Should You Take a Cash Offer on Your Chattanooga House?

You've seen the signs. Stapled to a telephone pole out on Brainerd Road, or the postcard that shows up in your mailbox with your own address printed on it in fake handwriting. We buy houses. Cash. Any condition. And if you own a house around here, you've probably had the same two-second reaction everybody has, which is: is that a scam, or is that actually a pretty good deal?

Here's my answer after doing this a while. It's neither. A cash offer is a tool. And like any tool, it's excellent for about three jobs and it's the wrong thing entirely for everything else. The trouble is nobody ever explains which is which, so people either throw the postcard away when they shouldn't have, or they sign it when they really, really shouldn't have.

This is The Chattanooga Real Estate Report — I'm Mike Burge, broker at Southern Property Shop.

I want to start with something that surprised me. When I look at how people actually find our company online — what they type into Google before they ever land on us — the single biggest thing, by a mile, is somebody looking for a cash offer on their house in Chattanooga. It beats "homes for sale." It beats our own name. There are a lot of folks around here sitting on a house, wondering if they can just be done with it. So let's actually talk about it.

First thing we've got to do is untangle the phrase, because "cash offer" gets used for three completely different animals and they only look alike from a distance.

Animal number one is the investor. This is a real person or a real company with real money who's going to buy your house, fix it, and either rent it out or sell it for more than they paid. That's the whole business. They're not doing charity and they're not doing crime. They're doing math. And the math requires them to buy below what the house would eventually be worth, because they've got to pay for the roof, the HVAC, the flooring, the six months of taxes and insurance while they own it, and then a profit at the end. If they pay you full retail there's nothing left for them. So the discount isn't a trick. The discount is the business model.

Animal number two is the wholesaler, and this is the one you need to understand because most people don't. A wholesaler isn't buying your house. A wholesaler is signing a contract to buy your house, and then selling that contract to somebody else for a fee. They never own it. They never fix anything. They put your house under contract at a number, they shop that contract around to their list of actual investors, and they pocket the spread. Sometimes that's five grand. Sometimes it's a lot more than five grand. Is that illegal? No. Is it something you'd want to know was happening before you signed? I'd sure want to know.

Animal number three is the one nobody thinks of, and it's the most boring and the most common: a regular buyer who just doesn't need a mortgage. Somebody who sold a house in California, somebody retiring here, somebody's parents helping out. They want your house to live in it. They're paying cash because it makes their offer stronger, not because they want a discount. That is a completely normal buyer who found you on the open market, and if that's who's offering, congratulations, that's usually your best deal in the building.

So when somebody says "I got a cash offer," my first question is always which animal is this. Because animal three is a gift and animal two needs a hard look.

All right, let's talk about the money, because this is where I can actually give you something solid instead of opinions.

Here's a number most sellers have never heard, and it's the most useful number in this whole conversation. It's called the sale-to-original-list-price ratio. Big ugly phrase, simple idea. It's what a house finally sold for, compared to what it was asking the very first day it hit the market. Not the last price after three cuts. The first one. And over the past year in Chattanooga, that number has run somewhere in the neighborhood of ninety-four to ninety-six cents on the dollar.

Sit with that for a second, because it cuts both ways. It means the open market — the full listing, the photos, the showings, the whole circus — is not paying a hundred cents either. The average seller in this town is landing four to six percent below where they started. That's the honest picture. Anybody who tells you the market pays sticker price is selling you something.

Second number. Time. Over the past year the average house here has sat about six weeks before it went under contract. It's bounced around — a little quicker in early summer, slower in the dead of winter, which is exactly what you'd expect. But call it six weeks to a contract, and then you've still got thirty to forty-five days to close after that. So from the day you list to the day you get a check, you're realistically looking at two and a half, three months if things go normally.

Now put those together, because that's the actual comparison. A cash buyer is offering you a discount. In exchange, you're skipping the six weeks, you're skipping the showings, you're skipping the repairs, and in most cases you're skipping the buyer's inspection request, which is where a shocking number of deals go sideways. The question isn't "is the cash number lower." Of course it's lower. The question is whether the gap between the two numbers is worth what you're getting for it. And you cannot answer that question without both numbers in front of you. That's really the whole point of this episode. Get both numbers.

Let me put some fake numbers on a real situation, just so you can see the shape of it. And I want to be clear these are made-up numbers for the sake of an example — I'm not telling you what your house is worth, I'm showing you how to think.

Say you've got a house that would list at three hundred and twenty thousand if it were in nice shape. It isn't. It needs a roof, the heat pump is original, and the kitchen is doing its best 1994 impression. A cash buyer offers you two hundred and forty. Your gut says absolutely not, that's eighty thousand dollars, are you kidding me.

Fair reaction. So let's actually check it. On the open market that house doesn't list at three-twenty, because three-twenty is the fixed-up number. It lists lower, and then a buyer's inspector crawls under it and writes an eleven-page report, and now you're being asked for a repair credit. Meanwhile you're paying the mortgage, the taxes, the insurance, and the power bill for however many months this takes. Then take your closing costs off the top, and the agent commission, which is real money and I'm not going to pretend it isn't.

Run that all the way down and the gap between the two numbers is almost never the eighty thousand your gut screamed. Sometimes it's thirty. Sometimes it's fifteen. And on a genuinely rough house, I've watched it get down close to nothing, at which point the cash buyer is just handing you your time back for free.

But — and here's the part the postcard people won't tell you — sometimes when you run that same math the gap is still sixty thousand dollars. That happens too, and it happens most often on the houses that are honestly fine. The point isn't that cash wins or loses. The point is that this is a ten-minute arithmetic problem and almost nobody does it before they sign.

There's one more wrinkle worth knowing, and it explains a lot about why rough houses trade at a discount no matter who's buying. A regular buyer with a regular mortgage brings a lender, and the lender brings an appraiser, and appraisers have opinions about things like active roof leaks and missing handrails and rotted window sills. Certain loan types are especially picky about safety and soundness. So a house with real problems doesn't just sell for less on the open market — sometimes it can't sell at all to the buyer who wanted it, because their financing dies at the appraisal. That knocks out a chunk of your buyer pool before you ever get an offer. Cash buyers don't have an appraiser. That's a genuine part of what you're being paid for.

I'll tell you the situations where cash genuinely wins, because they're real and I've seen every one of them.

Your aunt passed and left you a house in Red Bank and you live in Denver. You're not flying back and forth to meet a flooring guy. Take the cash number seriously.

The house needs sixty thousand dollars of work and you do not have sixty thousand dollars. This is the big one. A house that needs a roof and a heat pump and has a soft spot in the kitchen floor does not get retail money on the open market anyway. Buyers with a mortgage bring an appraiser and an inspector, and both of those people are going to find that stuff, and then you're negotiating repairs from a weak position with the deal already half-dead. Sometimes the cash number and the realistic market number are a lot closer than you'd think, once you subtract the work.

You're in the middle of a divorce, or a job transfer with a hard date, or you're carrying two mortgages and one of them is eating you alive. Certainty has a dollar value. Anybody who's ever had a deal blow up eleven days before closing knows exactly what I mean.

You've got a tenant in there who is, let's say, not making your life easy. Investors buy occupied houses. Retail buyers mostly don't.

And on the other side — when is it the wrong call? When your house is in decent shape, in a neighborhood people want, and you're not in a hurry. That's it. That's the whole list. If those three things are true, you are leaving real money on the table, and it's usually more money than people expect.

Okay. Last piece. How to not get taken, if you do go this road.

Get the market number first. Before you talk price with anybody. Any broker in this town, me included, will tell you what your house would realistically bring on the open market for free, and it takes about twenty minutes. You're not committing to anything. You're just refusing to negotiate blind. If somebody pressures you to sign before you've done that, that pressure is the whole answer right there.

Ask them straight out: are you buying this house, or are you assigning the contract? Those exact words. A straight investor will say "we're buying it" without blinking. If you get a long fuzzy answer about their "network of partners," you're talking to a wholesaler, and that's fine, but now you know your number probably has somebody else's fee baked into it.

Read the inspection window. I've seen "we can close in seven days" sitting in the same contract as a thirty-day due diligence period. Those two things don't go together. That's not a seven-day closing, that's a thirty-day option to walk away or renegotiate after you've stopped talking to everybody else.

And don't sign anything exclusive. If a piece of paper says you can't talk to another buyer for the next sixty days, that paper is not working for you.

So what does all this mean for you specifically?

If you're selling — do the twenty minutes. Get a real market number and a real cash number and put them next to each other on one sheet of paper. Then look at the gap and ask yourself what that gap is buying you. Sometimes it's buying you your sanity back and that's a fine trade. Sometimes it's buying you nothing and you've just given away the price of a truck. You can't know which without both numbers, and getting them costs you an afternoon.

If you're buying — this matters to you too, in a way people don't expect. When you're up against a cash offer on a house you want, understand what you're actually up against. Cash usually isn't beating you on price. It's beating you on certainty. So compete where you can: shorten your inspection window if the house is solid, get fully underwritten instead of just pre-qualified, be flexible on the closing date. And know that the ground's been shifting a little in your favor. Over the past year the number of houses on the market in Chattanooga has climbed from roughly nine hundred seventy-five to somewhere around twelve hundred seventy. That's a real change. There's more to choose from than there was, houses are sitting a little longer, and a seller who's been waiting six weeks is a different person to negotiate with than one who's been waiting six days.

That's the episode. If you're sitting on a house and you're honestly not sure which door to walk through, that's a fifteen minute conversation, not a commitment. Head over to southernpropertyshop.com and see what your home could sell for — both ways, the market number and the cash number, no obligation and nobody's going to hound you.

Thanks for listening to The Chattanooga Real Estate Report. Follow the show wherever you listen, and I'll talk to you next week.