Only a decade after the burst of the housing bubble, more people are flipping homes now than ever before. Defined as a property bought and sold in the same 12-month period, Attom Data Solutions reports that more than 207,000 homes were flipped in 2017, along with a decade-high 138,410 people or companies involved in the fix and flip industry.
Of course, not everyone who invests in a fix and flip property possesses the same expertise as that of the HGTV stars seen flipping houses on television every week. Whether drawn in by the popularity of those television shows, the opportunity to be their own boss, or simply a chance to make money in a seller’s market, there are a lot of inexperienced flippers currently trying to make a profit on their investment.
Given that demand is generally exceeding supply in today’s housing market, the reality is that many fix and flip properties will receive multiple offers once the renovations are complete, making many sellers unsure of what is best for their financial well-being.
What constitutes a “good” offer?
In a seller’s market, a fix and flip property will likely receive multiple offers in a short amount of time. As of April 2018, on average, homes are being sold within 64 days, down from 77 days the year prior, marking the eighth consecutive year of annual declines and a new record low.
Therefore, it’s critical as a seller of a fix and flip property to discern the best offer out of the bunch.
Here are a few aspects to consider:
Is it a cash offer?
Cash offers are typically the easiest offers to navigate since they remove many of the contingencies that usually accompany offers on a home. As a result, there’s greater assurance for the seller that not only will the purchase go through without any issues, but there’s also a reasonable expectation for the sale to be completed much quicker than compared to other offers that require financing. Unless the cash offer is too far below the asking price, it will be tough to beat.
How many contingencies come with the offers?
Assuming no cash offers have been extended on the property, sellers will likely be faced with multiple offers that contain financial contingencies. Securing financing is a common contingency, but it’s not the only to be aware of. When comparing multiple offers, the less contingencies, the better. Offers that are contingent upon the sale of another house, for example, can be risky for sellers because there’s no guarantee that the buyers will be able to sell their house in a timely manner. The consequences could be a delayed sale on the fix and flip property – or worse – the entire deal falls through. Contingencies are common in real estate deals, but without question, the offers with fewer contingencies will simplify things from a seller’s perspective and can be a valuable tiebreaker in choosing between seemingly identical offers.
What’s the timing of the offer?
Even in a seller’s market, the longer a house sits on the market likely will result in an increased negative perception of both the home and its value. A seller’s dream on a fix and flip property is to field multiple offers shortly after the house is listed. However, if a single offer comes in during the early days of the process, carefully consider the ramifications of waiting for more to come in. Often, the first offer is the best offer and the most activity typically takes place in a listing’s first three weeks. Choosing to decline the first offer in hopes of a better offer coming in may result in the home sitting on the market much longer and cost the seller more money in upkeep, taxes, utilities and a potential lower value on the home.
What are the closing expectations?
In a scenario where, multiple offers come in for the fix and flip property, it’s not unusual for some of the offers to hold a lot of the same characteristics – price, number of financial contingencies, etc. In an effort to prioritize one offer above another, closing details can be a valuable tiebreaker in determining the best offer. An offer that requires 60 days to close, as opposed to only 30 days to close, can easily help one offer stand out above the rest, especially if it lines up with the seller’s ideal deadlines.
A fix and flip house represents great potential for investors who take on renovating and selling homes to make a profit. Intelligently navigating through the eventual offers on a renovated fix and flip property is a critical part in maximizing return on investment. When fielding an offer or multiple offers on your fix and flip home, keeping these four questions in mind will best position you to find and accept the best offer on your property.