For the better part of a couple of years, I have been watching the growth of large real estate investors and how they have operated out on the west coast. Now, some of these large investors are setting up in Charlotte and are making quite a stir in the market. So, I decided to reach out to one of these large investors to find out more about their program and how they operate. This group does not actively work in Charlotte yet however they are very similar to others that do. So, let’s take a look.
What is a Direct Home Buyer?
First off, these guys have a name for everything and these names have been market tested to be something that appeals. These firms are real estate brokers, licensed with the North Carolina real estate commission, and their business plan is to invest in real estate. They represent one client – themselves and their business is to buy, lightly flip and re-sell properties. They’re real estate investors with really great marketing.
Are the Offers Real?
Yes, they will make a real offer on your home provided it meets their criteria. For the firm I spoke with, the criteria were any single family home built after 1960, priced below $500,000, in city limits, and the neighborhood couldn’t be one where a builder is still selling. Once they receive the Seller’s information, they set out to do a Comparable Market Analysis (CMA) along with an Automated Valuation Model (AVM) to come up with a fair price.
From there, they charge fees equivalent to 6-12% of the sales price, including 3% for the buyer agent when they resell it and 3-9% in carrying costs. They also may adjust the price down a bit to cover any mandated repairs that may be required once it resells. This isn’t any different from the Guaranteed Sale program that I wrote about yesterday.
To understand the costs, on a $300,000 offer with the fees averaged at 9%, the cost to sell for the Seller would be $27,000. Conversely, the same sales price with a firm charging 6%, the Seller’s cost to sell would only be $18,000.
If It’s So Expensive, What’s the Benefit?
Convenience. That’s really the big driver here and I totally get that. For some, the prospect of having random real estate agents and buyers into their home is a hassle they would either not like to have or one they don’t have time for. Therefore, the additional $9,000+/- is worth it for privacy. Also, for Sellers that are being relocated to a place without notaries (notaries are a U.S. custom so outside the USA and not near an American Embassy makes selling a home difficult), this provides a quick alternative to a traditional sale. Sellers facing foreclosure and needing a fast sale would also find this very convenient and helpful.
Do Your Homework
If this post sounds like I’m down on these guys, I’m not. These guys have a place in the market and are more in competition with each other than the standard real estate broker. However, if you’re thinking of selling your home, I would consider the following:
Reach out to one of these direct home buyers and get their best offer. You’re under no obligation to accept their offer but it’s good to know the least that someone would offer. Then, reach out and interview 3 brokers that specialize in your neighborhood. Each of the three will have different perspectives on price, terms, and they may even charge different “experience fees”. Knowing that you have a bonafide offer, ask the agent that you decide to list your home with to exclude the investor from their agreement. That way, if you decide to sell to that investor down the road, you’re not under obligation to pay another commission. Finally, see what the market has for your home. If the market is better, you win and if the investor offer is better, you win again!