This article covers what an agent needs to know about selling and marketing their client’s home to an investor, as opposed to an owner-occupant buyer.
“We buy homes for cash!”
You’ve seen the signs advertising investors who are eager to buy your clients’ homes — maybe you even know some of the people who post those signs. Most sellers avoid these types of buyers, aware that at worst they are scammers and at best even the most legitimate offers won’t be top dollar.
Some investors may try to persuade homeowners to sell their home to them without an agent to assist them, as a seller who does not pay a listing agent’s fee may be more inclined to lower their price. But sellers need help wading through the pool of scammers to locate serious and legitimate investor buyers. That’s where an agent experienced with investor buyers shows their value.
Types of investors
There are three basic types of investor purchasers, including those who:
- intend to flip the home based on market momentum;
- will make improvements to the home to sell at a significant profit; and
- will rent it out as a long-term income-producing property as a buy-to-let.
Sentimental ideas about their ideal home and neighborhood charm aren’t going to sway an investor. Therefore, the best way to induce an investor to consider your client’s home is to show its value.
Most experienced investors are all-cash buyers. Not reliant on financing, they are able to skip the appraisal and home inspection process, ensuring a smooth closing that can occur in a matter of days. In contrast, a regular buyer using a lender typically closes over several weeks.
But these time-saving measures can come at a big cost — investors have a bottom line, and unlike most homebuyers, they think squarely with their wallet. But that doesn’t necessarily mean the seller will get a bad deal.
Unlike regular buyers, investors know exactly how much the home is worth in whatever capacity they intend to profit from, be it a long-term rental, an improvement project or a flip. Sure, they may try to get a below-market deal, but an agent can also run comparable properties and calculate the home’s worth. Therefore, with the help of an agent, the seller can find assurance that they are negotiating for the best investor deal.
As large online homebuying services are growing in popularity, many sellers are considering these new types of investors. These services, like Opendoor, Offerpad, Zillow Offers and Redfin Now, are known as iBuyers. With their own in-house brokerage services, they handle the entire transaction in an effort to appeal to sellers who want to sell their home with zero hassle. This process also cuts out sellers’ agents who aren’t directly affiliated with the iBuyer companies.
Sellers who use iBuyers end up netting less money, either through a below market purchase price or the higher fees compared to a traditional listing and buyer’s agent. So, when a seller can skip the hassle of making improvements and preparing their home to sell by selling to a traditional investor, why do many still choose an iBuyer when they know they will make less money?
Sellers are naturally more likely to sell to an investor whose name they recognize and trust. Of course, an investor doesn’t need to also be a tech company to be trustworthy — but finding and vetting investors on their own is beyond the capabilities of most sellers. That’s where an agent comes in. Knowing which local investors are honest and fair and which investors are best avoided is part of the experienced listing agent’s job.
Locating a credible investor
When a seller’s home is outdated or dilapidated and they are unable or unwilling to make improvements, an investor may be their best option. Once it is determined they are open to an investor purchase, how does a seller market the property to investors?
First, determine the aspects of the property that will be most attractive to investors. For example, a home located in a desirable area in need of improvements will catch the eye of an investor looking for a home improvement project. Or, a home in a community popular for renters ought to be marketed to buy-to-let investors.
Prepare the listing’s marketing package with these goals in mind. Mention the big improvements that will need to be made while highlighting the home’s potential. Include real numbers, such as any rental income the property already brings in or what similar nearby homes are renting for. If other homes have been rehabilitated nearby, tell investors what these homes are selling for now.
Next, identify credible investors. Ideally, you will grow a list of trustworthy investors to consult. Information to collect includes:
- neighborhoods where they invest;
- what home tier they work in;
- what types of investment properties they purchase;
- referrals of other agents or clients they have purchased from; and
- what type of financing or funds they use to purchase investments.
When working with an investor for the first time, ask for referrals from other professionals. Be sure to require a proof of funds when they offer cash, or a preapproval letter from a lender when they are using financing. Make calls and speak with someone directly at their bank. Check any business or professional licenses and seek out their online presence.
Suspicious actions that ought to ring alarm bells include when the buyer:
- is unwilling to see the property in person (an indication they may be on the other side of the world and have no real intention to purchase the property);
- insists on using a check rather than a wire transfer to purchase the home;
- overpays on earnest money using a check, later asking for a cash refund (spoiler alert: the check will bounce and the cash refund will be gone);
- communicates over email with a long time between responses (which may mean they are handling multiple scams at once);
- alters the purchase documents (which could point to money laundering); and
- offers a “too good to be true” or extremely high price (another potential indication of money laundering).
Any one of these actions on their own doesn’t necessarily mean the buyer illegitimate. But it definitely means caution and further investigation are warranted.