Cash Sale vs. Traditional Sale: Which Nets You More?
Ask any real estate agent this question and you will get a simple answer. They will push you toward a “traditional” home sale on the open market because it’s their job. You will sell your house for a higher price and that’s why it’s worth going through all the steps of preparation, repairs, staging and marketing.
However, is the answer really that simple? It actually might depend on a number of factors. There are situations where a cash sale at a lower offer price may actually net you more than a traditional home sale. Let’s look at a couple common scenarios we see at PropertyLark.
Tough Financial Situation
Many home sellers come to us because they are in a bad financial situation. They may be behind on mortgage payments or property taxes. They might have recently lost their job or experienced some other traumatic financial event. Their home is their biggest bargaining chip to get out of other debts, or they simply need to get out from under the burden of homeownership for whatever reason.
It may make sense to have a quicker, simpler real estate sale through a cash deal. The buyer (often a real estate investor) will pay all cash and will typically purchase the property in as-is condition. The transaction can close quickly (days or weeks rather than months) and the seller can get out of a tough situation as soon as possible.
Another common scenario we see is when the seller needs to move quickly. They have taken a job in a different area or they are going through a divorce. Maybe they have inherited a property that they don’t have the time or money to deal with, so they are looking to sell it right away. In many of these situations, the seller has other bills to pay like a mortgage on a separate home or rent on another property where they are moving.
A cash sale can be completed fast and with as little red tape as possible. Whether or not the seller will net more or less might depend on a variety of factors. This is what we will talk about next.
Remember that a traditional home sale will generally take much longer than a cash deal. This is almost always true. We’re talking months compared to weeks, on average. It is also true that you will usually not get as high a selling price in a cash sale. The buyers are paying less for expediency and simplicity—as in fewer purchase complications or contingencies.
As a seller, you have to think about the costs of selling your home in a “traditional” manner on the open market. There are some major expenses involved:
• Real Estate Agent Commissions (up to 6% of the sale)
• Closing Costs (Title Transfer Fees, Escrow, Home Inspections, etc.)
On average, a home seller can expect to pay 8-10% of the property’s selling price for the closing costs. If you are selling your house for $300,000, these expenses add up to $24,000-$30,000!
Another thing that is often overlooked is ongoing homeownership expenses. If it takes 3-6 months to sell your house, you are still paying for many different things:
• Mortgage Payments
• Homeowner’s Insurance
• Property Taxes
• Home Maintenance & Repairs
• HOA Dues (if applicable)
Let’s just say that these monthly ownership expenses of your $300,000 home add up to $3,000 a month. It takes you six months to sell your house. That’s another $18,000 out of your pocket. Some of that money will go toward your mortgage principal, but most of it will not be recovered. You may also have overlapping living expenses if you have already moved elsewhere, including rent or mortgage on a different property.
Understand Your Options
The point is, a traditional sale will not always net you the most money when all is said and done. It usually does, but there are situations where the seller comes out further ahead through a fast cash sale at a lower price. Then, there are other situations where a cash sale simply makes more sense based on the seller’s specific financial or personal situation that requires a quicker and simpler real estate process.
It’s always important to weigh your options and crunch the numbers before making any major decisions about how and why to sell your home.
PropertyLark is here to help explore all your home selling options. Whether you want to make a quick and fair cash deal or go through a traditional sale, we have the professionals and resources to help you make the most of your home sale. Contact us today to get started!