Your REALTOR®’s Advice Is Worth Every Penny

We have all been there: hiring a REALTOR® to represent us in a real estate transaction. As REALTOR®, my best advice to you is to… follow the advice of your REALTOR®. This is key to success in real estate.

Two cases in point.

CASE #1. Jim places a cash bid on a REO property priced in the low $60,000’s. After a few days Jim’s REALTOR® shares that there are six competitive offers on the property. Jim asks his REALTOR® what he needs to do in order to secure the property. REALTOR®’s advice is to go $8,000 – or about 12.7% – above asking price. Jim has to tap into his 401k in order to find the extra funds, and knows that the property will additionally require approximately $7,500 in repairs. Nevertheless, Jim OK’s his REALTOR®’s advice with no hesitation. Jim wins the bid and secures the property. Jim rents out the property at $1,000/month. Three years later Jim’s property is worth about $130,000.

Let’s do some quick math:

  • $72,500 (purchase price) + $7,500 (repairs) + $1,550 (tax penalty for early 401k withdrawal) = $81,550 (total investment)
  • $12,000 (yearly gross rent) x 3 years = $36,000 (gross rent)
  • $130,000 (property current value) – $81,550 (total investment) + $36,000 (gross rent) = $84,450 (Jim’s gain)

In short, Jim’s agent’s advice was potentially worth $84,450.

CASE #2. Louisa hires a REALTOR® to purchase a residential property. This is Louisa’s first time buying a home and she has never worked with a REALTOR® before. Upon finding the perfect property, REALTOR® advises Louisa that due to market conditions and in order to win a multiple-bid situation, she’ll have to offer about $10,000 – or about 6.7% – above the $150,0000 asking price. Property could potentially be worth $190,000 after three years. Although Louisa has the ability to write a higher offer, she chooses to play prudently, and against her REALTOR®’s advice: $5,000 above asking price but not more. Louisa is outbid and she loses her dream property.

Let’s do some quick math:

  • $155,000 (purchase price) + being outbid = $0 (total investment)
  • $190,000 (property current value) – $160,000 (potential winning bid) = $30,000 (lost equity)

These two cases are similar. In both instances a REALTOR® recommended an offer above purchase price. The former yielded a 100% return over three years, the latter a 0% over the same time span.

Your REALTOR® is working for you, and your best interest is her/his goal. Your REALTOR®’s judgement and experience are worth every penny!

Happy house hunting everyone!

GL

Market Updates – March 2019

Time to look at the housing market behavior.

Generally speaking, inventory in the GRAR area has further decreased, and likewise sales, while in the last month listings have seen an uptick. Residential new listings have been in line with the same level of last year (833 in January 2019, vs. 835 in January 2018) multi-units have dropped by 34.4%. Vacant land instead has witnessed a sharp increase, from 82 new listings in January 2018 to 143 last month.

Closed sales have dropped by 8.4%, both compared to last year and year to date. However total volume has increased by 6.7%. The good news for homeowners is that property values have increased on average by 16.6%.

The average home now sells at $230,545 based on closed deals, while the pending suggests an even higher value, at $235,281.

No matter at how we see the market, it is going to be another hot season. Snow is melting, buyers are very active, competition abounds. My personal experience suggests multiple offers – up to 24 already! – over $20,000+ above asking price, and more properties sold before broadcast.

Sellers, time to make your move. Waiting won’t give you an advantage: low inventory is driving prices up. Buyers do not sit on the fence. You’ll probably have to go through a few biddings before securing your dream home. And if you are planning to buy contingent to marketing your house, do so with confidence. Your own property will sell in a matter of days, if not hours!

Happy realestating everyone!

GL

Market Updates – Entering the 2019

If my personal activity as REALTOR® during December 2018 and January 2019 can offer any indication, then my prediction for the Grand Rapids real estate market is that of another positive spring.

Work has been incessant on both sides: buyers and sellers.

On the buyers’ end, starter homes and properties priced in the high $100,000’s or below  are quickly moving under contract – quickly in the Grand Rapids area refers to days, or hours – and in a few cases presented with multiple offers. Properties in the $300,000 to $500,000 range are also receiving immediate interest, but taking a few more weeks to go under contract.

At the same time, given the low inventory, I have been scouting for additional properties not yet or not at all on the market for my clients. And I have found property owners generally amenable to open their doors.

On the sellers’ side, inventory is now at a historic low per GRAR statistics – lowest number of listings submitted to the MLS since 1997 – yet owners are actively preparing their properties for the upcoming market: I will list one house this week that has been thoroughly renovated with gusto. When buyers have more choices, sellers tend to offer partially or fully remodeled or updated homes.

Commercial properties are also being sought after. One of my commercial listings is pending, another is attracting many showings, while at the same time I am helping a few clients who are looking to expand, or acquire new holdings.

The recently passed referendum approving Proposal 1 is bringing new business to Grand Rapids. Commercial- or industrial-zoned properties in designated areas are now being targeted by investors, some of whom I am representing: a unique opportunity to learn about a new business and possibly becoming an expert in a real estate sector with enormous potential.

The rental business is also abuzz. These past weeks I experienced a spike in calls from people seeking help in securing a place for rent. Alongside, as market rents increase and options seem to dwindle for tenants, landlords appear to be investing in improvements: fresh paint, new floors, higher-end appliances, renovated bathrooms.

In the end, whether you are planning to sell, buy, or both, always seek the help of a REALTOR®.

I am always contactable if need be. Happy 2019 property hunting everyone!

GL

 

Understanding the Market – December 2018

Many, many, many – did I say many too many times? – many people have been wondering and asking what’s happening to the housing market these days. And rightly so. Because we are observing a shift.

This question is especially relevant when deciding to sell, or buy. All indicators point to a market slightly winding down and becoming more balanced. As we have discussed in previous analyses, rising interest rates and house prices have been affecting market trends. While pockets in the US are experiencing down times ahead, such as in Dallas, TX, in Kent County, and the wider Greater Grand Rapids Metropolitan Area, the field is currently healthy.

In Kent County, we are still hearing of a few multiple offers, and sales above asking, but far from the double-digit number of offers seen during last spring and summer.

Down to the details, in the Greater Grand Rapids Metropolitan Area the year-to-date average months of inventory for the first time appears to have stabilized at the the same levels of 2017. This follows a continuous, steady decrease, from the 13.3 months in 2008 to just 1.5 in 2017. Kent County reflects the same trend: levels for 2017 and 2018 are at 1.4 months.

Noticeable is the percentage in pending sales compared to last year. In Kent County, a 1.6% increase in pending sales has been met by a 15.2% increased volume. For closed sales these numbers are 4.6% and 18.6% respectively. Based on closed deals, the average home now sells at $230,662, an 11.7% yearly gain. That number is even higher based on pending sales, at $232,102. Property value continues to grow while residential new listings are also up 6.8%.

Multi-family units continue to be much sought after and to increase their value as investment. The number of multi-family listings has decreased in October, while overall it has increased year-to-date compared to last year: pending sales are down 30%, with volume up 12.1%. Volume for closed sales in October alone has gained a noticeable 89.6% compared to last year.

Sales of properties priced $500,000 and above has been slightly below market share during the past months, now at 3.4% of closed, and 3.9% of pending, with an overall year-to-date at 3.7%.

My own experience as REALTOR® on the field seems to corroborate these numbers. When inventory is really low, or properties experience high number of offers and then sell in a few days or hours, rarely there is need or room to schedule open houses not connected with an offer-due-by deadline. Conversely, with properties sitting for a few weeks on the market, more space for promotional activities is available. Of the 10 open houses I held in the last three months, 5 happened in the last thirty days, and a next one is scheduled in just two days: a clear acceleration in pace in line with market behavior.

We’ll continue to monitor the market as we move through the holiday season. Thanks to limited competition, data seems to support that this might be a good time to sell, depending on property value; more confidently so for land and multi-units. In spring we expect higher interest rates, which combined with raising home prices might place a few properties out of reach for some buyers. If not yet prepared to sell, this might be the perfect time to start renovating and updating your home ready for a spring listing. With increased listing prices and less competition, buyers now expect something more for their money.

Happy holidays everyone!

GL

The Basement Speaks

When showing a house, a visit to the basement – if and where accessible – is indispensable. Here one can gather many clues about the property. Some basements are in perfect shape, other in various conditions and degrees of maintenance. While each situation is different and property age must be factored in, remediation is generally possible where warranted. Obtaining an expert opinion during inspection or secondary inspection – and possibly a quote from a reputable company – represents the best way to one’s peace of mind.

When walking through a basement, one should look for structural soundness or lack thereof, signs or humidity or water, any potential active or inactive infestation, cracks, bowing walls, supports, beams, plumbing, electrical, furnace, water heater, and any other elements that can help assess the overall quality of the property.

These pictures were taken from a few past showings and inspections of unfinished basements, and might help familiarize with some of the possible findings:

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These damages were caused by powderpost beetles.

 

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These joists were sistered when a new floor was installed above.

 

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Other sistered joists.

 

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An overall look at the wall profile. Many updates visible.

 

An updated distribution board.

 

A brand new furnace, perfectly code-compliant: notice the plate below to detect potential water leaks.

 

Gas shutoff valve replaced with a code-compliant one.

 

Signs of humidity on this wall.

 

Signs of humidity.

 

Here plumbing has been updated with PVC pipes.

 

Basement walls have been stabilized through the installation of helical piers.

 

Evident cracks in the foundation cinder block wall.

 

A clean, unfinished basement.

 

Fun basement findings: an old barbershop chair for a group picture!

 

These are but a few examples. When walking through a property, and especially a basement, it’s good practice to keep the seller’s disclosure handy – always mandatory in Michigan for residential properties, 1-4 units. At the time of offer, basement conditions should be given consideration in the purchase price. While it is possible that seller might be willing to negotiate on unexpected findings, it is unlikely that negotiations will ensue due to evident and/or disclosed issues.

Being able to identify potential defects during your showing will save time and money. This is why the service of a REALTOR® is always recommended, because through your agent’s experience many questions can be answered immediately, and be reflected in your purchase agreement.

As usual, I am always contactable if need be. 24/7. Happy basement explorations everyone!

GL

Understanding the Market – October 2018

Now that we are approaching the holiday season and the end of the year, how is the real estate market behaving?

In September we predicted a continued strong market. Data shows that the trend is at pace with our forecast, whereas growth is expected to slow down nationally. Per Freddie Mac’s analysis, the increasing interest rates, combined with other indicators, will pull the breaks on home price growth in the years ahead: 5.4% in 2018, 4.6% in 2019, and 2.9% in 2020.

GRAR’s monthly statistics in Kent County and the Grand Rapids area – both by comparison to last year and year-to-date (YTD) – show fewer new listings, closed deals, and pending properties. Yet, volume has increased significantly. By how much?

In the GRAR area, compared to last year, closed sales were down by 5.6%, and YTD by 3%. Volume on the other hand increased by 0.8% and 5.8% respectively. YTD average sale price has gained 9.1% based on closed sales, and by 9.4% based on pending deals, confirming the home price growth trend.

Multi-family units are behaving somehow differently. We observe a 2.1% rise in listings, and a 75.9% increase in closed volume compared to last year, in spite of a 11.4% decrease in transactions. Across Kent County the multi-family volume has increased by a staggering 99.9% during the same period. Freddie Mac is pointing to similar interest in new multi-family homes nationally, in spite of overall slower growth in the third quarter.

In Kent County, sales of single family homes valued at $500,000 or above have continued steadily at 4.3% of market share, with 34 units closed in August 2018 and 298 since the beginning of the year.

This general tendency is sustained by the average months of inventory, which has been decreasing steadily from 2.3 in 2014, to 2.0 in 2015, 1.8 in 2016, 1.4 in 2017, and 1.3 as of September 2018.

All these indicators point to a consistent and more balanced market in which home values are increasing significantly in our area, above national average. My personal local knowledge and experience align with the data. While multi-offer situations have decreased – there are seasonal adjustments to take into consideration – demand is still strong.

Whereas mortgage rates are expected to increase for the upcoming two years, raising to 5.6% in 2020, the real estate market continues to benefit from low unemployment combined with solid employment rate.

This seems a perfect time to sell and buy. Home prices are increasing, to sellers’ satisfaction. Loans can be secured with a more favorable rate now, to buyers’ advantage. Fewer multiple offers prevent buyers from overpaying, and sellers from losing a deal due to buyer’s remorse.

Time to make your move!

Happy market everyone! And yes, I am extremely contactable if need be.

GL

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Unsatisfactory Inspection

With the market in the Grand Rapids area becoming more balanced, we are observing a number of buyers walking away from properties under contract.

Paragraph 15 of our West Michigan Regional Purchase Agreement gives buyers 10 days after the Effective Date (we’ll address Effective Date in a different post) to complete all “inspections and investigations.”

This time is considered sufficient for any buyer to conduct an inspection of the property, as well as anything related to zoning, ordinances, codes, and the ability to obtain homeowner’s insurance. A land survey contingency is addressed separately. It is not uncommon for buyers and sellers to agree on a shorter or longer inspection period, or to extend it as needed – for example to investigate further unexpected issues.

The Seller’s Disclosure Statement – which is mandated for residential dwellings of no less than 1 and no more than 4 units, per Act 92 of 1993 – can provide an initial understanding of potential problems affecting a property for sale. Are appliances, systems, or services, available and in working conditions? Has there been evidence of water in the basement? Is the roof leaking? These are just a few of the items sellers are required to disclose – with a few exceptions.

When a legitimate question is raised by buyers within the agreed timeframe, sellers are typically amenable to compromise and negotiations. For example, if pest inspection reveals presence of termites unknown to seller, or if buyer provides a precise quote from a reputable company for a disclosed basement defect, there is a legitimate expectation that both parties will work together to solve the issue and move forward with the transaction.

However, issues may arise when there is lack of attention to details or good faith on one or both sides of the transaction. It is not uncommon to encounter Seller’s Disclosure Statements that are left blank, or incomplete. Sellers are legally responsible for what they disclose. A roof in poor shape, mold, an unfit electrical system, a wet basement, a leaking pipe, all would be easily discovered during inspection, whether disclosed or not. However, any unexpected major discovery, if undisclosed, may raise suspicions on the true conditions of the property. In the very least it could lead to buyers heavily countering their offer, or walking away from the deal altogether.

In a real estate market heavily skewed towards sellers, buyers often agree to accept some flaws, whether disclosed or not, as part of the deal. When the market balances out however, buyers are no longer feeling the pressure of losing their only chance to secure a deal because they feel they have options. Therefore if any issue is discovered buyers might be inclined to avoid negotiations and end the deal within their ten days, believing there will not be repercussions. Most of the times this is correct, sellers and buyers agree, sign a mutual release, and buyers are refunded their EMD.

Problems begin when there is disagreement, for example if buyer perceives bad faith on seller’s part in disclosing potential issues. Or if seller believes that buyer is ending a deal due to frivolous reasons. The first item to be contended in these instances is the EMD. Without a mutual release, if the deal fails to close, the Broker holding the EMD will notify the parties on Broker’s intention to dispose of the EMD. If one or both parties objects in writing within 15 days after the notice, the issue could potentially end up in litigation. In short, walking away from a deal could be a costly and time-consuming decision.

In conclusion, when selling a property, sellers should complete the Seller’s Disclosure Statement to the best of their knowledge. When acquiring a property, buyers should place an offer only if they intend to close on the deal in all good faith. These simple steps will avoid major headaches later on, assure a pleasant and smooth transaction, and grant a rewarding experience on both sides.

Questions? As usual, I am extremely contactable at any time!

Happy house hunting!

GL

Giuseppe Lupis REALTOR®

Understanding the Market – September 2018

Where is the housing market headed these days?

In June we predicted a strong market ahead for 2018 and 2019. Data shows that the trend is at pace with our forecast.

Per GRAR monthly statistics, the number of new residential listings in August 2018 has shown an uptick, increasing by 4.8%, while multi-family units and vacant-land listings have been stagnant. The low inventory has carried a positive effect on home values which have gained 14% since last year – in line with June 2018 numbers. The average home in the Greater Grand Rapids Metropolitan Area – which includes “Kent County; Georgetown and Jamestown Townships in South East Ottawa County; Ionia County; the six Townships in North East Allegan County; and the North half of Barry County, including all of Gun Lake” – now sells for $238,773.

In Kent County numbers have been even more favorable to homeowners. Based on closed sales, home values have increased by 15.7% since August 2017, to an average sale price of $243,050.

Similarly, sales of single family homes valued at $500,000 or above have continued unperturbed, with 42 units closed in August 2018 and 264 since the beginning of the year, maintaining a consistent 4.3% share of the market.

This general tendency is sustained by the average months of inventory, which has been decreasing steadily from 2.3 in 2014, to 2.0 in 2015, 1.8 in 2016, 1.4 in 2017, and 1.3 as of August 2018.

All these indicators point to a strong and consistent market in which home values are increasing significantly. My personal local knowledge and experience align with the data. We are still observing a few multi-offer instances, although far from the double-digit number of offers experienced in spring – remember the 13, 27, 45, up to the astounding 58 (yes, you read correctly, fifty-eight) offers for a property in Grandville, MI?

Statistics and market conditions in the Grand Rapids area are consistent with Freddie Mac’s analysis. Although mortgage rates have jumped by an average 0.82% since last year and their increase will likely persist for the next two years, the real estate market will continue to benefit from low unemployment combined with solid employment rate. Home values on a national level are anticipated to grow by an average of 6%.

Hence, homeowners and homebuyers should be able to confidently sell and buy, capitalizing on their equity, and looking at a solid investment. No one can predict the future with absolute certainty. However, given all the data, if one is planning to sell there could be no better time.

If you are a buyer, the market might seem intimidating right now, but postponing your purchase may not be the best approach. Prices are going up steadily, interest rates are also increasing, while borrowing limits typically do not. Instead, property values follow the market. The good news is that if you buy today you’ll have secured a better interest rate, and by next year your investment will have yielded an average 6% nationally – or possibly a 14% locally.

Happy sales everyone! And yes, I am extremely contactable if need be.

GL

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When The Trevi Fountain Went Up For Sale

The Trevi Fountain is an iconic landmark in the heart of Rome. As such, it has been the subject of many movies. La Dolce Vita (1960) by Federico Fellini is likely the most famous.

Trevi Fountain
Trevi Fountain

The fountain is also extremely attractive for its business potential. Each year tourists throw in the fountain approximately €1,4M – about $1,624,000, or $4,450 per day worth of coins, which are given to charity.

The crowded fountain
The crowded fountain

Because of its profitability, someone did try to sell the Trevi Fountain as investment property. The alleged sale, which was presented in the movie Totò Truffa, features all the elements of a real estate transaction: showing, asking price, negotiations, multiple offers, and collection of the Earnest Money Deposit. Especially the latter.

Did the transaction close? Well, not really. A series of major missteps was made by the buyer. We are going to analyze them, but not before you watch and enjoy the five-minute clip in Italian or with English subtitles.


This is a transaction between a FSBO (Totò, aka Cav. Uff. Antonio Trevi) and an unrepresented buyer (Decio Cavallo). Although not the norm, these deals happen and close. However, if the sale presents potential issues, an inexperienced buyer who has lived many years abroad might not be able to read the warning signs. Which is exactly what happens to Mr. Cavallo.

Mr. Cavallo trusts Totò’s claim of ownership and the desirability of the fountain. Totò makes him believe that the licensing rights are set at L. 100 per picture, or about $1.36 of today’s money. Three pictures equal $5.00 profit. Not bad for a monument that is photographed a thousand times each day!

In the initial phase of any transaction buyers should acquire information through, among others, the words of the seller. However Mr. Cavallo’s information only comes from the seller, and when he sees a conflict with his tourist guide, he simply trusts Totò’s words.

Misstep #1: Research, or lack thereof. Which should be conducted before making an offer. Including obtaining the seller’s disclosure form as a starting point.

Mr. Cavallo now wants to buy the fountain that Totò is willing to part away with. The price is L. 10,000,000, or today’s $136,600. Mr. Cavallo does not negotiate. Perhaps he thinks he is having the best end of the deal.

Totò appears to be a skilled salesman. Mr. Cavallo misses the seller’s claim that the property has been in  the family for generations, and does not wonder why, suddenly, it becomes available to him and only him. A below-market asking price for such unique piece of real estate and profitable business might be too good to be true.

Misstep #2: Rush. This is exactly the spin and the pace Totò has masterfully placed on the deal. An asking price that is a perfectly comprehensible number – typical of transactions based on passion rather than reason – and unbelievably cheap. While personal residential purchases can be emotional, business investments should not. 

The price is agreed by the buyer, but the negotiations instead focus on the Earnest Money Deposit. This is where Totò’s interest resides – after all, he has no title to sell the Trevi Fountain! Mr. Cavallo proposes L. 100,000 which per today’s standards is a perfectly acceptable 1% of the purchase price. Totò asks for 5% – because he needs L. 500,000.

The plot thickens. Seller turns down the initial EMD offer and insists on the 5%, giving the impression of owning a much sought-after property; and that he is not willing to sell unless under the right conditions. But the negotiations stall nevertheless. Finally Mr. Cavallo is beginning to negotiate, and this might be his only chance to spare himself a very bad deal.

As negotiations take a downturn for Totò, an artificial multiple-offer situation comes handy. Mr. Scamorza, a Totò associate representing alleged American buyers, steps in. Because Mr. Cavallo’s offer has not been accepted yet due to ongoing verbal negotiations on the EMD, Mr. Scamorza contends that Totò is technically free to receive and evaluate any other offer. Mr. Scamorza does not attempt to make any specific offer on the purchase price. Simply, he negotiates a more substantial EMD in order to secure the property. This is when Mr. Cavallo finally agrees to pay L. 500,000 as deposit, in cash, which he carries in his pockets. Such amount is the equivalent of going around Rome today with about a $6,800 money roll. At this point the winning bid is Mr. Cavallo’s, who sets the closing for the following day at the American Embassy. Totò takes the money and promises to meet Mr. Cavallo as agreed.

On the buyer’s standpoint nothing is worst than seeing the collapse of a sweet deal almost in his pocket. Mr. Cavallo last bastion of resistance is now weakened, and his self-preservation instinct cracked. Totò shows his mastery by playing the card of fast pace along that of buyer’s pride.

Misstep #3: The desire of winning at any cost. When multiple-offer situations are not handled properly and buyers rush to outbid each other setting aside logical considerations – as an investment property would certainly recommend – there are risks of making mistakes, and with that, of buyer’s remorse. In this case the single major mistake was handing a hefty EMD. Cash. No receipt. Should we call it “non refundable”?

Misstep #4: Proof of funds. Mr. Cavallo is clearly well off to the point of carrying rolls of cash in his pockets. However, he never wonders why the seller does not ask for proof of funds. The answer is simple: Totò is not interested in closing the sale.

As we know, this transaction never closed.

Misstep #5: Every step of a real estate transaction must be in writing. For example, had Mr. Cavallo made an offer in writing with L. 100,000 EMD, and had Totò countered in writing at L. 500,000 EMD, Mr. Scamorza would have had no business interfering while negotiations were ongoing. At best Mr. Scamorza could have placed a back-up offer. In the very least, a written offer and counteroffer would have taken the time pressure off the hands of the buyer.

Misstep #6: Real estate transactions have a number of factors involved, and not just a purchase price and EMD. What about inspection period, land survey, title work, or proof of funds, just to name a few? None was agreed between Totò and Mr. Cavallo.

The conclusion is that whether you wish to purchase the Trevi Fountain, the Colosseum, or a regular residential dwelling, consider hiring a REALTOR®. If Mr. Cavallo had a buyer’s agency agreement in place, his REALTOR® would have run a simple title search to find out that Totò had no interest in the property and the transaction would have been moot. Sparing Mr. Cavallo the embarrassment of having to be taken away with an ambulance, and a loss of L. 500,300.

Yes, L. 500,300, because he has also paid Totò for his three pictures!

Happy fountain hunting everyone!

GL

Giuseppe Lupis REALTOR®

WE BUY HOUSES, CASH!

WE BUY HOUSES, CASH!

It happens regularly to homeowners: the unsurprising surprise of receiving a mailing stating that someone is ready to buy their home, cash, as-is, no hassles, no costs, and regardless of conditions. If one thinks that such offer is too good to be true… than probably it is.

As it happens, REALTORS® are not excluded from the pool. In fact last week it was my turn to receive my share of opportunities.

One card was inviting me to call immediately to discuss my options in case I were interested to sell for “top” money, with the promise of a quick close and a “hassle free” transaction. Another letter was proposing me to sell for “cash” and “no hassles” with the commitment to close in less than one month, and no costs; however warning of a markdown on purchase price. “I Buy Houses” signs appear time to time near intersections, and websites where to find real estate investment companies abound. Fill in a form, share some information on your property, and someone will contact you with a cash offer.

Anyone would feel enticed. After all it is every homeowner’s dream to sell effortlessly, quickly, as-is, in cash, with no costs, fees, or commissions, while having someone else handling all the paperwork. So, why hasn’t the market already rushed completely to these investment companies? And how much top dollar or discount is involved? As of now, the vast majority of sellers still hires REALTORS®, and for a good reason.

These companies promise transactions completely free to seller. Analyzing the costs attached to a property sale could help bring some clarity. Let’s consider an average house valued and appraised at $300,000 as-isbilled a yearly total of $3,600 in property taxes. What would its owner save by selling at “no cost”?

Property Taxes. A quick cash transaction closing at the end of August would save a seller four months of taxes at $300 per month, equaling $1,200 total.

Brokers’ commissions. Commissions vary, depending on multiple factors. In this example, we could assume a total of 5% to 7% of sale price, to be divided between listing and selling broker. At an average of 6%, saved fees to seller would amount to $18,000.

Seller is typically responsible for the Michigan Transfer Tax, which has a State and a County component. The former is calculated at $3.75 per each $500, and the latter at $0.55 per each $500 of sale price. Hence, seller would save $2,250 plus $300 for a total of $2,550.

Seller is also responsible for Title Insurance, which is a set amount based on purchase price. This corresponds to $1,570.73 in further savings.

There is also a series of smaller items to consider, such as broker’s fees, closing fees, sometimes a water bill final reading, and similar. We can approximate the total of these figures to $700.

Seller is not responsible for appraisal or inspection charges, and unless agreed, is also not responsible for any land survey costs.

One of the websites I visited was claiming to spare sellers those “hidden fees.” In real estate nothing is hidden. Everything is disclosed and accounted for, including all fees down to the cent. Before a listing, agents provide their clients with a net-to-seller sheet. Before a closing, seller and buyer receive a statement with each and every credit and debit involved in the transaction, and how these figures have been computed.

If we add all these fees and costs that these companies are willing to take off sellers’ hands, we obtain $24,020.73, or about 8% of the purchase price. This is a typical percentage for most sales.

Now the buyer’s costs. Per their messages, these companies do not seem interested in having REALTORS® involved. One went as far as stating that licensed real estate agents add “costs” and “confusion” 😂 to the field! One only wonders why the State of Michigan is still willing to license a horde of professionals to bring chaos to a specific sector of its economy.

Hence, by handling everything in-house, these companies would probably incur in lawyer’s fees, some closing costs, and have to cover title work, appraisal, inspection, and land survey where necessary. These costs could easily amount to a few thousand dollars: let’s pin them at around $6,000.

Numbers speak for themselves. In our case property is valued and appraised at $300,000. Some homeowners might be led to believe that these companies would agree to pay up to about $312,000 (a figure that includes all the costs excluding brokers’ commissions, as no agent is involved) netting them $300,000. A seller’s dream – but too good to be true! In a different scenario, if these companies were represented by a REALTOR®, and had a cash offer accepted at $300,000 on a listed property, with $1,200 in inspection, appraisal, land survey, and some closing costs, their total check would be cut for only $301,200, netting seller $275,979.27 – significantly less, but an amount to which seller has already agreed at the time of listing. This option would save any company $10,800 on just one single purchase! Or close to $1,000,000,000 (one billion) for any company that would  pride itself of closing tens of thousands of transactions.

If one wonders why would any investors go to great length to buy random properties paying cash about 4% above market and appraised value, the answer is simple. They won’t. It is vastly more advantageous for any investment company to shop currently listed properties. And even more profitable to extend cash offers below market value to those random sellers who are still willing to accept an offer on their unlisted houses. If a seller’s best option is to net $276,000 at market value on our sample property, a cash offer from these companies at around $276,000 ($282,000 out of pocket to the investment company versus the $301,200 on the market) might be the highest and best they could expect to receive. But investors are typically extremely attentive to nickels and dimes. If we take into account the premium that a cash and hassle-free transaction would command, the offer could prove even more discouraging to seller, perhaps 10, 15, or even 20% below market value. How does it sound a hassle-free cash offer of $255,000 on a $300,000 property as-is?

In the end, sellers, enjoy your moment in the spotlight; and if the numbers do not meet your expectations please do not be disappointed. Before accepting any offer I would encourage any homeowner to seek the services and the experience of a REALTOR®. A listing with professional marketing would certainly provide a wider chance at a stronger net return by letting the market speak first.

Happy cash sales everyone!

GL

Giuseppe Lupis REALTOR®