How The Process Works
Tell us about your property – Quick, Easy & Free!
We’ll contact you to set up a quick appointment
We’ll present you with a no-obligation offer
Close at a local title company, cash in your hands in as little as 10 days
Selling Your House Can Be A Quick And Simple Process
Home Buyers of Michigan buys houses in and around lansing. We can close quickly because we aren’t dependent on acquiring bank financing. No need to repair or clean your house, we’ll take it in its current condition. You can even leave any unwanted items behind after you sell. You won’t have to worry about paying anything out of your pocket because we’ll pay all the costs related to the sale.
So How Exactly Do We Determine Our Offer Price?
In order to determine our offer for your house we use a simple formula. We start by determining the value of your house after all repairs and updates have been made (i.e. the “after repair value” or ARV) and then subtract the cost of those repairs. We then subtract the costs we will have when we finally sell the house (i.e. “closing costs,” usually around 10%). Next, we subtract the amount of profit we need to make (this is a business after all). This leaves us with the amount of money we can offer for your house. So, we have:
ARV -Repair costs – Closing costs – Profit = Offer price
Let’s take a look at an example to more clearly illustrate how we determine the offer we make on your house. Let’s say you have a house you want to sell that is worth $110,000 in its current condition. The house is older and hasn’t been updated in many years. It only needs cosmetic updates but it is going to take a lot of money to update the kitchen, 3 bedrooms, 2 full bathrooms, all the windows, fixtures, etc. It is going to require $50,000 to complete the rehab (Rehab costs). However, once all those repairs are made the house will be worth $175,000 (ARV). At that sale price the closing costs will be around $17,500. Desired profit on a house with these costs is $30,000 . So, using the formula we discussed earlier we have:
$175,000 (ARV) – $50,000 (Repair costs) – $17,500 (Closing costs) – $30,000 (Profit) = $77,500 (Offer)
Should you take an offer of $77,500 for your house? That all depends on what you want. At this point it helps to do some calculating of your own. In this example we’ll walk through a common scenario. Let’s say you decide to sell your house without doing these updates and list your house with a real estate agent. However, you will be competing with all the other houses on the market that are already updated and buyers are going to discount the value of your house as a result. So, after your house sits on the market for a month with only a couple showings and no offers you decide you need to drop the price to $104,900. After another couple weeks you accept an offer for $100,000. Now the inspections begin. Because the house is not in perfect shape, the buyer’s home inspector discovers a number of issues and the buyer decides he wants them fixed before he will move forward with the sale. This is going to cost you $2,000. Now you have to decide whether you want to spend that money to perform the updates the buyer is requesting. Two more weeks go by for the work to get done. It takes another couple weeks for the appraisal and the buyer’s bank to get things in order. So, now we have:
$100,000 (Sale price) – $2,000 (Repairs) – $10,000 (Closing costs) = $88,000 (Total proceeds to you)
Now you have a decision to make. You can accept an offer for $77,500 right now with no hassle with the house in as-is condition. Or you can take 3 months or more to list the house, spend your own money on repairs requested by the buyer, hope the appraisal comes in high enough and then finally close. Assuming all that goes smoothly (it doesn’t always), you would walk away with $88,000. So, the decision would have to be made by you if the extra $10,000 or so would be worth the time and effort involved.
Now, let’s look at that same scenario with just a few differences. Let’s say we could get creative with the rehab and reduce the cost to only $40,000. Also, let’s say the current market conditions are placing a premium on completely rehabbed properties and the After Repair Value would be more like $190,000. Our desired profit would remain the same at $30,000. So in this situation our offer would look like this:
$190,000 (ARV) – $40,000 (Repair costs) – $19,000 (Closing costs) – $30,000 (Profit) = $101,000 (Offer price)
So this is a situation in which our offer would actually be more than the $88,000 you would have received by selling through a real estate agent and you wouldn’t have any of the hassle associated with listing your house.
Every situation is different. Our goal is to be transparent with you regarding our process and we understand it is not always easy to determine your best course of action. We will try to assist you through your decision making process.
How Do We Determine Our Desired Profit?
As with every business, we need to make a profit to be able to continue doing what we do. Our experience has helped guide our decisions in this business and there is no exception when it comes to profit margins. We have learned that it can be very difficult to project the actual profit we will make when we buy a house. The broad rule of thumb is we want to make around $15,000 in profit for every $100,000 invested (including purchase price, rehab and all other expenses). This number may sound like a lot but there is a reason for it. We have purchased houses in the past in which we have lost or nearly lost money. One of the biggest factors is underestimating repair costs. The most recent example involved a house in South Lansing that appeared to be heading for a decent profit. However, once we started getting further along in the rehab project, we noticed a new foundation problem that ultimately cost $7,600 to completely fix. There was also a surprise when we opened the walls of the bathroom and found a large amount of rot from leaking around a tub. Then ultimately we discovered the roof was leaking and wasn’t in good shape as previously thought. Replacing the roof cost another $8,200. This example is a little more extreme than usual but there are often unknowns in a house that are very difficult to anticipate at the time of purchase. In the case of this house, we ended just about breaking even once we sold it. This is the primary reason we have to include the profit into our calculations at the level we do. It only takes one or two unexpected issues to entirely erase any profit we thought we were going to make. So, we try estimate our profits as accurately as we can but know things often change.
A real estate agent also works for a profit but we call it a “commission”. A commission, unlike our profit, is guaranteed to the real estate agent. So, if you are in the middle of selling your house with an agent and the buyer’s home inspection uncovers some unexpected issues then you get to pay for the repairs. The agent will get their commission check at the end of the process no matter how much it costs you. When you receive an offer from us, we are assuming the risk of anything that happens after we buy it. If the furnace goes out in December two days after we paid you for the house then we will absorb the cost to replace it. If that same furnace goes out while you are in the middle of the process of selling with an agent then it will be all up to you. Just something to consider.
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