Plus, learn how we pay a competitive price and still make a profit!
The example below shows how Direct Purchase by an investor can provide a better result for a seller than the Standard Listing Scenario. Although there is a discount up front, the Direct Purchase helps the seller avoid the substantial price erosion typically experienced in the ordinary listing process.
The table shows how, by accepting Direct Purchase, the home seller receives between 112% and 121% of what s/he might receive selling the same property through the standard listing process.
Standard
Listing ScenarioDirect Purchase Scenario
@ 85% of Appraisal
@ 90% of Appraisal
True (Appraised) Value 129,000 129,000 129,000 CMA -10% 116,100 109,650 116,100 Initial Listing Price 115,900 109,650 116,100 Asking After 30 Days -5% 109,900 109,650 116,100 Negotiated Price -5% 104,405 109,650 116,100 Post Inspection -3% 101,273 109,650 116,100 Agent Fee -6% 95,197 109,650 116,100 Bottom Line 95,197 109,650 116,100 Direct Purchase Advantage 100% 112% 121%
Let's follow along and see what happens, step by step.
In this example, the realtor performs a "Comparative Market Analysis." In order to position the property to sell competitively using standard listing methods, a realtor's CMA naturally tends toward the low side.
Oftentimes a full appraisal may show a CMA to be only 90% of the true appraised value. This is why, in the Standard Listing Scenario, we show a CMA coming in 10% below true (appraised) value. On the other hand, the Direct Purchase price is based on full appraisal.
Another tendency in the standard listing process is to find a reason to make the asking price "look good." This is why we see the further subtle price erosion from $116,100 down to $115,900 in the Standard Listing Scenario.
As it happens, the appraiser in this hypothetical example reported that the typical time to sell similar properties in the area was four to six months. This is why, in the Standard Listing Scenario, we see a price reduction of 5% after 30 days. It might go to 10% after 90 days but we have used only 5% in the example. The speed of sale possible in the Direct Purchase Scenario helps avoid this kind of downward pressure on price.
However, if you are doing the math, you again notice the subtle price erosion in applying the 5% price drop after 30 days in the Standard Listing Scenario. The real drop is to $110,105. But $109,900 sounds more inviting.
Next, in the Standard Listing Scenario, we see the seller accept a negotiated price 5% below the revised asking price. By contrast, you do not see this in the Direct Purchase Scenario.
In the Standard Listing Scenario, a further 3% is shaved off the price as a result of problems found in the buyer’s home inspection. By contrast, you do not see this in the Direct Purchase Scenario.
Last, since the Direct Purchase Scenario avoids the real estate commission, a further 6% is saved.
What is our secret?
Q: How can we provide a better outcome for the seller than might be achieved in the Standard Listing Scenario and still make a profit?
A: It really is no secret. The outcome of any real estate transaction is heavily influenced by financing. The better the financing you offer your buyer, the better the price you can demand.
We offer our buyers "seller financing." This is the best financing there is and creates great competition for a property. Our buyers, who often have credit problems, do not have to qualify for loans at a bank. We are the bank. This means that we can ask for and get from our buyers a price that is close to full appraised value.
Plus, we are not greedy. Our profit after commission is normally about equivalent to a real estate commission.
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