“Federal Way has seen a very interesting development lately. We’ve seen a massive increase in the number of houses being sold to cash buyers. And why not? Companies that buy houses for cash is a fantastic way to bypass having to deal with mortgage companies, home loans, and all the mess that comes with the traditional home buying process. It’s also a near-instant way to get your home off your hands: a great thing for people who are looking to relocate quickly or need to do some debt restructuring. However, much like most things, it isn’t without its ‘gotchas’. And by, ‘gotchas,’ I mean the dozens of fees that you can expect if you’re trying to ‘cheaply’ sell your home to a cash buyer.
Everyone understands that selling a home is expensive. There are just so many unavoidable fees that the average person will run into like closing costs, agent commissions, costs for needed repairs on the home, etc. But not many people really bother to look and see what exactly they should expect to pay if they sell their house to a cash buyer! And you really should. Why? Because doing so could easily either net (or exceed) the extra cash/financing that might encourage one to make the sale on the cash transfer in the first place, that’s why! Knowledge is power, don’t get dragged down!
So what should you expect to pay? Well, this is really a loaded question. Let me tell you that right now. You see, the Federal Way housing market is a bit of a mess right now… obviously. However, one universal truth is that there are ‘expected fees and costs’ that the average person will have to pay, so how about we start there? What are the typical closing costs in America? These generally include costs for a title search, title insurance (note: you do NOT need to pay this if you’re working with a cash buyer), an application fee, an origination fee, mortgage points, a home inspection, and a first-year home insurance premium, among other stuff. It’s these other miscellaneous fees that you should be worried about, to be honest, because they usually make up the bulk of costs at the end of the day.”
What Are Cash Buyers?
Individuals or entities who can buy properties outright, without the need to apply for financing or a lending mortgage, are called cash buyers. These might be investors, developers, real estate companies, or rich Uncle Moneybagses. Regardless, they have enough liquid cash on hand to make the purchase immediately, so they do not have to worry about getting approved for a loan. As such, they are a big deal in the real estate world.
The obvious advantage here is that sellers can generally expect these sales to go by much faster than with other buyers. As cash buyers don’t need to apply for mortgages, sellers don’t have to wait the one or two months (or more) it can take for these to be processed and approved. For sellers who need to move right away, cash is king. One or two weeks out of the deal beats one or two months out of the deal. And not having to worry about the pending sale is a huge headache off a seller’s mind.
Cash buyers often don’t present lots of contingencies that would bind the sale of the house to other factors. Sellers won’t need to worry about “sale pending, based on financing status” or “sale pending, based on the sale of another property” or “sale pending, based on clean inspection” conditions. Cash buyers are usually much more cut-and-dry, as productive members of society should be. Not “take whatever they want” productive, like in the image above… these scenarios are good news for sellers because they mean that the house is more likely to sell.
Common Fees When Selling to Cash Buyers
Selling a property in Federal Way? Prepare for fees to eat into your final payday in a big way.
Closing costs are the most common fee most sellers think of. These costs typically come in between 2% to 5% of the sale price, and include the services used to close on the sale like escrow services, recording fees, possibly inspections, but not necessarily all the costs that sellers will pay. This is just the cost to complete the sales transaction. Stay informed about what’s coming though, so you can budget properly and walk away from the closing table happy, not surprised.
Another fee you will encounter is title insurance. This is insurance against the potential for disputes being raised challenging your established right to ownership of your home. This will add an additional fee onto your overall costs to sell based on the value of your property, but most home buyers will not proceed until this insurance is in place, that you (the seller) pay for, to ensure they are indeed entering into a legit contract for sale with a clear title.
Transfer taxes you will encounter are also establishing a segment for discussion here. These are taxes you will pay to transfer the deed to the new property owners. The amount you are looking at depends on the final closing sales price, making this differ for each person; although, there is a tactic to managing what tax bracket you’ll withhold expectations to incur, according to HouseLogic. A new bill passed in May 2019 for the 2020 tax year to restructure the tax outlay for homeowners in Washington State paying excise tax. We previously paid a state excise tax of 1.28%, but a new bill has been signed into law changing the state’s REET from a “flat” to a “graduated” rate, for the 2020 tax year. Vancouver still holds to a city sales tax exemption, however, which has not changed.
Additional Costs to Consider
The property’s condition will inevitably play a role in its final sale price. It will be at least worth the sum of a buyer’s highest bid.
Persons selling in “like-new” or well-maintained conditions will, on average, command higher prices. This is due to the simple fact that most people would rather live in, and indeed pay more of a premium for, houses that they do not have to immediately “fix up”.
On the other hand, those selling in abjectly terrible conditions (or those that “just show poorly” — i.e., those where various items or components are lying around, disassembled, disaster areas) are likely to not command high prices. Instead, their properties may have long days on market, and may get “low balled” or less expensive offers from buyers. These buyers will factor all the little painful costs of rehabbing the house into their asking prices, and will revise downward accordingly.
In addition to the above “headline” sale price that you’ll actually sell with, there can be any number of conditions or costs associated with the sale that it would behoove those selling to be aware of.
Some people can just come and sell a property with a “r1a” on exterior and interior paint. For them, that’s a no-questions-asked-attached one-time transaction, and outright sell as-is, and will be literally all you have to do. For many others, since many people will teeter on “. . . I don’t know,” certain processes or means to get buyers across “to finish line” may be necessary. Including:
- small to large home repairs or improvements for: each main division/compartment of the house; usually minor cosmetic “clean up” stuff
- probable main massive repairs for some — [ntheabove]
- out-and-out price drops
Also, as the above may be granted — because a real estate agent commission as well as other miscellaneous fees will be calculated as a part of the sale price, you, as the seller, should be supremely aware of the fact that: if you sell the house for a lower price, your real estate agent commission will come forth and be reduced. Also, certain minor miscellaneous fees could be reduced as part of the overall sale. Nevertheless, you must accept these potential costs/realities of the sale, as part and parcel of negotiating a deal. If doing the above would be highly detrimental to your upside, return, or whether you actually sell, in the end, you definitely probably wouldn’t and shouldn’t . . . necessarily do it.
How to Minimize Fees When Selling to Cash Buyers
Should you wish to keep more cash in your pocket, here are a few tips:
Negotiate with cash buyers. If you’ve ever bought a house on a mortgage, you know that there are more players—and more costs—than just you and the seller. But a transaction with a cash buyer can be straightforward. Market your house to these buyers: They can close fast, they have the money, and because the transaction should be pretty simple, you can offer a discount on your house.
Get your property ready. You might be able to get a higher price for your house if it were well looked after. This likely won’t change the fact that an agent might make a commission—but it might be a smaller percentage of the overall sale, and that will limit the cost. Dedicate an entire weekend or more to clean-ups. Remove clutter, fix minor issues, and give the place a good clean. More。
Get to know the market. Successful sellers spend significant time researching their areas. They use different estate agents (online and old-school) to set asking prices and to advertise to thousands of potential buyers. Before they list their properties, they know what their houses are worth and what similar homes are selling for in the community. It’s also important to understand the fee structures of estate agents. Services vary from agency to agency, and sellers can pay as much as 5% on estate agent fees. These costs can add up on million-dollar projects. For example, a 2% commission can account for $20,000 on a $1,000,000 final transaction value.
Final Words
By understanding these fees, you’ll feel more comfortable, because you’ll have enough knowledge about the transaction to say, “I agree, this makes sense.” Or more importantly, you can tell, “Hey, this doesn’t feel right. To me, this sounds a lot like X, Y, and Z; but really, it’s more along these lines based on the actual costs that are being deducted.” After that, you can make your own decision on what that means to you financially, because perhaps you’re okay with those costs. Again, after you understand the context of the transaction, you can form a better opinion.
There are also “middle fees.” Should you go speak to a realtor and have a planned conversation about the sale of this home? Sure. At the very least, give some people a call. Find out what it is you don’t understand, and let someone tailor that explanation to your home. Pick apart what’s going on from there. We, too, sell homes in Federal Way, and we’d be happy to answer anything you want to ask.
At the end of the day, the deal has to work for both parties. It doesn’t have to be a “smoke and mirrors” show; you can draw your own conclusion on what that means to you financially. The point is: the fees are often known – don’t be left in the dark. Just because this buyer will pay “cash,” doesn’t necessarily mean you’re sleeping better at night.