Can you trust “We Buy Houses” Companies?
If selling your property to a “We Buy Houses” company has crossed your mind, then you MUST read this article before pulling the trigger.
You owe it to yourself to not get taken advantage of! Discover all the “hidden tips and tricks” to stay protected.
After reading this article, you will be an expert on these three “we buy houses” topics…
- How do “we buy houses” companies work?
- What’s the catch when selling to an Investor?
- One simple trick that can get you (even more) money, and still close fast
How do these “For Cash” home buying companies work?
There are a few different ways these companies work. Some are called Real Estate Wholesalers, and some are Direct Cash Buyers. Wholesalers are individuals or companies, that contract your property with the intention of finding another investor with the capital to close the project. A cash buyer is a company (or individual) which has the funds on hand to close on your property. Whichever you end up working with, both are capable of closing the deal.
Once your home is under contract, you will enter into what is called a due diligence period. This is a period of time where your buyer will most likely be performing inspections. A common length of time would be between 1 and 3 days. If you are working with a Wholesaler, it may be mainly private lenders or other investors vetting the property for themselves. If you are working with a cash buyer it will be mainly contractors and inspector gathering rehab estimates for the cash buyer you are under contract with. Your contracted buyer has the ability to terminate their contract with you, at any time, during this period.
Once due diligence has “expired”, your buyer’s right to termite, without consequence, has will also expire. This is when you start to get prepared for closing. The closing attorney will typically be reaching out to you in order to sign preliminary paperwork, and set a date that works for both parties to close the deal. At closing the buyer will wire the full amount to the attorney, and in most cases will pay for all the buyer & seller closing costs and attorney fees. This way the seller walks away with a number very close to what the contract stated.
What types of homes are they looking for?
The type of homes these cash buyers are looking for, in the Atlanta market, are usually somewhat outdated. This means the homes were not recently renovated with modern kitchens and baths, or new major systems (roof & HVAC). Investors are looking for properties with room to repair and update the property to increase its value. Two very common styles of homes purchased in the greater Atlanta area are the 1950’s-1970’s Brick Ranch, and 1980’s Cedar-Siding Contemporary Style Homes.
Geographically, “ITP” (Inside The Perimeter) is really attractive right now. Especially in “developing” areas like East Lake, Kirkwood, the West End, Venetian Hills, etc. With the influx of people moving in, comes with it the desire for more modern homes to live in. According to a recent article in Curbed Atlanta, the “Metro Atlanta’s 2017 population of almost 5.9 million reflects nearly 90,000 residents who moved to the area last year alone.” Not everyone can afford houses in the heart of Atlanta, but they will pay a fraction of the cost for a modern, renovated version of a 60’s/70’s brick ranch.
However, don’t discount “OTP” (Outside The Perimeter)– Specifically the Northwest corridor up Hwy 75N. The hot spots used for Home Investor Companies used to be restricted to the East Cobb area between Marietta and Roswell, but now Home Flipper Demand has expanded outward. Going west of highway 75 through paulding county, all the way to Dallas, GA. Suntrust Park, the new Braves stadium, has really helped homeowner’s equity values all around Smyrna neighborhood get more for their homes. Lastly, Woodstock & Kennesaw are certainly coveted places to live up in the North West Corridor of Atlanta.
What kind of homeowners do Buyers typically work with?
There are 2 types of situations that commonly call for an investor to make a quick, as-is, cash offer on a property.
These two situations are:
- Motivated or Distressed Sellers
- Seller’s with Distressed Property
They are NOT the same –there is a large difference between the two!
Let’s start with a distressed seller. They could be distressed for a variety of reasons. Exhausted landlords that are tired of managing their tenants and property, financially distressed sellers that need to cash out on a property in order to do other things with the money, or maybe the seller needs to relocate quickly to another area, and doesn’t have time to sell their house traditionally with an agent.
Sellers with distressed property, on the other hand, are not necessarily in any of the situations above, but still have a property they need to “get rid of”. This type of seller usually has a property that is in disrepair, and it would not sell traditionally because a bank would not loan money on the property. In addition, no retail buyer would want to put in the work required to fix it up. These people need an investor to come in and do the heavy lifting. These situations come up a lot when a vacant home has been passed down to an heir(s). The heir has no use for the home, and does not want to take care of it, so it sits vacant. Eventually they decide they would like to “cash out.” Sometimes there are numerous heirs, living out of town, which can make coming to an agreement even more difficult.
How can Home Buying Companies make all cash offers?
These cash home buyers don’t use traditional methods to purchase property. Although sometimes traditional money is easier to get, it comes with a lot of rules. The house has to be in certain condition, there is lots of paperwork that has to get filled out, and because of all that paperwork, it takes a LONG time to close. However, when cash is used, you bypass all those rules. You can buy whatever house you want, in whatever condition you want, as fast as you want! Once a clear title is pulled of course. The All-Cash Process goes much quicker for both the buyer and the seller — saving time and money for both sides.
How do they find the cash you might ask? Some borrow from private lenders. These are usually other investors that have made personal relationships with your buyer, that will lend him/her their money in exchange for interest (often called transactional funding) or for a return on the house flip itself. As long as your buyer can make enough on their investment to pay the private lender back, it all works out. Another option is personal cash. Some buyers prefer to use their own money, and it’s as simple as transferring that money from their bank account to the closing attorney’s on closing day. Both funding methods are commonly used.
Is it worth it to sell to a Home Buying Company?
Selling to a Cash Home Buying company is worth it if you’re looking to make a quick and easy sale, and are willing to trade some equity on your property for peace of mind and speed. Maybe you’re out of town and don’t want to deal with sprucing the property up, setting up showings, and coming to closing. Maybe your property needs more work than you know how to do, or have the funds for, and you want to pass the project on to a professional. Maybe you’re a retiring landlord, and want to start liquidating your property the easy way by selling it to another landlord for cash. Bypassing all the lengthy inspection times and and showings. Maybe you have some liens on the house that you can’t pay back, like back taxes, or a high mortgage. As long as you have enough equity in your property, these buyers can roll that into their purchase price and pay those off for you at closing!
Whatever the reason may be, selling to a cash buyer will save you 70% of your time, and 90% of the hassle. Don’t bother attempting to hire contractors who many times overcharge retail clients that don’t know the proper prices for everything. And even if you do get proper pricing on the work you get done, when you have to pay a contractor it is very hard to recoup more than 70 cents on the dollar for home improvements done before the sale.
Beware of “We Buy Houses” SCAMS
Do yourself a favor and follow these tips, to filter out the scammers, and keep more money in your pocket.
Research Homebuying Company Reviews & Testimonials
The first thing to look for would be positive testimonials, or reviews from past clients. Website testimonials are great, but if there are only a few, they could be forged. Try asking to speak with one of their website reviewers before pulling the trigger. If they are rated on Google, look there first. It is much harder to fake Google reviews.
Don’t Contract with Companies UNTIL they Look at Your Property in Person
Avoid signing contracts with buyers that have not yet seen your property. This is a tactic commonly used by companies that will offer you a price that is close to, or at your asking price, just to get you to sign the contract. Then after some time passes, usually close to your closing day, they will come out to your property and perform their inspection, where they will come back with many reasons on why they need a price reduction, and you will be forced to drop the price or cancel the contract. By this time, you’re tired, and the boxes are packed, so you will agree to get the deal closed and move on with life. Essentially, this means a high price up front, is not always a good price. Don’t be fooled by your highest bidder.
Make Them PROVE They Have The Capital to Follow Through on The Deal
Ask for proof of funds. This is a 1 page document that proves a home buyer has enough liquid cash to purchase the home. Even if the buyer is using a private lender, they can get a proof of funds from that lender fairly quickly. It’s actually good practice for your buyer to have one on hand already. If a buyer can not get your a “POF” letter in 48 hours or less, you should be weary.
Selling to a Cash Buyer isn’t for every seller
If your house is in great condition, and you have no reason to sell quickly, then working with one of these home buying companies probably is not for you. Your highest payday will come from listing your house with a realtor traditionally on the open market, and trying to find a retail buyer who wants to live in your home. You may be required to do some small fix up here and there (called Seller Concessions), depending on the condition of your home, but you will take home more in the end.
On the other hand, if you don’t want to work with an agent, and don’t want to set up showings or clean/repair your house, and are open to trading some equity in your home for the speed and ease of the transaction, then selling your home for quick cash might be the best answer. You might not know for sure until you give both a test drive. Call your local realtor and meet with him. Find out what the value of your home might be if you did X, Y, and Z. Investigate how long it might take to sell, and see if your open to that. Then call a local investor (after vetting them, of course) that you found from online, or any other source of marketing, and schedule an appointment for them to come see your house. See what they would be willing to pay, and ask for their purchase agreement. Take some time, ask some friends & family, and make your decision.
So there you have it!
Now go out and use your new education to get these “Cash Buyers” playing against each other, and fighting to own your property!
If you paid attention, you now know who to avoid, how to save time, avoid hassle, and get the most money.
Don’t fool around with “tire-kicking” investors, just to end back up at square one. You know exactly what questions to ask so you can work with the professionals and put money in your pocket faster. Let us know if we can do anything to assist with the sale of your home!