such as time and effort can make selling as-is a net positive. Think of the hassles you can avoid such as preparing your house for the market and paying other associated costs like your mortgage, realtor fees, and legal fees at closing.
Condition of the Property
Depending on your home's condition, there is a gap between how much you can get in an as is home sale versus fixing it up first. The better the condition, the narrower the gap.
Homes in dire need of major repairs would get much lower offers because it would take longer to fix them and would require more money to bring it up to standard.
For a real estate investor, their focus is in turning a profit and the velocity of that return, so they would calculate the necessary amount to fix it up and the time it would take to determine whether it would be worthwhile.
If your property requires very few repairs and you have the time and money available, you're probably better off making those repairs and waiting for a buyer if top dollar is your primary goal for your home sale.
However, if you'd rather make money today instead of putting money into your home before selling as is, a cash buyer could make more sense. They will save you the hassle of fixing the house up and pay for all other costs associated with the sale. Plus an as-is buyer will save you the time it takes to repair, list, and wait for a buyer.
Location of the Property
In spite of it all, the coronavirus pandemic brought about historic jumps in home prices. Homeowners in some markets saw the value of their properties increase by an astronomical 52% over the past year alone. The lockdowns forced people to stay home, and they realized they need more space, increasing demand on new homes.
If your property is located in an area that is a hot seller's market, it won't matter much whether you sell as is or do the repairs first. Home buyers would be in a hurry to snap up any property before the price becomes out of reach for them.
For example, take a property with an ARV of $250,000 that is located in Overland Park, KS. With its good public schools and high employment rate, it is perfect for raising a family, and currently it is #6 on the list of the best places to live in the United States. From an investor's perspective this is worth more because there is less risk and more demand for this property.
Prevailing local market conditions can have a significant impact on the price.
As home sellers, you can get the best price if there are more buyers than sellers, otherwise known as a seller's market. It would matter less to sell right away without making any cosmetic repairs since buyers have fewer options.
When Selling a House As Is, Disclosure is Paramount
Being upfront and straightforward from the start about the property's condition is helpful to the home seller as it filters out unserious buyers.
Nondisclosure of issues opens yourself up to a potential legal entanglement down the line. Additionally, there's nothing stopping a buyer from performing their own inspection, resulting in loss of trust if they find out you have not been forthright with them.
However, if you don't live in the property you are selling, it can be difficult to know what issues there are.
That's why it is advisable to have a pre-listing inspection performed by a professional. It costs between $250-$700 and is well worth the cost as the inspector would check all the major systems such as the ventilation and septic systems.
The inspection would also alert you to the presence of mold, asbestos, termites, or lead paint--in which case you can choose to address the problem yourself or disclose to the buyer so they can take the appropriate measures if they push through with the purchase.
On the flip side, if everything is in good working order, then the inspection report would show that the house has a clean bill of health, and therefore, you can command top dollar even though it is an as is sale.
How Much Does It Cost to Sell a House As Is?
When determining your asking price, first you estimate the market price of the house. Afterwards, you can roughly calculate the cost of the repairs, especially if you did the pre-listing inspection.
To further help you, here are repair value ranges depending on the scope of work needed to be done and size of the house:
- Minor repairs such as repainting works and a bit of landscaping - $25,000-$45,000
- Moderate repairs such as kitchen and bathroom upgrading - $46,000-$75,000
- Major repairs such as foundation, roof, and septic system repair - above $75,000
If you decide to do the repair work yourself, there is no guarantee that you'll be able to recoup all these upfront investments even when you sell the house for a higher price.
As-is sellers skip these expenses since the house is listed directly on the open market with no work done.
Depending on the buyer, home sellers may need to pay the closing costs. This is on top of the commissions paid out to real estate agents (6% on average) and include the following:
- Transfer tax
- Escrow fees
- Homeowners' association fees
- Lawyer fees
- Property taxes
- Mortgage balance
You can expect to shell out around 1-3% of the sales price to settle all the above.
What Are Your Options When Selling a House As Is?
Real Estate Agent
If you choose to work with a real estate agent, they would advise you to perform minor repairs and improvements to help them stage the house and increase the listing price.
You can expect to spend less than $5,000 for a fresh coat of paint to increase your home's curb appeal. A home inspection would also be in order so neither you nor your agent are caught off-guard if the buyer opts for one.
So, in this example, let's say the listing price is $200,000, and the ARV is $275,000. Let's sum up the expenses and find out how much money you will receive after closing the deal with a licensed agent:
- Pre-listing inspection - $700
- Repainting cost - $5,000
- Real estate agent's commission - $12,000
- Closing costs - $6,000
- Other costs (staging, cleaning, basic yardwork) - $2,450
The total expenses add up to $26,150. Now, the buyer estimated the repair cost to be $75,000 and negotiated down the final sale price to compensate for the work required.
You then end up with $173,850 after selling with an agent.
Cash buyers such as buy-and-hold investors or house flippers are your safest bet when selling your home as is.
They do not shy away from even the most challenging projects, and often buy houses in distressed condition.
Although their cash offers are almost always below the market value of a house, there is a higher degree of certainty that the real estate transaction will close. Investors are not dependent on selling a previous property or lender financing. They are able to close quickly in cash, resulting in time saved.
When selling a home as is, you can save that $26,150. The only money left to subtract from the 200k is the investor's profit, which will vary. If we assume a 10% profit, you would receive $180,000 netting you slightly more than if sold with an agent.
So, in this case, you didn't lose selling as is to a cash buyer. Not only are you not losing money, you do not have to worry about an inspection, closing cost fees, seller fees, hiring an agent, listing photos, scheduling open houses, or making repairs.
Closing Thoughts: How Much Value Do You Lose Selling a House As-Is?
There is no exact way of quantifying the value lost when selling your home as is.
Ultimately, the decision comes down to whether you have:
- The funds to afford the repairs and closing fees
- The time and the energy to deal with the repairs and showings
Although generally you take home less money with an as-is sale, you really can't put a price on the convenience it affords you. When you factor in time saved and stress avoided, the difference isn't all that significant.
Here at Sell My House Fast, we'll help get you a fair cash offer for your property. You don't have to be self-conscious about it--we buy homes in absolutely any condition!
We connect you with a local buyer who specializes in the market conditions in your area, so you get a fair, market-based offer for your property.
You don't need to arrange an inspection, nor do you need to plan strategic repairs to sell your home. You don't have to do anything but fill in our form with your property address and your email!
If you're looking to get in touch with us, call us at (844) 207-0788 and we'd be glad to help you!