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Posted by
Cherie Foteh

Should I sell my flooded home to an ugly house buyer or list it on MLS/HAR?


If your home was affected by the recent flooding and you do not plan to rebuild, you may be wondering whether to sell your home to an "ugly house buyer" or to list it in HAR's MLS (Houston Association of Realtor's Multiple Listing Service).

The short answer is, it depends. There are pros and cons to both. 

Let's start with what is the SAME, no matter which route you choose.

1. Cash, As-Is. In most cases, the property will be purchased cash, as-is. Generally, lenders will not lend money for flooded homes. NOTE: The exception to this is if the buyer's primary residence was in a Presidentially-declared disaster area and was destroyed or damaged to such an extent that reconstruction or replacement is necessary; in such a case, buyers could qualify for an FHA 203(k) loan which lends the purchase price plus construction cost. However, the majority of buyers will be paying Cash.

2. Title Company. Any buyer is going to want to make sure there is clear title to the property. Services of a title company include checking for liens on the property, including mortgage company, construction liens, divorce liens, etc.; making sure the property is actually deeded to the seller; and checking for encumbrances. They will also issue the buyer a Title policy insuring the buyer against future claims to the property.

3. Quick Close. If there is no lender involved, there is no requirement for appraisals or a buyer approval process. Closing can happen quickly.

Now, what is DIFFERENT?

Selling your home to an investment company

No doubt, by now, you have many investment companies courting at your door, offering to buy your property. These companies will do one of three things: 1) rebuild the property and resell it, 2) rebuild the property and hold it as a rental investment, or 3) wholesale the property to another buyer; a real estate wholesaler contracts with a home seller, markets the home to potential buyers, and then tries to assign the contract to a different buyer for more money before the contract with the original seller closes.

Assuming the buyer is completely upfront about their intentions, this can be a great option. It's easy. They will usually agree to cover your closing costs, and you don't have to find a realtor or pay commissions.   

However, as the name implies, these companies are purchasing properties as investments--for profit. Meaning...their goal is to buy the property VERY cheap so they can MAKE MONEY.  

Also, beware of scammers. There are unscrupulous companies who will make you an amazing offer, only to keep reducing the price along the way. And read the contracts carefully; have them reviewed by an attorney to protect yourself.

Selling your home on HAR / MLS

If you want to get the most money for your property (even after fees), your best option is probably listing it on MLS. If you have completely gutted the interior of your home, you can still list your property on MLS.

Listing your property with a realtor is not difficult; and if you are reasonable with the price, you will probably still be able to close fairly quickly.

The key word here is "reasonable." Your realtor will be able to see what is listed and what has sold in your area and let you know approximately what your house could sell for. When deciding on a price, keep in mind:

1. The buyer will have to put a significant amount of time and money into the property.

2. Once the house is restored, it will not be worth what is was before the flood. It's too early to know exactly what effect the flood will have on home values, but as a rule of thumb, if this was the first time your home flooded, you can expect the restored value to be 15%-20% less than before the flood. For instance, if your home was valued at $200,000 before the flood, the After Repair Value could now be $160,000-$170,000. 

3. If they buyer is planning to resell the property, they are still going to want to make a profit for their time, risk and investment in the property. In addition to holding costs during repairs, they will have commissions and closing costs to pay when they resell the property.

4. Take into account the fees you will have to pay. These include commissions and closing costs. Some closing costs are negotiable as far as who pays--buyer or seller. Your realtor should give you a Net Sheet so you have a pretty good idea of what your profit will be when all is said and done.

IN SUMMARY

Selling to an investment company can be tricky. Depending on your circumstances, a house flipping company may be the best option for you. However, it is worth speaking to a Realtor first. An honest, reputable agent will give you quality advice so you know what's best for you. Maybe a house flipping company is best, or you may discover that you can make a lot more money by hiring an agent to sell your home.

If you'd like more information about what your home is worth, please contact me. I'd be happy to meet with you and look at comps in your area.

You can reach me by phone at 832-704-1162 or by email at cfoteh@gmail.com.

For more information about the buying and selling process, please visit the Consumer Information section of my website. 


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Post Category: Home Selling, General, Education

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Disclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the HRIS.
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