How Much Will I Get Selling To A Flipper?

You have a house that needs some work that you can't do, or a house that you need to sell fast. Everybody has seen signs or ads before for companies offering fast cash offers on houses. If you've found this article, you're probably in a situation where you might need to call one of those companies and want to know how much of a catch there is on that 'fast and quick offer'.

The Short Answer

Many flippers often use something called the 70/30 rule of thumb as a guideline when making offers (the long answer is of course more complicated )

For example, lets take a home that will sell for an After Repair Value (ARV) of $500,000 after fixed up and slightly upgraded. And lets assume it needs $40,000 in repair and upgrade costs:
$500,000 * 70% = $350,000
$350,000 - $40,000 = $310,000 = Offer price


The Long Answer

Why such a low offer?

To start with, the 70% rule is a general guidline and may be different by market, individual, or home. For example, in higher priced markets like here (Northern Virginia), it might be more like 75/25 or maybe even 80/20, but you'll rarely find it any lower than that. Why? Are they all just trying to pull one over on homeowners who are in a tough spot? Well, there are certainly some companies and people like that, but mostly its just because there are a lot of costs and risks involved that the flipper will need to pay for such as:

  • The actual material and labor
  • Holding time (utilities, taxes, insurance, interest, etc)
  • Closing costs (buying and selling)
  • Buffer for unknowns found after starting
  • Profit (needs to pay for months of work)

Are All Investors Flippers?

If you don't need to sell right this moment, then you should take a step back and think about ways to make the most money selling an as-is house. The first thing to keep in mind is that not all real estate investor are flippers, and different types of investors have different ways they make money, which will affect both their offer, and the types of houses they buy.

Flippers

First are actual flippers. They are buying your house, fixing it, upgrading it, and then selling it to a homeowner

Builders

Builders are buying for the land. They will often either find a single family home to tear down and build another; or on larger lots build multiple townhomes, appartments, or condos to make multiple sales.

Landlords

If a landlord buys a house that's not 'turn key' ready to go, they will often be looking for a quick renovation to fix up the house and then rent it out quickly. This means they won't often look for houses that need to be gutted for major repairs, and the property would need to be in an area meeting their rental requirements. However, they aren't going to be selling the house after fixing it, and so won't have all those extra sales fees to account for in their offer to you.

Wholesalers

These are people who spend their days and money searching for houses like yours. They post signs, buy social media ads, send out thousands of postcards, and make hundreds of phone calls trying to find someone who wants to sell a house under market value, for whatever reason. Once you agree to sell it to them, the house will go under contract, but it will be an 'assignable contract'. This means that they can assign it to another person or business. In other words, you agree on a price that you're willing to sell the houes for, and then they can sell the contract to buy the house to someone else at a profit.

The wholesaler will have a list of buyers (usually flipper or landlords) who they reach out to and try and sell it for as much as they can to maximize their profit. When working with a wholesaler you will have the least effort, but also may get a lower sales price, since they need to make a profit AND the person they're selling to has to make a profit. However, this isn't always the case since the person they're selling to doesn't have to spend any time or money finding a house to buy, so it may end up working out about the same for you to sell to a flipper or wholesaler in the end. But regardless, be careful about the wording in the contract to make sure nothing looks fishy. Look for clauses about the maximum time until closing, and if there's any way for them to get their earnest money back if it doesn't close. A wholesaler offering a decent price and backing out after 3 months, leaving you with $2,000 in earnest money after failing to close may sound great to some, but think of the costs you have over that time (insurance, taxes, utilities, possibly a mortgage) and its not quite as good as it seems.


If you're in the Northern Virginia area and interested in selling a home, or you just have questions don't know what do to, feel free to get in touch below, request an offer, or see what makes us different