Looking for a way to sell your home and avoid the hassle and expense of cleaning, repairing, and listing your home on the market in the traditional way? If so, your first thought may be to seek out a cash offer. But that may not always be the best option for you.

It can be hard to sell your home fast, and for the full market value. In fact, you may think a cash offer for your home is the ticket to ease and speed. And it is. But the tradeoff for you, the seller, is price.

In simplest terms, there are usually only 2 types of cash buyers in real estate:

  1. Wealthy Cash Buyers
  2. Real Estate Investors

Wealthy Cash Buyers

Wealthy individuals who can afford to buy a home with cash do so for many reasons. Most often, it is simply because they can. Paying cash helps them avoid the ongoing hassle and expense of making monthly payments. Cash buyers also save tens or hundreds of thousands of dollars in interest that they would have had to pay had they taken out a mortgage for a home. These buyers are far more likely to pay a seller the full market value of their home. They are not typically shopping for a bargain as much as convenience and long-term savings. It’s also common that these buyers are shopping for higher priced homes that most people own.

Real Estate Investors

This is a far more common type of buyer. Maybe you are getting cold calls from someone in a call center asking if you have ever considered selling your home. Or, you may be familiar with the big name real estate agents who advertise a “cash offer” on the radio. All of these buyers are looking for one thing – a bargain!

Unless your home is a very high end luxury home and maintained in pristine, like-new condition, the odds of finding a wealthy buyer willing and interested in paying cash for it is very slim.

Back to the cash offer. When you visit a website like Homelight.com, Opendoor, Mark Spain, or any other big name company seeking a cash offer, you will give them your home address, and after a short time (or possibly within seconds) you will be given a cash offer for your home. But that is not the final price. This initial offer is almost always very close to the full market value, but this is not the actual cash offer you will receive.

These companies only make money when they buy at a low price and then turn around and flip your home for a higher price than they paid. Here’s how the cash offer really works.

Once you agree to this initial offer, the investment company will assess the condition of your home, either with photos you provide, or with an in-person inspection. The investor will calculate the cost of known and unknown repairs your home will need. It will also calculate the cost of closing for attorneys, title search and transfer, etc. On top of that, the investor has a fee added to the sale of all of the homes they buy. All of this cost is then subtracted from the initial offer they provide you, and this is your new and closer to actual cash offer price.

By the time these costs are subtracted out, your cash offer will be tens of thousands of dollars below top market value. But you won’t have to make these repairs yourself. You won’t have strangers coming through your home all day (or more likely, at night), and you can simply move on to your next home without any more hassle. And often times, the cash offer buyer can close in less than a month, meaning you have less time invested into the process, too.

This is the true value of a cash offer – you trade convenience and speed for money.

The Alternative to a Cash Offer – Buy Before You Sell

In recent years, a new alternative to the cash offer has arisen that is more of a hybrid mix between a cash offer, and the traditional method of listing and selling a home on the open MLS market. Some of the same companies offering cash for your home also recognize that the best way for a seller to obtain top dollar for their home is to list and sell your home on the open MLS market with a Realtor®. These programs have different names and the details and costs vary, but all of them are some variation on the idea of “buy before you sell”, and the name itself described the general concept.

Most home owners who sell a home also need to buy another one to live in. While this is very common, the process of coordinating a sale and subsequent purchase of a home can be way more complex than most people realize.

It is also very common that many consumers won’t have the cash needed for an adequate down payment on their next home until the home they live in sells, unlocking the stored home value, equity, that has built up over the life of their home ownership.