The advertisements you see on TV from Open Door, Offer Pad and We By Ugly Houses, claim that if you sell your house directly to them, you’ll save money and time. It seems like a great option, but is it?
How do direct buyers work? How does Offer Pad work? How does Open Door work? How does We Buy Ugly Houses work?
We call these companies direct buyers. They make money by purchasing houses directly from sellers at a wholesale price. They look at what price they can buy the house and re-sell it and still make a profit with as few repairs as possible.
The best thing for me to do as a savvy agent, is to obtain the quotes from the direct buyers for my sellers. That way when they see the advertisements on TV, we’ve already talked about what those companies would pay them for their property. There’s no mystery, no “grass is greener on the other side.”
- Remember, even if you need to sell quickly there are strategies we can employ in the traditional market/MLS to get your home sold quickly and for top dollar. You don’t have to go with a direct buyer even if you’re in a time crunch!!
The home I shopped around to direct buyers is a nice, single family home in a beautiful Scottsdale neighborhood. It does not back to a busy street. It is a 2400 sq ft, 3 bed 2 bath with a 3-car garage and a small monthly HOA fee in mostly original condition from the date it was built in 1998. The exterior has been re-painted, and the owners have taken care of the property.
Based on comparable sales in the neighborhood, we priced the home at $500,000. We feel the home will sell within 2-5% of list price. My clients have agreed on a price strategy and timeline that makes sense for them.
We have received two direct home buyer offers on the property. I have to continue to work with the direct buyers like Open Door, Offer Pad and We Buy Ugly Houses, so I am not able to disclose which companies provided the below offer. I can tell you that offers from other companies were all very similar to the offer detailed below.
We’re on the market for $500,000 and priced to sell.
THE DIRECT HOME BUYER OFFER
Purchase Price $433,000
Service charge of $41,173 to cover the direct buyer’s agent and their “operational” costs.
On top of the service charge, they ask the seller to pay whatever commission owed to the listing agent, at 3% is $13,002.
When you list your home traditionally, the negotiated/average commission is 6%, which equals $30,000 ($15,000 to each agent involved) on a $500,000 home.
Just the direct buyers service charge alone is more than the commonplace commission of 6%, by over $10k!
If they listed the home AND sold to the direct buyer that’s $41,173 service charge + $13,000 to their listing agent = $54,000 roughly in costs to the seller.
The direct buyer will also complete an inspection and require some repairs to be negotiated.
Seller is also to pay their own closing costs according to the offer.
At the end of the day, seller pockets around $375,000 after they pay their closing costs ($2000) and repairs ($2000) – estimated.
Selling directly to a home buyer nets the seller around $375,000.
Selling traditionally on MLS with a FULL SERVICE real estate agent, even at a negotiated price of $475,000 nets the seller $442,000 (this is after all commissions are paid, closing costs, etc), that’s over $67,000 MORE than if the seller sold directly to a home buyer!
$375,0000 VS $442,000…. Why avoid listing the home on the MLS when you could make $67,000 more?
From the net numbers above, seller would pay off any loans on the property. The loan pay off would be the same with either the direct buyer, or selling traditionally so you simply subtract that from the net.
Have other questions about real estate? Contact me anytime! I would love to hear from you.