If you're a seller in today's hot real estate market, why wouldn't you gun for top dollar through the traditional route? You know, listing your house publicly—and enjoying the resulting shower of over-the-top offers.

Well, sometimes, the cost of selling—a cost measured in time, money, stress, and energy—makes alternatives worth exploring. Selling to a private investor can offer a smooth and efficient route to your next house—but only if you have a firm understanding of the price of convenience. National real estate broker Redfin reported in November that 18.2% of houses were snapped up by investors, ranging from big firms that rent out single-family houses to small local outfits that fix up and resell houses.

How does selling to an investor work?

Investors come in with cash and offer swift, painless purchases. But investors usually make a take-it-or-leave-it offer based on their own analysis of market value. Essentially, you forfeit a potentially higher price by letting buyers compete on the open market for speed and convenience. But it can still be worth it.

Deciding between a traditional home sale and the private investor route is a relatively new dilemma, as big money didn't get into residential housing until the real estate crash of 2007 to 2008. Back in 2008, at the depths of the real estate recession, prices were so low that institutional investors overcame their historic disdain of existing houses and created huge funds to buy and rent them out. Those investments turned a pretty penny—and a new form of institutional investment was born.

Of course, that was then. Now, houses sell quickly and often for more than the seller's first ask. The National Association of Realtors reports that in 2021, 35% of houses sold for more than the listing price, with 28% snagging 1% to 10% more and a lucky 7% of buyers reaping an extra 10% or more.

How to sell your home to a private investor

To explore a sale to an investor, you need two things: an experienced real estate agent contracted to represent your best interest in the transaction, and a clear understanding of how the investor calculates their offer for your house.

Brian Bair founded Offerpad, a company in 15 states, rolling out nationally, with a packaged service that buys, improves, and quickly resells houses, charging the usual 6% realty commission. With this service, computer algorithms blend the value of a house with local market trends to arrive at a preliminary offer, Bair explains. Then, a local real estate agent fine-tunes the offer based on neighborhood norms and particular amenities or drawbacks of that house.

"We'll give you our best offer the first time," says Bair.

However, the only way to find out if an investor's offer is, in fact, the best you can get is to test the market by listing the house and inviting any and all buyers to see it and bid.

The nature of an investor's offer also depends on the type of investor. Renovo Financial lends to small investors that buy, renovate, and resell properties typically within a 12-month period. While investors backed by major funds tend to prefer cookie-cutter houses in new subdivisions (because nearly identical houses make for efficient renovation and maintenance), small investors pursue individual houses in older neighborhoods, explains Brandon Moulton, managing director for Renovo's St. Louis office.

Furthermore, small investors usually are willing to take on structurally sound houses that need significant updating, thus supporting neighborhood home values. Houses that are not move-in-ready are hard to market, even with today's hot demand, Moulton says. And the long-time residents often feel loyalty to their neighbors. "I can't fault somebody for taking the highest price, but what you want to leave behind is important too," says Moulton.

Other factors to consider

The decision gets even more complicated when you factor in how the convenience of selling to an investor might give you time to save money elsewhere, points out Bob Schneider, director of financial planning for Johnson Financial Group, a financial advisor firm based in Milwaukee.

Usually, a sale to an investor enables you to stay in your house for a little while, so you can find your best next house, which you can negotiate for with cash. You can then use that breathing room to sell what you don't want to move—and shop around for better deals on moving, cleaning, and other services, potentially making or saving money, said Schneider.

Still, amateur real estate commentators may chide you for not holding out for top dollar.

"People will tell you that you could have gotten more if you'd put it on the market, so be prepared," Schneider says. "And you need to know how you're wired: Will you always wonder how much more you could have gotten if you hadn't sold to a corporate buyer?"

by Joanne Cleaver | Better Homes and Gardens