The Real Deal on Cash Buyers for Houses
You've probably seen the signs offering cash for houses. These cash buyers were referred to as equity purchase companies (EPs) before the boom of social media. Now they're sometimes referred to as "opportunity investors"—with good cause.
The emphasis should be on the word "opportunity." These are companies that purchase homes from sellers who are in distress and must sell quickly. They might offer to close on the property with lightning speed, usually within 30 days because they don't have to deal with arranging for financing. They offer cold, hard cash and typically waive inspection contingencies.
These offers often seem like lifelines to owners who are desperate to get out of their homes and loans as quickly as possible. Is working with one of these companies worthwhile? Learn more about "cash for homes" companies and how they work.
Buyers Target Certain Sellers
These cash-paying buyers often advertise the types of situations they're searching for in the hope that someone will recognize their own predicament. Opportunity investors typically look for:
- Sellers who can't sell or whose listings have expired
- Sellers who are divorcing
- Sellers in bankruptcy
- Homes in probate
- Homes in foreclosure
- Sellers whose employers have transferred them
- Owners who are evicting tenants
- Vacant homes
- Trashed or damaged homes
What to Expect With Cash for Homes Companies
If you decide to call, the buyer will most likely make a prompt appointment with you to come to your home. They'll want to know early in the meeting how much you owe on your mortgage. Everything begins with this number. If you still owe your mortgage lender $50,000, that is likely exactly how much the fast-cash buyer will offer. They won't budge and go higher. You'll get just enough cash—maybe—to cover your loan balance.
They most likely won't make an offer until after looking over your property, and the value they assign to it will closely correspond with the amount of your outstanding loan.
If any outfit proposes fees and wants them upfront, this is a warning sign. Real estate agents take their commissions at the end of the deal, so it's important to determine why this person wants money in advance.
Generally, these companies will point out that you'll pay no real estate commissions, but sellers actually net more by hiring a listing agent most of the time. Agents may be able to sell the home for more than the home's fair market value. You likely won't get this from a fast-cash buyer.
These operators typically process the sales in-house instead of hiring an outside service, and they pay for their own title policies or even skip title insurance altogether. They look to save every dime.
How Much Do Cash Buyers Pay?
The strategy used by cash-for-homes companies is to negotiate the lowest price possible for your home. They'll typically offer 50% to 70% of a home's fair market value.
These buyers will sometimes take title "subject to" your existing loan, meaning that they'll take over your mortgage payments. But if you don't pay off your mortgage with the cash you receive, you'll still be on the hook for that loan until it is paid off. "Subject to" transactions are generally against the law.
Cash buyers raise pools of money or use lines of credit to cash you out, and the less cash they give you, the faster they will close.
The fast-cash buyer will then turn around and resell your home to a conventional buyer for a higher sales price after closing, making a whopping profit in the process. And you most likely lost any legal right for recourse that you might have had if you hadn't signed on the dotted line.
Pros and Cons of Cash Buyers
Fast cash offers won't net you as much money as you could potentially earn by taking a traditional route to selling your home. Some representatives from these companies may be pushy when it comes to getting you to sign on the dotted line.
On the plus side, you won't have to wait and worry about the buyer being approved for financing, and if your place requires extensive repairs, you won't have to foot the bill for those before closing. Steps such as inspections and appraisals are also typically taken off the table.
Choosing a Cash Buyer
Your first tip regarding the legitimacy of such a buyer will be the company's sign. Does it have a company name or just a phone number? A phone number without a company sign or logo is a red flag, as most businesses would want to advertise their name. Most legitimate fast-cash buyers will have a website. You can also try to trace the posted phone number to a name, but you might not have much success.
You might be surprised by what you find if you can find a name. Some of these buyers are real estate firms masquerading as opportunity investors—at least on their signs or in their advertising. They're just trying to lure you in to get your listing. But even that might be preferable to a real fast-cash buyer.
To vet companies, look for customer reviews and a Better Business Bureau rating if you're able to pin down a company name.
Alternatives to Cash Buyers
Consider listing your home for sale with a reputable, full-service brokerage if you aren't truly desperate. Fast-cash buyers don't care about the finer details of the transaction, and selling a home involves so many potential legal pitfalls that you could be leaving yourself wide open for disaster if they go unattended.
Getting a more traditional, solid, and lucrative deal can involve as little as finding the right real estate agent and making some minor repairs and cosmetic adjustments to your home. You'll receive cash either way, whether you sell to a fast-cash buyer or a conventional buyer.
The difference is that a conventional buyer will probably pay more for your home, and occasionally, you may find a conventional buyer who is paying cash instead of using financing.
In cases where you're truly struggling to sell, you might want to consider other alternatives to home selling. You might want to rent your home for enough to cover your mortgage payments or offer a lease-to-own option. A fast-cash buyer is not your only choice.