Which offer for probate real estate is better: an experienced investor cash buyer, or an individual financed offer that’s supposedly $80,000 more?
In a recent case, turns out the individual offer was actually more like $30,000 (~3.5%) higher, plus tons of headaches and delays.
Nitpicked during buyer’s inspection
Individual buyers heavily nitpick during inspections. Unlike an investor, the individual buyer is the one who will live in the house. He has a vision of how everything should be for his new home.
This inspection showed some problems, some legitimate and some were very cosmetic. Note that this sale was an as-is contract. It’s an estate sale; take it or leave it!
At the end of the day, the buyer demanded about $20,000 worth of repairs and buyer credits. For some items, he wanted a credit so he could pay to fix it himself. The repairs that he demanded from us added months of delay to the process.
Months equals money out of the estate. Not to mention all the problems that can arise from leaving a home vacant for months. If the roof leaks or a pipe bursts during that time, it is still our problem since the house hasn’t officially been transferred.
Cash buyers will inherit problems
Cash buyers only care about big problems, except ones that affect title (such as boundary line issues or environmental problems).
But cash buyers are willing to deal with cosmetic problems. Why? Because they usually tear down and rebuild, meaning they will end up fixing those problems anyway. What about large cosmetic problems? Cash buyers have experience and teams that can easily fix cosmetic items. Since they deal with this often, cash buyers are very efficient, and their repair estimates are much lower than an individual buyer who may have to negotiate with a contractor.
Cash buyers close quickly
It’s a big deal how long the probate property sits. The longer it sits, the more risk the estate bears. Even if someone trips and falls on our sidewalk while we’re waiting for a buyer, that’s our problem.
In probate real estate, we don’t have weeks of open houses, marketing, etc. In fact, we may not even use a broker, which will save another 6% in broker’s commission (in this case, about $35,000!).
As discussed above, there is no negotiation for repairs with a cash buyer. Similarly, there is less likelihood that we will need to spend months making repairs. The cash buyer just wants to get the deal done, fix the real estate, flip it, and move on to their next investment.
Compare this with choosing an individual buyer. The legal bill will be higher, because you will spend months working on a deal that could have been completed in a couple of weeks with a cash buyer. Instead of spending $1,000 or $2,000 for closing, it could be $5,000 or even $7,000.
In conclusion: the cash buyer is still net less than the individual offer (in our case, about $30,000, or 3.5% of our deal). This estate had 4 heirs, so that comes to $7,500 each.
Was it worth it the months of delays and stress to all involved in the estate? Executors in these situations have to weigh the facts and decide for themselves.
Real estate can be messy. To learn more about selling probate real estate, check out my book, “How Probate Works,” available on Amazon.