Selling to a company may make sense


January 23, 2000

Dear Mr. Azrael:

I have seen ads about companies that will buy your house. Is there anything you need to be careful about doing this? What questions should be asked?

Doris Clark


Dear Ms. Clark:

Companies advertising that they will buy your house usually expect to fix up the property and sell it at a good profit. They often offer the owner a quick settlement for cash without a financing contingency. The "downside" for the owner is the price often is far less than [what] other better-maintained houses in the neighborhood are selling for.

Why should an owner consider selling to one of these outfits? Here's are two situations where it may make good sense.

Here's the first scenario:

You've inherited a home that's in need of extensive repairs. A real estate professional does a market analysis that confirms that homes in the immediate neighborhood sell for between $70,000 and $80,000 when they are in good condition. But your "white elephant" needs a new roof, updated electric service, a new furnace and a paint job. A contractor estimates the fix-up will cost $15,000.

Maybe you don't have $15,000, or don't want to invest $15,000 in the property, pay a Realtor to sell the property and carry the expense of the property for three to six months while the repairs are made and the broker tries to market the home.

You call ABC Homes based on its newspaper ad. They inspect the property and offer you $40,000 "as is" with a cash settlement in 30 days. Even though the price is below what you could get if you fixed up the property, the $40,000 offer may be a deal you should consider.

Here's another scenario:

Your income has dropped significantly, and your bills are mounting. Your mortgage payments have become too hard to handle, and you can't refinance or work out a lower payment. Your home is in decent shape. It's worth $50,000 to $55,000, and your mortgage balance is only $25,000.

You call ABC Homes, which will pay $35,000 in 30 days and pay all settlement costs. You should carefully consider other alternatives -- including bankruptcy -- to reduce or eliminate your debts. You may want to see if a real estate broker can sell your home quickly. But the $35,000 sale to ABC Homes may make sense if the most likely alternative is losing your home through a bank foreclosure.

Selling a home is a major transaction -- be careful and get advice from real estate professionals.

Some practical tips:

Find out the value of your home. Real estate brokers usually will inspect your home and give you a market analysis.

Estimate how long it will take to sell your home and what the carrying costs will be during the sale period.

Compute the net proceeds you will get after paying any fix-up costs and expenses of sale, such as points, closing costs and broker's commission.

Once you have this information, you can better evaluate any purchase offer.

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