Dear Monty: Should we sell our home to a house flipper?
By Richard Montgomery
Reader Question: We are planning to sell our home and asked a handyman to give us an estimate of the costs to fix several issues that are likely to cause a buyer to offer less money. He did provide us with a detailed estimate of the cost and also offered to buy our home as he flips homes. We know that he has to make a profit. Is selling to a flipper a good idea?
Monty’s Answer: Selling to a house flipper is a question that has no stock answer. The question will often be answered with a very quick “no.” In reality, the answer can also be “yes.” The people who say “no” would not sell to a flipper. They do not know your situation. Your question provided no information about your circumstances, information about the local real estate market, and whether or not you have received opinions on the value of your home from multiple real estate agents or appraisers.
The main disadvantage with selling to the flipper is selling at a price below market, without the benefit of market exposure. The best method to determine if selling to a flipper is right for you is knowing the best price you could expect, and the lowest price you should expect. Then you can decide if this option is right for you. This article explains how to find your home’s range of value at https://dearmonty.com/determining-a-homes-value/
Some flippers call themselves real estate investors because the words “house flipper” can have negative connotations. Being a real estate investor just sounds better. Flippers will often state they are buying for investment, but then change their mind after the closing.
Not all flippers are created equal. Some have gone broke flipping houses. Poor judgment, poor research, buying without a home inspection, changes in the market and other unforeseen obstacles are the cause. Like real estate agents and appraisers, they will vary on home values.
Consider a flipper’s statements with a grain of salt. They have a direct conflict of interest. For example, did your handyman pad the estimate he quoted you? A handyman that does not buy houses may have a lower price for the same work. Are you certain the work you asked for is necessary? How did you decide which tasks to complete? If he is successful in the negotiations, will he use the same materials he quoted you? Will a lower cost material perform as well?
Some flipper’s best leads are active listings in the local MLS. Real estate agents have been known to price homes low to ensure a quick commission. More likely, some real estate agents, even experienced agents, are just not very good at evaluating homes. That is why it is smart to get prices from agents in addition to your neighbor or your friend from church. It takes extra work to identify and interview multiple agents, but the chances of a better outcome improve considerably.
Types of flippers
There are large corporations that flip houses. They like to buy in down markets and sell when the market changes. They use sophisticated data to predict in which markets to invest. There are mom-and-pop flippers, real estate agents, home inspectors, appraisers, and all types of contractors working in real estate, which can generate flipping leads. That is how your handyman came in contact with you. There are franchisees, which are well-trained, knowledgeable, full-time flippers. All of these people would not be doing it if there were no market for it.
Circumstances where a flipper adds value
There are many times when the top dollar is not the homeowner’s motivation. The motivators may be a quick sale, no complications, no uncertainty, unsuccessful past efforts, and more. A better job; inherited property; a property that does not qualify for a mortgage; an owner in foreclosure; a home with fire damage; no money for repairs; and others, that create the motivation.
Check out a guaranteed sale
There is a difference between the two. A cash buyer is just that – they pay cash, close in 10 days, buy as-is, and do not charge a commission. With a guaranteed sale, the home seller is given time to obtain a higher price, with pre-agreed price reductions over time, like 90 days. If no retail buyer is found, the wholesale buyer has guaranteed the sale at a predetermined price and date. Exposure at a higher price often finds a retail buyer.
“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”