Hi, it’s Eric Brewer with Integrity First Home Buyers. I want to talk today about how we calculate an offer on your home when we’re paying all cash.
I also want to talk about how it differentiates, or what the differences are between selling the property conventionally on the market. So I’ve done some math here that I want to share with you so that you can see what the real differences are and how we make our offer. So first let’s start with selling the property on market.
Now, this is assuming that a property is being sold in its current condition. It could be in great condition, but it’s being sold as-is. Meaning you haven’t done any improvements to the property to prepare it for market.
Assuming the property has a value of $150,000, you’re going to spend, on average in our area, 6% commission. Which is roughly $9,000 we pay in the state of Pennsylvania at 1% transfer tax, so $1,500.
You also will have in today’s market, normally between 3% and 6% that the buyer will ask for concessions, seller help, or just simply helping them out with their closing costs. I’ve used the lower portion here at 3%, but it could go as high as 6%. So 3% is $4,500 worth of seller help. And then in most cases, buyers will want to negotiate between a 5% and 10% discount.
Now, they might not always ask for a discount, but we’re using this formula to give you an idea of what you may be able to expect. Assuming you were to give a 5% discount, that’s $7,500 minus the typical amount of repairs for appraisals, home inspections, and staging. Maybe you’ve done some repairs to get the house ready for market so that it could go FHA, USDA, or VA financing. Oftentimes, real estate agents will suggest that you do those things so that you can sell to a broader range of potential borrowers.
So if you do this math, a property that’s listed and sells for $150,000 after commissions, transfer tax, seller concessions, potential discount, and just a little bit of repairs, what that means for you is $126,000 in your pocket. So now let’s compare this to an all-cash offer or an Integrity First Home Buyers all-cash offer. Here’s how we make an offer. Assuming it’s a $150,000 property, what we use is what’s called an ARV or After Repair Value. This means with renovations, improvements, finishing the basement, and making the repairs that the property needs to enhance its value.
We’ve taken a $150,000 property and increased its value to $200,000. So if we sell it for $200,000, assuming that property took $40,000 in repairs, which is about the average we find for $200,000 homes, we spend about $5,000 in acquisition cost. You’ve seen in our other videos where we cover your transfer tax, title, insurance, and all the closing costs. So we’ve paid the closing costs when we buy the property, which is roughly about $5,000 on a deal this size.
We look to make about a $20,000 profit or roughly 10%. And then when we sell the property, we pay 6% commission to the real estate agents. And we also pay a 1% transfer tax for a total of $14,000 in this transaction. So the net offered to you in this example would be $121,000 of cash in your pocket versus $126,000 cash in your pocket if you were to sell the property on the market.
This is an example. Every deal is different, but this is a very accurate comparison of what you could expect on a property that has a value of this and would sell potentially to a cash buyer for this.
The bottom line is how much money is in your pocket? How much cash do you get at settlement? This is a great example of that.
I hope this is helpful. If you’d like to get an all-cash offer on your property, just look us up on the web at www.ericbuysyourhouse.com.