I'm a Realtor and I also am an investor, so I offer a "We Buy Houses" service. Here's how it works:
The investor determines an ARV (after repair value) for the property. What would the property be worth, and sell quickly for, after fix-up? Then the investor determines the repairs necessary to get it to the ARV condition. The investor plugs those numbers into the following formula:
Maximum Allowable Offer=(ARV*0.65)-Repair Costs.
(The multiplier of 0.65 used to be 0.7; some investors still may use the higher number.)
So, let's say a house, after fix-up, would sell for $500,000. And let's say it needs $20,000 in repairs. The formula is:
So, $305,000 would be the most a "We Buy Houses" investor would pay for the property. The offer would be for less.
Next question: Is it worth it? Answer: sometimes. You almost always will receive more money for the property if you list it with a Realtor. And Realtors have a code of ethics. Now, some investors are very, very ethical. Some are less so. And it can be difficult to tell the difference.
The drawback to listing it with a Realtor is that investors really can buy the property for all cash in just a couple of weeks. You're dealing with a buyer (or sometimes a wholesaler, who will sell the contract to another investor, who then purchases). In today's market, a Realtor can't promise: "We'll be at the closing table in two weeks," or even "We'll have a ratified contract in two weeks." An investor can. And investors do buy in "as is" condition because they factor the repair costs into their offer.
Vicky is describing some of the other techniques investors will use. And they're legitimate, too. However, no ethical investor (again, there are many) will claim to be buying for all cash, then somehow switch over to a lease-option or subject-to transaction. In fact, those transactions are used in different circumstances. The "We Buy Houses" approach works best when there's a lot of equity in the property, and the owners want to sell the house and recover whatever equity they can right away.
Lease-options work when there's equity in the property, but the owner doesn't need the cash right away. The owner will receive the cash (and likely a much higher sales price) a few years down the road when the option is exercised. Subject tos work best when there's not much equity in the property and the owner is considering "walking away" and just wants out.
Also, lease-options and subject tos work best when the rental income covers the payment the investor must make (the underlying mortgage in the case of a subject to, or the lease the investor has negotiated with the owner, in the case of a lease-option). That really doesn't matter for an investor buying at a deep discount; the discount is so deep that the investor knows he/she can easily resell the property (as Mary describes).
So, the "We Buy Houses" technique is worth it if you have some equity in your property and absolutely, positively, want to get rid of the property in a matter of weeks. It's not worth it if you have the time and patience to sell through a Realtor...or (heresy of heresies) even FSBO.
Hope that helps. And feel free to contact me offline with any other questions.
There are some crooked investors out there and I've seen them, so do you due-diligence. I've taught workshops and gave presentations on advanced Real Estate Investment strategies, but the number one thing I've taught is to be fair and ethical to people.
I've worked with a fair share of realtors who were not too honest and ethical either, it really comes down to people, proven history, and after a thorough evaluation of the situation, who is best suited for your needs.
Somehow, someway, they ended up selling their home for 70k less then I could have sold it for. Even with my fee, they would have made 55k more. I have NO idea how the company managed to convince them that the house was worth so little. Maybe there was more to it than I know but at this point, I just send my holiday cards and have never reminded them of what i would have sold the property for and they have not brought it up.. I can't help but think, every time that I address their envelope (they live out of the area) that they pretty much lost the amount that would have paid for their son's college and how happy i was when i sent them the CMA cuz I was thinking about how happy they would be to have had such a profit.
If you are in a position where you are willing to go this route and you are recieving less than 10% of the properties value from the companies that advertise 'We buy houses" croud, then look for a realtor who will buy the home on option with that amount up front as escrow. You get the money now and some more later when it closes. I have done this for people who had to sell, and everyone involved was happy. The eventual buyer bought below market, my customer made much more than they would have otherwise, and I as the investor/realtor did good as well.
So, if you're buying that company's offer, beware.