Are cash home buyers legit?

we buy houses for cash - Small wooden house and hundred dollar on white background

Are you considering selling your house, but need to do it as quickly as possible and wish to avoid hassle? There are several ways to go about selling a house, but not every way is equal, and you should consider the pros and cons of selling your house for cash as opposed to dealing with a real estate agent.

It is very common these days to see billboards, signs, and tv commercials featuring the words “cash for houses” or “we buy houses.” Some companies might try to appeal to a seller’s concerns over their home by indicating that they buy ugly houses or make house for cash deals, no matter the seller’s financial concerns.

Because of these and other reasons, it can sometimes feel like a warning sign to stay away, but are these cash buyers just misunderstood? Are they legitimate real estate investors? What are the pros and cons of selling your home to cash buyers, and are these investors scammers, or can they be trusted? Is it always better to deal with real estate agents, no matter the circumstance and by contract only, or could a cash sale be a good alternative when time is a constraint or when the house is difficult to sell? It is important to stay knowledgeable about these subjects as the market continues to change in 2021 and new buyers enter the market for the first time.

The Risks with “We Buy Houses” Companies

First, let’s consider the risks associated with selling your property for cash. If the buyer doesn’t seem interested in giving the best possible price for your house, this can indicate larger scams behind the cash sale, so always do your due diligence on the real estate investors and make sure they have a good track record with people online via reviews. If they don’t make a somewhat prompt visit to check out the property and take notes on the situation, you might be able to tell that they aren’t legitimate and are just a shell company.

If they are operating out of a foreign country, this can possibly be a red flag as well, because laws differ from one country to the next, and could possibly shield scammers from repercussions in cases of fraud. In the past, there have been cases of money laundering happening behind the scenes in some of these companies, and also the shielding of individuals through shell companies and other scams.

Though there has been fraud in the industry, there are also good real estate investors and companies out there that operate within the law. Make sure to do your due diligence on this, as well, and search out reviews and word of mouth on them before you commit to a sale of your house. This is a risk that can accompany real estate agents, as well, but is much less common, as generally you can find reviews and correspondence about an agent readily available online. Finding the details on a cash for houses company can be difficult, especially if they keep contact information hidden. This evasiveness is a red flag, too.

Make sure the company you deal with is easily reachable and has their contact information available to everyone online, and not behind a paywall. Make sure to email or speak on the phone with someone from the company so that you can get a sense of the human element of their company and try to understand how they operate. Once again, if the company doesn’t seem engaged on your particular sale, this is a large red flag that they might not be operating on the up and up.

Keep This in Mind

Always keep in mind that these companies are operating in order to get the best deals possible for themselves and some may even take advantage of sellers who need to sell their home quickly and without much effort. Think of them simply as an investor who wants to buy your house to reinvest or engage in house flipping. House flipping is when an investor purchases houses that are hard to sell at a low sales price, make the necessary repairs or upgrades, and sell the property for a profit. It is currently a great market for sellers. Inventory is low and market value continues to rise as more and more first-time buyers enter the home buying market. This means it is a great time for an investor or company who purchase homes for house flipping to sell for a high profit. As other avenues exist to sell your home, you have the upper hand in this current market, where you could potentially sell a difficult-to-move home with a regular real estate agent at a competitive price, rather than through a cash deal for less money without the expense of an agent.

Sellers are encouraged to consider increasing the asking price on their house because of the shortage of homes on the current open market, so don’t allow your asking price to get pushed lower simply because they make a cash offer and not a financing deal.

These “we buy houses” types can also at times be pushy and uptight about buying your home because they are there to get your signature on the dotted line, not to get their family into a new home or to work on behalf of a client. Consider the human element when selling your home if you care about the process and the smoothness of the sale because, as we all know, the people you deal with can make a massive difference in how things unfold.

What Kind of People Sell Their Home to Cash Buyers?

Generally, someone who is looking to sell their home for cash quickly is under duress from their current mortgage and are looking to get beyond those mortgage payments and move on with their life. Because of this, one of the downsides of the negotiation phase is that the houses for cash buyer company will look at your mortgage and make you an offer close to what you currently owe on that mortgage, leaving you little to nothing after making the payments. In the current sellers market, this might mean paying under market value, which means money lost for the sellers. This is something to consider when trying to make quick money on your home. Remember that they are looking for people who have recently been through bankruptcy or divorce, homes that are in foreclosure or probate, houses that have expired listings, and generally individuals who don’t have better options and need to escape financial pressure.

If you are looking to make a deal with a “we buy houses” company and you are not in dire straits financially, you will need to remember that this is the general way they do business. Once again, be sure to check reviews and do as much research as possible on a potential home buyer or house flipping company, no matter how good the offer. You don’t want to be dealing with this sale again down the road because something went wrong or was done incorrectly. Having the peace of mind of dealing with an agent can sometimes be worth it for this reason alone. A real estate agent will make sure your sale goes smoothly and treat you with respect throughout the process as they need your sale and they make commission off of it, therefore they succeed when you succeed. Beyond that, if you are unsure about the buyer, a real estate attorney can look over the offer and ensure that you are working with a legitimate investor and are making a wise choice in the sale of your house. A house for cash company is only there to enhance their bottom line, which means paying at or below market value. The right team on your side can ensure you make the most from the sale of your house.

The Rewards

One reason cash offers have been on the rise in recent months, is simply as a way for buyers to stand out in a crowded market as there aren’t enough houses to meet the demand. Buyers are actively competing for homes, and cash buyers are four times more likely to win the bid. Buyers are willing to waive certain inspections and fees in order to get into their new house quicker and to beat other buyers to the punch, and this can save the seller a lot of money.

Setting your price can be difficult in this market, and you will be tempted to post a moonshot offer, but when you are considering speed of sale in the process, you might want to find a middle ground between the 50-70 percent the cash buyers will offer and the amount of money that you would love to get on the best offer for your home. A real estate agent will help you determine the market value and set your price, but you might be able to coax something higher out of a cash buyer during a strong market like the one we are experiencing now.

The process of selling your property this way can be pretty easy and painless, as the home buying companies that we are discussing generally are prompt to make an appointment to tour your house and make an offer. They will accept all types of homes, from heavily damaged to a huge disorganized mess. You shouldn’t spend much on renovating or cleaning your home for a cash buyers intent on house flipping, because they will take on these costs after acquiring the property.

If you want to go back to renting and be finished as a homeowner, or your financial circumstances have changed and you can no longer afford your home, this may be a quick and easy way to get out from under your home, but always remember the risks we discussed earlier and use this as a last resort. A cash offer should be used to pay off the remaining mortgage and get you back in financial shape to reenter the market at a later time, and should not be considered a cure-all for your financial hardship.

Another benefit is that with a cash sale, you avoid financial institutions and their approval. The cash sale can be made between you and another individual or company without financing or terms of agreement that last years. These entanglements can feel like heavy financial burdens that some would like to avoid. Cash home sales allow you to do this and leave the banks out of it.

You Still Have Power

You still have negotiating power in the situation, and you can always ask for more, but the company will have a hierarchy that only allows them to offer a certain amount for your property. Make sure to push that to the limit in order to get as much as you can, and maintain that the current market is strong and that your house has value beyond an “ugly” or “outdated” house. Do not start too high with an offer you’ll never receive, but also don’t sell yourself short and miss out on a potential great buyer. Remember that you’re getting cash up front, and this has value in and of itself to help pay off debt before it accrues more interest, or pay off a mortgage that is weighing you down financially.

Do research and learn what other competing companies would offer for a comparable house in your area, and come ready with examples to show to back up your claims. You won’t be dealing with an individual you know personally in this type of home sale. You’ll generally be dealing with someone over the phone or online, so you can feel more confident being firm on your price, without the awkwardness of an in-person negotiation. Stay strong and stand your ground when dealing with a “we buy houses” company, and remember that they are here to help you out. They are an investor hoping to get your home for bottom dollar while at the same time helping you out of a difficult situation! Use the tips we discussed, and stand strong on the value of your home in the current market.

What Will a Cash Buyer Generally Offer?

Generally, a cash buyer will offer half to 70 percent value of the home in cash up front. This is the tradeoff you are taking in order for a quick payout and an exit from your current home or property. The risk is that you undervalue your home more than you should and take much less than the actual market value of your home in today’s strong market. If you work with a real estate agent, you will pay more upfront costs, but you will recoup them and more at the closing table. All of this has to be considered in your asking price when you deal with a cash buyer company. Since you won’t be entering into a contract that can later be altered in any way, you must be certain when you make your deal that you are happy and going to be content long term. This means examining the contract for contingencies that allow the buyer to back out later or put you in other unfair circumstances. A real estate attorney might save you from signing a bad contract. Again, the best way to ensure this is to take your time on the sale and take advantage of a very strong market for sellers.

In Closing

The 2021 home buying market is extremely competitive. Buyers are willing to buy in cash and even waive potential inspections and fees in order to jump the line and get your house before someone else does, creating an open market of sorts. You should never start with a high price that you’ll never reach, but you should consider the current market when selling your home. “We buy houses” and house flipping companies do not exist to help you sell your house, and they have to hit a bottom line to be profitable. If you want to get the best possible care and understanding when selling your house, then you probably want to take your time with which direction you go, no matter how much financial strain you might be under. You will recoup the costs and more if you do things the traditional way.

If you are under significant stress and cannot wait, selling your house for cash can certainly be a decent way of doing business and can get you back on the track to financial stability by easing your current bills and getting future payments paid off with the cash you get back. We discussed how “we buy houses” and house flipping companies shouldn’t be easily trusted, but can be useful to make a quick sale, and can get you as much as seventy percent of the value of your house in cash up front.

You will have to decide on the time frame that you have to work with and for how long you think you can wait to sell your home. The current market is robust, so you should be able to sell even a potentially damaged or outdated home on the market without much effort. The market is expected to continue in the same way for a while, so you could sell with a real estate agent and be sure that you have enough time to take advantage of a strong seller’s market. These companies are more than meets the eye, and their advertisements aside, they can be valuable, if you know how to use them to your advantage when selling your house.