Home sellers in the US are often dismayed when the cash transferred to their bank accounts on closing is significantly less than the number on the submitted offer. In many cases, the disappointment arises from unawareness of other costs, in general. But, then, when one digs deeper into this grey area, the differences between selling to a home cash buyer or through a traditional realtor escape most people. This article aims to clear up the confusion so that your expectations are realistic.
Selling through a realtor – your first accepted offer is only the starting point.
Any offer your realtor submits is only the trigger point of a somewhat frustrating process that ends up eating away at it with deductions on many levels. The first thing to appreciate is that nothing takes a look at consolidation until both parties sign a final agreement. Note – while that’s still not the end of bottom line erosion, let’s look at standard contingencies in your original offer terms. The latter can take the excitement out of the home seller experience like air exits a popped balloon.
- The home inspection: This is a clause that says something like, “Subject to allowing the offeree to execute a professional inspection of the home.” In other words, it’s an exercise looking for latent defects and damaged home features that escaped attention while touring the home before making an offer. This exercise can generate a list that ranges from minor things like broken door handles and faulty faucets to severe issues like mold or cracking foundations.
Sometimes a home inspection can obliterate a deal, giving the buyer cold feet by erasing their enthusiasm in a blink. Don’t forget, the vision of a picture-perfect home drives a serious offer in most cases. Nothing pops that bubble more emphatically than a home inspection revealing numerous structural gremlins. As it happens, the seller and buyer end up agreeing to a lump sum deduction to take care of repairs. Suffice it to say, it inevitably dilutes the original offer pricing.
- The lender’s real estate assessment: Whenever a mortgage is in the mix on the buyer’s side (most of the time), there’ll be a contingency around the lender agreeing with the borrower’s view of the property value.
For example, the submitted offer priced the home at $400,000, relying on the bank to finance $280,000 of it (i.e., 70%). However, the lender’s assessor values the house at $370,000, bringing the loan limit down to $259,000 – a shortfall of $21,000. Now, this can go one of four ways:
- The buyers are still so excited about the purchase that they fork up the extra dollars to push the discrepancy out of the way – an ideal home seller scenario (i.e., an unlikely one)
- The buyer still loves the deal but doesn’t have the $21,000 to fill the gap. In which case, the seller must decide to eat the difference to continue toward closing. That, or the parties split the difference based on negotiation (i.e., Not ideal, but it keeps the deal moving forward).
- The buyers get disenchanted when they see their offer is too high relative to a professional home valuation – frequently a deal killer.
- The seller disagrees with compromising on the shortfall – always a deal killer.
The final agreement with a realtor
Only once the contingencies are out of the way can the parties sit down to sign a final agreement. That’s not the end of it – not by a long chalk. From there, a licensed title company takes the baton to run the deal over the finish line, and it’s here where things can get hairy. Why? Because it’s the title company’s function to make sure that all the seller’s creditors somehow linked to the real estate are settled on the closing day.
When buyers take over ownership, they want to know that the property is clear of the seller’s obligations. They want peace of mind that nobody can disrupt their free use of their new home within city and state regulations. A title insurance policy assures them of that. Still, the title company only issues one after settling:
- The loan balance to the seller’s lender (everyone knows that and no surprise).
- Any outstanding HOA fees and special assessments.
- Property taxes owing.
- Any liens on the property held by the state or others claiming unpaid bills.
- Agents’ commission generally around six percent of the final agreement revised offer price (i.e., the sellers pay their realtor and the one representing the buyer).
- Other closing costs that cover a range of items mandated by lenders and the agreement – including regulated title costs (if for the sellers’ account) and lawyers’ fees.
As a yardstick, banks on a ten percent deduction on the final agreement number when selling traditionally. It can go much higher if the line-up of disgruntled creditors is long. It’s the tail-end after the contingency deductions have possibly lowered the original offer expectation. Rely on the expertise of the title company to find everything in the transaction net after executing a thorough title search. Occasionally, it unearths a fraud, which is generally a disaster that can crater the whole deal, but that’s another discussion for another article.
Selling through a home cash buyer – is it any different?
It’s way different. For a start, the original offer you receive from a reputable home cash buyer like Home Buyers Birmingham is:
- After the home inspection, you get to the bottom line for a final agreement with no loose ends. There are no post-offer repair shocks to disrupt your expectations.
- An all-cash offer. There’s no lender involved and no appraisal in the wings to upset the applecart.
- Outside of any realtor involvement. When it comes to closing day settlements, take agents’ commission out of the equation altogether (i.e., saving 6% on the final agreement price).
As for other closing costs, there’s not much anyone can do to offset the lender’s loan balance or HOA fees owing. Moreover, the title company’s fees are primarily regulated. Still, there’s often wiggle room if you use the home cash buyer’s recommendation. A home cash buyer that’s on top of its game can also absorb or waive some fees. However, their significant impact arises from helping a lot with lien obligations. How? With a far more proactive role, as follows:
- Lienholders are creditors in a seller’s past waiting for something to happen that activates payment. The “something” is a property transaction as described. Frequently until then, it’s forgotten, or they see it as “found money” if it ever comes their way.
- Realtors do nothing to offset these when the transaction goes into the title phase. Moreover, the title company’s duties don’t include reducing seller commitments arising from the search.
- The fact is, many lien holders, once contacted, are willing to release the lien for cents on the dollar. Getting something is better than nothing at all is the way they view it. A home cash buyer understands this and can negotiate debts to a fraction of the number paid out traditionally. In this aspect alone, they’re worth their weight in gold.
Home Buyers Birmingham and similar businesses in other regions of the USA save home sellers a significant degree of aggravation by erasing annoying offer contingencies and attacking lien attachments with great success. They also provide closing cost reductions that begin with no agents’ fees and sundry costs that sneak in when going the traditional route. The Home Buyers Birmingham team will transition your deal from end to end in fifteen percent of the time it takes going through a realtor (i.e., in as little as a week). And they can do it with a contingency-free, all-cash offer that will surprise you. Finally, if lienholders are a severe challenge, Home Buyers Birmingham is the ticket to getting them resolved in a financially meaningful way.
Home Buyers Birmingham
1821 11th Avenue South Suite #55331
Birmingham, Alabama 35205