Should you skip the real estate agent and sell your home directly to an Alternative Home Buying Company?
A recent trend in real estate is for Home Owners to sell their homes directly to an “Alternative Home Buying Company” (AHBC) such as Open Door or Offer Pad, rather than list it with a traditional real estate agent. These companies offer to buy your house, eliminating the need to hire a real estate agent to list it for you. Up front it appears to be an attractive deal. You can avoid the hassle of having to keep your house super clean and allowing strangers to poke through your stuff during showings and open houses. It also eliminates the last minute packing the dog up in a crate and leaving your house so an agent can show the house. No ugly sign on the front lawn or dealing with Real Estate Agents who don’t always seem to have your best interest in mind. But just how much is all that inconvenience worth it to you monetarily? Here is a comparison of what it might cost you to sell your house to an AHBC verses using a professional licensed real estate agent to help you sell your home.
|Standard Broker||Alternative Home Buying Company (AHBC)|
|Commissions||3.5% to 6%||6.5% to 10% + up to 3% to Sellers agent|
|Closing Costs||Negotiable between Buyer and Seller||Non-negotiable. Seller may have to agree to pay all the closing costs.|
|Purchase Price||Depends on the current market, retail or over retail.||Always below market or retail|
|The offer||Negotiable between Seller and Buyer||Non-negotiable. You either accept their offer or say no and it’s over.|
|Items that need repair||Negotiable between Seller and Buyer||Non-negotiable. Seller must fix all requested items or pay the AB the fee they determine to be the cost for repairs|
|Seller Representation||You are always represented by a licensed real estate agent on the Seller side of the transaction that works for you on your behalf with your best interest in mind||No Seller Representation. If you elect to not hire an outside agent to represent you, at an additional cost to you, you are an unrepresented Seller. The AHBC does not work for you. They work for their Brokerage firm|
|Closing Dates||Negotiable and can be determined by how quickly the Title Company can close.||5 – 90 days from contract acceptance. And some will give you 2 to 5 days to move after the home has closed.|
|Inspection period||As per the Arizona Real Estate Purchase Agreement, a Buyer can cancel the agreement for any reason during the ten day inspection period. However the contract allows the seller the option to correct any items not accepted by the Buyer, Furthermore, the seller has the right to determine which items they will or will not repair or provide credits for the Buyer to make the repairs.||AHBC use this 10 day inspection period to determine if the house is as described. Most AHBC have never seen the house and will use this time period to either add additional costs to the seller in the form of mandatory repairs or cancel the contract all together without giving the seller the opportunity to correct disapproved items. Furthermore, keep in mind that, most AHBC’s require you to provide a credit for the cost of repairs of which the amount is determined by them. Some will allow you to repair the items yourself using a licensed contractor which also is an additional cost to the Seller. This is not negotiable|
While AHBC’s may claim they are not house flippers, in reality they are. Any entity that purchases a house from a Seller and re-sells it at a profit without ever having lived in it, is in fact flipping a house. They are governed by the same laws and regulations of the state and county in which they are working just the same as investors who purchase homes for the purpose of reselling for a profit who call themselves flippers. There is no difference.
If you decide you are willing to take a lower price for your house because you don’t want to deal with the traditional way of selling a home, just make sure you read all the fine print and find out exactly what you will be paying to sell your house to the AHBC. This includes closing costs, commissions, repairs and any non foreseeable fees. Also, be aware that the AHBC calls all the shots. You do not have a say other than to say no from the beginning. Once you sign the contract, you are in it until the end or THEY decide to cancel.
AHBC’s will make an offer on your home site unseen which upfront may seem attractive. In Arizona, there is a standard 10 day inspection period that allows a buyer to back out of the deal for any reason. AHBC’s will use this to determine if the house is as you described, find needed repairs and then either back out of the transaction or require you to pay for repairs in order for the deal to go through. You need to deduct these amounts from the agreed upon purchase price as obviously this will lower your final proceeds amount.
Keep in mind that, once you sign the purchase agreement, you are bound by their terms and conditions in order for the transaction to go through. Be sure to read the Purchase contract and terms and conditions and know exactly what you will walk away with at closing.
Finally, don’t rule out using a licensed real estate agent to help you sell your house. It doesn’t take that much effort to put the stuff away and tidy up. You may be able to negotiate a lower commission. Shop around and find an agent who is willing to take 2.5% instead of 3%. A licensed real estate agent is trained to help you sell your house for top dollar even if you don’t want to tidy up. Most importantly, they work for you not the Buyer and have your best interest at hand. They will negotiate for you.
Copyright © 2018 Noel Anderson. All rights reserved