How To Sell Your House To An Investor With Confidence
We have written several articles on avoiding bad buyers (wholesalers) and have given tips to ensure you don’t end up working with a wholesaler and sell your house to an investor that does not put you in a difficult situation. This article’s purpose is to go over more on what GOOD buyers look like so that you can be on the lookout for it when attempting to sell your house to an investor.
It is undoubtedly helpful to know how to spot a lousy buyer to avoid them, but it is also beneficial to know when you are dealing with a suitable buyer. Since this is a very unregulated industry, there seem to be more bad buyers than good, so knowing when you have found a good one to work with is very important.
Would You Sell Your House to Any Investor?
Your home is likely one of the largest assets that you own, and selling it should not be taken lightly. We do lots of research on different decisions we make throughout our lives, and this should be no different. When you make the decision to sell your house to an investor you want to be confident you are selecting the right one.
When you sell your house to an investor it is much less regulated than the traditional way of selling a property, so let’s begin by going over what makes a good investor.
The Qualities Of A Good Investor
A good investor, per this article, is someone who:
(1) Does exactly what they say they will do (and more) and does not renegotiate.
(2) Is focused on solving the seller’s problems and is very seller oriented.
(3) Lays everything out clearly and understandably.
(4) Guides the seller through the entire process from beginning until the end.
Also, it should be noted that this article is aimed at people looking to sell their house fast, as is. This is not the traditional way that people sell their homes. Typically, a realtor will represent the seller, and it is their responsibility to ensure the seller gets the best possible outcome. Whether or not realtors add any value and do this for the sellers they represent is a discussion for another article!
Since there are no realtors involved when someone is looking to sell their house fast for cash, it should (in my opinion) be the investor’s responsibility to ensure the seller is taken care of and gets the outcome they were expecting. This is especially true since these experienced investors purchase multiple properties per year or even per month and want to ensure they maintain an excellent reputation in their area.
Example Tactics Of Less Ethical Investors
As I mentioned in the bullet points above, an investor doing precisely what they say is of high importance. A common tactic in this industry is for less ethical investors to use “bait and switch” tactics to get an appointment with someone or even get them under contract. Then, once it is secured, they will switch to more favorable terms for themselves.
“Sell your house to an investor quickly and easily” is what they will advertise, however it will be anything but this.
Bad Investor Example 1
An example of this would be where an investor speaks with someone on the phone and tells them they will likely offer $200,000 for their home, but upon an actual property visit, they send an offer for $150,000. Instead of saying what the seller wants to hear to set the appointment, they should let them know that the price depends on the home’s condition, and they need to see it before committing to a price.
Bad Investor Example 2
Another example would be where an investor makes an offer to someone for $200,000 and has an inspection done on the property. They will then leverage the inspection results or even make things up to re-negotiate for a lower price.
This is a clear example of a bait-and-switch. Now, in some cases, these claims may be warranted. For instance, if an investor visits the property and notices a crack along the foundation, they may want an expert’s opinion to ensure it will not cause problems. If this is the case, it should be communicated with the seller, and there should be no surprises if the foundation inspection were to come back needing repair.
But, in most cases, a good investor who is experienced will know that there will be problems with the house, and they will plan for that and not let it affect the seller. After all, everyone in this space advertises that you can “sell your house to an investor easily for cash” and not have to do any repairs. The good house buyers will honor this, while the bad ones will not.
A Great Investor Will Be Your Advocate
A great investor will be focused on the seller’s needs from start to finish. For many sellers, this may be the first time they have sold a home in 20+ years. It could be the first time they have EVER sold a home! Even for people who sell houses on a more regular basis, it can be a complicated venture.
For these reasons, great investors will ensure they hold the sellers’ hand through the entire process and make sure there is no confusion when you sell your house to an investor.
There are multiple steps involved with selling a property, so staying on top of that and working with the seller to ensure it gets done correctly and promptly is very important. Again, no realtors are involved, so the seller needs someone to advocate and guide them through the process from start to finish.
The final part I want to discuss here pertains to the actual contract. When selling and buying property the traditional way on the MLS (multiple listing service) using realtors, there is usually a standard contract used depending on what state you live in. However, when making a sale directly to an investor, the investor will present the agreement, and they can all be different.
What To Avoid When You Sell Your House to An Investor
Before getting into what a good buyer’s contract/offer will generally look like, I want to briefly go over the things that make up a bad contract. Here are the bullet points about which red flags to look for:
(1) A very small EMD (earnest money deposit) – is known as a good faith deposit and is what a buyer puts up when they offer to buy a property. An EMD around 1% or more is relatively standard. If you see one in the amount of $100 or so, this should be a huge red flag that the person making the offer intends to wholesale the property or is not serious.
(2) Ambiguous financing section referring to “partners” – this is a red flag because a genuine buyer usually does not need to state this. The term partners is usually code indicating that they are going to wholesale the property.
(3) Contingency allowing the buyer to cancel the contract for any reason – HUGE red flag right here. An actual buyer will either have no contingency or have a short one (1 week or less) for a specific purpose, such as getting a foundation or mold inspection. Here is a Reddit forum where some people discuss the morality of wholesaling, and someone explains how this happened to them without their knowledge.
(4) Verbiage about their access to the property being too invasive – typically, this is to account that it may take a while to find an actual buyer to assign the contract. The wholesaler needs to have property access to show it to the buyers and generate interest.
(5) Assignment clause – this is the red flag of red flags and allows the wholesaler to assign it to someone else at a higher price. Wholesalers will then assign the contract and turn it over to someone else without your knowledge.
(6) Right to counsel – this is not necessarily a red flag on its own, but if it is seen in conjunction with some other red flags, then it likely is not a good thing. What this usually states is that you have had the opportunity to review this with an attorney or outside counsel so they are not at fault if you didn’t understand something on there.
What To Look For When You Sell Your House to An Investor
Now we will get into a good contract and what to look for regarding it when you sell your house to an investor directly. This is by no means meant to be taken as legal advice; it is just for reference. Here is the exact contract we (Home Sale Solutions) use to purchase property. And to go more in-depth on the contract we use, check this out.
The Earnest Money Deposit (EMD)
The first thing you will notice is the EMD (earnest money deposit). See verbiage below:
You will see here that the EMD is for $5,000. This is 2% of the sale price and indicates that the buyer is a serious contender. An EMD in the amount of 1% is considered the minimum standard, so having it be above this shows the buyer is serious. Compare this with a wholesaler contract, in which case the EMD is frequently around $100 or less, and you will see how significant this is.
Here is a forum I found where a wholesaler explains how he always puts $20 as the EMD. This is what he wrote:
“There is ALWAYS a way (to use a low EMD). Don’t go back to the drawing board as suggested, that’s just ridiculous. It sounds to me like you are NOT dealing with motivated sellers. If they were REALLY motivated, they would accept almost any reasonable offer and terms.
I always put $20 as the earnest money amount. If the seller doesn’t accept it, I’ll walk away and move on to the next deal with someone who actually WANTS to sell their house. You need to make sure your purchase agreement states explicitly that you may assign the property to a 3rd party. This way the seller can’t complain about you assigning to a cash buyer because they signed off on it in the purchase agreement.
You don’t need to have skin in the game. Wholesalers start out as cheap as possible. Most people don’t have $3,000 to throw at a wholesale deal in the beginning and you shouldn’t do that anyway. Do the $20 earnest only with a motivated seller, if they want more, if you can do it, that’s fine. I would never go over $100. Why? Because I don’t NEED the deal, but the seller is motivated and desperate and they need me. Don’t sweat any deal. If it doesn’t work, walk away. There are plenty of deals out there to be made.”
Avoiding these types of people is crucial when you look to sell your house to an investor. Let’s move on to the inspection period!
The next thing you will notice is the inspection period:
This contract has a clear timeline for the contingency period where the buyer can cancel the contract without penalty. We also do 0-day contingencies. This means that the EMD is non-refundable the moment the contract is signed.
We do this as a sign of good faith to show the seller that we are serious about buying their house, and we put our money where our mouth is.
Most experienced investors who have bought several properties understand what to look for when walking through a property and do this before they ever make an offer. They will also build in a cushion for surprises that come up and understand that they always will come up whether an inspection is done or not. We have not purchased a single property where something didn’t come up down the road needing to be addressed. It is par for the course.
It may not always be the case that the buyer does not have any contingency period, as in this example. However, it will usually be one week or less and have concise language about inspecting the property. Contrast that with a wholesaler contract where the contingency period is until the day before settlement, and they can cancel it for any reason whatsoever—big difference.
Look For The Things NOT In The Contract!
The last thing to go over on a good contract is what’s NOT included in it, and that is all the rhetoric that indicates the intent to wholesale the property as opposed to buying it personally. You’ll see nothing about “partners,” assignment clauses, or anything similar to that.
This offer is being made in good faith by someone who has the intent to purchase the property. The length of the contract is just over 1 page and is very seller friendly. This is exactly what you should look for when you sell your house to an investor!
If the buyer in this contract wanted to back out of the agreement, they would owe the seller $5,000 unless the seller could not deliver a clear title to the property. This is a win-win scenario for the seller because no matter what happens, it benefits them.
However, the bottom line is that anyone making an offer with a $5,000 EMD is likely to be a serious buyer with the intent to purchase the house. This is the exact outcome the seller is looking for in the first place when they Google “sell my house fast,” yet very of the many investors who advertise this can deliver on it.
Summary Of What To Look For When You Sell Your House To An Investor
Here is a summary of what to look for in a good contract from an investor:
(1) EMD that is 1% or more than the sale price of the house – for instance, an offer with an EMD for $5,000 on a $200,000 sale price is likely an offer made in good faith where the investor intends to purchase the property. An offer where the EMD is $100 on a $200,000 is likely a wholesaler and the offer shouldn’t be taken seriously.
(2) A clear and defined due diligence period or contingency – wholesalers will usually have a contingency extending until the day of settlement where they can get out of the contract for any reason during that time frame. Investors who intend to purchase a property will usually have a shorter time frame (a week or less), and it will be there only to inspect the property. The latter is the way better option because it shows they are serious about purchasing the property.
(3) NOTHING that indicates the intent to wholesale the property by assigning to someone else – assignment clauses, clauses with the term “partners,” and clauses about the buyer having lots of access to the property should all be examined with extreme caution. These elements are not usually included in a good faith offer from an investor and are red flags.
Reach out with any questions you may have; we are always happy to help. And make sure to check out other helpful articles we’ve written! And if you’re wanting to get a no-obligation, 100% free cash offer on your house, click below to learn more!