When you’ve got a fixer-upper you need to sell without the means to make hefty repairs, it can be a relief to sell your house to a flipper. But is it worth the trade-offs? —-
Even in a hot real estate market, “move-in” ready remains king among today’s homebuyers. According to a survey over 2,000 adults from real estate brokerage Coldwell Banker, 80% of Americans say they would prefer to buy a turkey home over one that requires renovations.
So when you need to unload a fixer-upper fast — without the money to make hefty repairs — it can be a relief to sell your house to a flipper. Because where a regular buyer sees a lemon, a house flipper sees a property brimming with potential.
House flippers usually purchase houses for cash as-is, saving homeowners the expense of making repairs that lenders might require, along with the stress of showing and staging the home. But when you receive an offer from a flipper, you may be disappointed by the price, which will reflect all the work the house needs to become safe, livable, and marketable.
Before you decide whether to sell your house to a flipper, weigh these five considerations to gauge whether your property and this type of transaction is right for you.
1. Is the property damaged or are you facing a personal emergency?
A traditional sale might be what you had in mind when you originally bought your home. But life happens, plans change, and emergencies arise.
One recent study found that 25% of Americans have no emergency savings and that one-third report lower income since the start of the pandemic. The loss of a job or demise in health of a family member can also lead to unexpected trouble paying your mortgage. It’s in this type of situation that homeowners may turn to flippers for simple and fast exit.
Here are a few examples which folks in the real estate business see as common reasons individuals or families decide to explore selling to a flipper:
The family home is falling apart
Kyle McCorkel, an investor who regularly buys, rehabs, and resells properties around Harrisburg, Pennsylvania, recently bought a 1,200-square-foot townhouse for $55,000 from two brothers who wanted to sell the home on behalf of their father, who has health issues and let it fall into disrepair.
He estimates that the home needs $36,000 worth of repairs, including new flooring, paint, and cleanup from water damage. “Cosmetically, it needs a complete overhaul. The dad physically can’t take care of the place. The sons don’t want to deal with it,” McCorkel shares.
Your property suffered severe damage
Jim Griffin, a top real estate agent in Johnson City, Tennessee, has helped connect cash investors with sellers looking to unload damaged property, such as a 1,600-square-foot home wrecked in a fire. The structure “had to be taken down to the studs,” Griffin says, not the ideal condition for a conventional sale.
You need to relocate fast
Other sellers may wind up in a financial crunch because of employment or health concerns, such as a family who sought Griffin’s help in selling a relative’s home quickly so that person could move into assisted living. The family couldn’t handle inspections and repairs at the time, but by bringing a cash buyer to the sale, Griffin was still able to attract an offer that netted roughly $130,000 for the family.
You’re overwhelmed with the listing process
When you sell to a flipper: “You’re not gonna have to put in any type of work to get the property ready to put on the market or get it presentable for photos, videos, that kind of thing,” says Shane Underwood, a top-selling real estate agent in Lexington, Kentucky.
“You’re not going to have to deal with having showings and people walk through your home. Right now with COVID-19 and everything taking place, a lot of people would probably consider that a benefit as far as cutting down on foot traffic.
Underwood has worked with homeowners who were “relieved that they’re able to sell the property” this way because of personal or property issues but he highlights a big caveat: “The drawback is, you’re going to get pennies on the dollar.”
2. Are you aware of the flipper pricing model?
McCorkel follows the flipping industry standard known as the 70% rule, which stipulates that an investor will offer no more than 70% of a property’s after-repair value, or ARV, for a house they plan to flip. If a property needs repairs, those estimated costs would be subtracted from that 70%.
While this doesn’t guarantee a profit for a flipper, it allows for quick calculations with wiggle room for expenses such as taxes, utilities, and other costs that can eat into an expected profit while the property is on the market. So if you’re checking what homes in your area and price range have sold for, you can expect to get a fraction of that cost, especially if you’ve let regular maintenance slide.
Here’s one example of how an investor might price your property:
The flipper reviews your home and estimates that it has an ARV of $250,000. They apply the 70% rule to $250,000, reducing the amount they’re willing to offer to $175,000. The flipper then estimates that the house needs $40,000 in repairs. The amount they offer you as a result is $135,000 ($175,000 – $40,000).
“It’s all about working backwards,” McCorkel says of the math.
There are homes where the ARV is so low in comparison to the repairs that it’s not worth the investment. For instance, if a home might be worth $50,000 at resale, but if it needs $50,000 worth of repairs, he’d pass. “Even if I got the house for $5,000, I just lost money on that,” McCorkel says.
If you’re in the dark about your home’s approximate value, we recommend that you consult HomeLight’s online Home Value Estimator to get a ballpark figure to work from. Simply tell us a little bit about your property and we’ll provide you with an instant estimate, as well as the opportunity to connect with a real estate agent for more information.
3. Would your house appeal to house flippers in the area?
If your property isn’t turnkey or in livable condition, a cash buyer may be in a much better position to purchase it than someone with a conventional or government-sponsored loan. “If you can’t move into it and live in it the way it currently is, it’s likely not going to qualify for one of those more stringent loan programs,” says Underwood.
But whether your house appeals to flippers depends on the price range, the work involved, and what profit the investor wants. Any investor weighs a project in terms of time and money.
Here are some signs that a flipper might buy your property:
- It’s located in an area that buyers want. Flippers and investors often have an ideal buyer pool in mind. Ruth Lyons, a Maryland contributor to the MillionAcres blog who does about two to three fix-and-flips per year, tries to make her flips appealing to first-time homebuyers, so she looks for three-bedroom homes in areas with good school districts.
- It’s not a historic property. Homes classified as historic require detailed permitting and inspection for repairs, says Lyons, who already must mitigate lead paint and radon in many properties. She checks sold comps to see what renovations provide the best return on investment so she’s not tempted to over-improve a property.
- They can rehab it and sell it in months. With the townhouse McCorkel purchased, he estimates two months for rehab and two months to market and sell it, including closing time. “I try to be conservative; sometimes we can beat that, but we have other projects going on,” he says.
- It has few structural or major issues, such as foundation problems or water damage. The townhouse is a “cosmetic flip,” meaning that it doesn’t need significant repairs to its bones, McCorkel says. If it needed a new roof or treatment for termites, he would add that to his repair costs (and timeline), then offer less to the homeowner to recoup more on the sale.
There are investors who will avoid properties with certain issues, such as a cracked foundation, regardless of the potential profit. But McCorkel and his partner believe that if the numbers work — meaning the ARV is there — they’ll buy a property. “If it’s an $800,000 house that has a foundation issue, I’ll spend $100,000 if I can make a decent profit off it,” he says.
Then again, there aren’t that many homes like that in his area. That’s why he focuses on mid-range properties that they can buy for about $90,000 and sell for roughly $200,000. “There are opportunities to make improvement, and because of the price point, we’re able to make it work for the seller as well,” he says.
4. How soon do you need to close?
Our experts agree that the biggest advantage of selling your house to a flipper is a quicker closing, which can be reduced to one to two weeks. With our Simple Sale platform, for example, you can connect with a cash buyer and have money in your bank account in as few as seven days.
“Sometimes it will take a little longer, not because the flipper needs longer but for the seller to get out of the property,” Underwood says. A flipper often won’t require an inspection or an appraisal because they can eyeball what the property’s issues are, he adds.
5. How will you avoid scams in the flipping space?
Some wholesale cash buyers market extensively online and in neighborhoods with flyers and roadside signs. While these businesses might be legitimate, there are some scammers who engage in mortgage fraud schemes or try selling properties at inflated prices without significant improvements.
One scam to watch out for is the contract bait and switch. In this scam, a buyer may make a verbal agreement with you, and then present a drastically altered written agreement. If you’re going to sell your house for cash, make sure you do your due diligence on the buyer. Ideally, get a trusted third party to verify the legitimacy of the offer.
Selling a house to a flipper can be a lifeline for some homeowners, but we understand it’s a big decision. That’s why HomeLight is here to help you weigh your options with all the facts in front of you. As a real estate platform that works with both experienced house flippers and real estate agents, we’ve got a unique perspective that the right path forward for every seller is unique.
Request a no-obligation cash offer
If you’re unsure where to start your search for a reputable flipper, we’d recommend HomeLight’s Simple Sale platform. All of the buyers on our platform have been vetted and their funds verified so you can rest easy knowing you aren’t getting hoodwinked by a predatory house-buying scam.
Simple Sale will match you with a flipper based on their target price range, transaction history, and the types of properties they’re historically interested in purchasing so you know it’s a good fit. We know that your property may be worth more money to one investor than it is to another, so we’ll also do the backend work to connect you with the highest bidder.
Review your options
Once you’ve received your home’s Simple Sale price, we’ll also provide a side-by-side estimation of how much you’d make selling your home on the open market with the help of a top agent so you can compare. With this information in hand, you’re less likely to sell for cash and then feel those pangs of regret. In any case, it’s good to know your options and make a decision from there.
McCorkel echoes: “Typically, we’re a good fit for someone where the house is truly not livable — they’re having health issues, and they want to move fast,” McCorkel says. If a home is in good shape, but the owner “thinks it sounds cool to sell it without doing repairs or wait three to six months dealing with an agent, I’ll be honest and say, ‘My offer would be this, but I think you’d do better just listing with an agent.’”
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