You’ve probably seen we buy houses signs on the side of the road, gotten an unsolicited phone call offering to buy your house, or received a letter asking if you want to sell your home. Who hasn’t scrolled past a “we buy houses” ad on social media or heard a similar ad on the radio?
Let’s face it: companies that buy houses for cash are EVERYWHERE. Deciding to sell your home is a big decision. Given the sizeable amount of money involved, you must know all the facts to make an educated decision.
At the end of this article, you’ll understand how SoldFast operates and some red flags to be aware of if you’re dealing with other companies.
Not All Companies That Buy Houses Are Created Equal!
It’s easy to set up an LLC online within a few minutes. Creating a simple website using something like Wix.com and claiming that you can pay cash for someone’s house is even easier. Here are the details a savvy homeowner should ask (and an investor should know!) before selling their house.
Earnest Money
Earnest Money Deposit (EMD) is a buyer’s promise to close on their offer. There are contingencies on contracts that allow a buyer to keep their EMD (which we’ll address below), but generally, the more EMD, the more serious they are about closing.
If a cash offer features an EMD of $1 to $500, it’s a joke. They have no intention of closing. Most legitimate cash buyers will put down $1,000 to $10,000 in EMD. One exception with lower EMD amounts is when a cash buyer pays you directly.
While there isn’t a limit to how much EMD can be put down, seeing 1-3% of a property’s purchase price is not unheard of. We recommend that you demand enough EMD that it’s worth your time if the buyer doesn’t close. It’s worth noting that you only get to keep EMD if their offer doesn’t have contingenices in it like inspection or financing. Often, unscrupulous individuals will use their contingencies to back out of a contract AND demand their money back, leaving you empty-handed.
Track Record
When interviewing a house buyer, always ask them to provide you with addresses of other properties they own or are currently remodeling. You can search for the address on the county assessor’s website and verify the ownership.
If they don’t have any projects you can walk through, that’s a pretty big red flag. Assuming they’re a major player in the market, they should be able to prove it.
License Status
If someone’s entire business runs around buying and selling houses, why would they not be licensed or have an agent on staff? Ask your cash house buyer if they’re licensed; if they say no, ask them why not.
Real Estate Agents have a fiduciary responsibility to protect their clients, which simply means they must do what’s best for you, even if it’s contrary to their desires.
Many real estate investors avoid being licensed so that they don’t have to educate you about topics such as what your property is worth or how inspections could impact your property. This helps them avoid accountability.
Check Their Reviews
If you’re thinking about selling your house fast for cash, it’s a good idea to see how they’ve treated past sellers in your position. The most common complaints with real estate investors are that their cash offers are “lowball,” they don’t close at all, or they give folks the runaround.
If you’ve got a deadline for a job transfer, foreclosure, or tax auction, you want to know if the company you’re talking to does what they say they can do. At SoldFast, we highly recommend that you check their Google reviews and Better Business Bureau accreditation status.
Quality of Construction
If you’re selling your house as-is because it needs some work, ensuring the rehabbers buying it will do things the right way is a responsible idea. Many fly-by-night construction outfits are cutting corners and hurting our community.
If they’re a legitimate cash buyer, they should have active renovation projects that you can visit.
Sell your house to someone who does quality work. Your neighbors will be grateful for it.
SoldFast has been involved in construction for over 40 years, and we pride ourselves on doing things right the first time!
Verify Proof of Funds (POF)
If a company that buys houses claims they have the cash to buy your house in a week, it’s not out of the question to ask them to prove it. They should be able to show you a letter from their banker, a statement from their bank account, or a pre-approval letter from a hard money lender. Make sure that the bank account is in their name, and the statement or pre-approval is less than 7 days old.
It’s worth noting that hard money is NOT the same as cash. While hard money lenders can close faster than a typical buyer using a mortgage, they often also require inspections, appraisals, and approval from the hard money lender. Be wary of any proof of funds from an organization, website, or business you haven’t heard of before or can’t find easily online. Disturbingly, there are websites that will sell fake proof of funds to sketchy investors. Here is one example of a website that will sell scammers a proof of funds letter for “just $4.97” gross.
Check Their References
Ask the representative of the “we buy houses” company you’re chatting with for a few references that you can call and check. We check reviews on Amazon before making any purchase. Why wouldn’t we do the same before selling our largest asset?
It’s a good idea to ask for their title company or attorney to verify if they’re regularly closing transactions. If they aren’t licensed themselves (which is a red flag), it’s a good idea to ask for their real estate agent’s contact information to find out if they’re pleasant to work with.
Checking references is a bit of a formality because no one is going to give you the phone number for someone who wasn’t happy with them, but not having any references is a giant red flag.
Not All “We Buy Houses” Companies Even BUY Houses!
In real estate investing, there are direct buyers and there are wholesalers. Wholesalers act like the middleman bringing a product (your house) to market (genuine direct buyers). The truth is that 99.9% of the time, you will make more money selling your house to a direct buyer and cutting out any middlemen. Wholesaling is illegal in several states and carries the possibility of felony charges for the wholesaler.
Did You Say “Illegal”?!
In some states, yes! Wholesaling is the process of getting a property under contract (often by pretending you’re a cash buyer) and shopping the property around to several real estate investors. Usually, wholesalers will publicly post your house for sale on Facebook, Craigslist, and sometimes even the MLS! The National Association of Realtors (NAR) refers to wholesaling as brokering without a license.
The problem is that to broker real estate in most states; you must be a licensed real estate agent or broker. If you don’t mind having your house “shopped around” to strangers, your best bet is listing it on the MLS with a licensed real estate agent who is legally required to put your interests above their own. Generally, the more folks who see your house, the more likely you are to sell it at market rate or higher.
Risks of Dealing with a Wholesaler
Wholesalers do not have a set or negotiated fee. They are free to “charge” buyers whatever they want, which typically means less cash in your pocket than when working with a real estate agent.
Unlike licensed agents, wholesalers aren’t regulated or held to any code of ethics. It’s very common for them to use fake proof of funds and lie to you about their ability to close. A well-known wholesaler was recently indicted for real estate fraud.
Dead Giveaway
If the “we buy houses” company presents you with a contract to sign that includes verbiage such as “and or assigns” by their name, they are wholesalers and NOT direct buyers.
If a cash buyer has a term in his contract like “partner approval,” he is not the decision maker and cannot buy your house, he is a wholesaler.
At SoldFast, we routinely run into folks in our community who have been taken advantage of by wholesalers. There was the man who counted on a wholesaler to buy his house. When the fake buyer didn’t perform, his house went into foreclosure, and he lost his home and his credit tanked.
Then there was the elderly landlord who trusted a wholesaler (posing as someone who could buy his house) who failed to close even though he was contractually required to do so. The city bulldozed that house and stuck the landlord with a $75,000 bill.
A wholesaler might “promise” to buy your house and even offer you a lot more money to sign a contract but if they don’t have the cash to even cut you a check, what’s the point?
Be wary of “verbal gymnastics”
Most folks wholesaling real estate will not be upfront with you about their intentions. They will often talk in circles around direct questions trying their best not to scare you off. As an educated homeowner, you will want to be very direct and firm in your questioning. If it starts to feel fishy, you’re better off exploring other options.
SoldFast Does NOT Wholesale
We have a strict no-wholesaling commitment. If we say that we will buy your house, we will buy your house, end of story.
“We Buy Houses” Companies Are For-Profit Businesses
No one becomes a real estate investor to flip houses or own rental properties without the goal of making money, as there is a tremendous amount of work and risk involved. Just ask anyone who lived through the 2008 financial crisis. There are two ways to make money as a “we buy houses” company.
Option #1: Lowball homeowners and hope for the best.
Companies who choose this option look for homeowners in desperate situations to make a fortune off of every single project they purchase. It’s common for them to offer 40-50 cents on the dollar. They often dance around questions about what a property is worth or what they plan to sell it for in an effort to get a better deal than you’d knowingly agree to.
Option #2: Negotiate great deals on construction and run a business.
A legitimate house-buying company must turn a profit to stay in business. Still, it will focus heavily on its construction operations to add value to real estate and generate profit. Things like finishing a basement or attic, building an addition, or renovating outdated kitchens and bathrooms are real-world examples of value-add construction. It’s not about just negotiating a fair deal but making a property worth more on the open market.
No one will offer you “retail” value for an outdated or needy home, but you don’t have to give it away, either! At SoldFast, we focus on creating win-win transactions with sellers based on our decades of experience in residential construction.
Selling Your House “Fast” for Cash Likely Is NOT in Your Best Financial Interest.
If you have a beautiful home that needs no work done and aren’t in a rush, you are always better off listing it with an experienced real estate agent if you’re goal is to walk away with the most cash possible. At SoldFast, we always provide a cash offer and an as-is market value so you can decide what’s best for your family. Enter your address below to get a cash offer and on market as-is value!
The homeowners that benefit the most from working with cash buyers fall into one of the following scenarios:
You already tried selling it on the MLS!
Unfortunately, there are times when the market, the property, or the price point of a house don’t make it attractive to a conventional buyer. There are two common reasons that we see houses not sell and listings expire. The most common thing we see with expired listings is that the house wasn’t marketed correctly (i.e. bad photos, clutter, etc). The second thing we find is that, unfortunately, the home was overpriced. If you’re not in a rush, you might consider re-listing with updated photos at a lower price point. If you don’t want to go through the whole song and dance again, selling for cash to SoldFast might be a great fit!
The property is well-maintained but dated.
Often, we run into scenarios with seniors or inherited homes where the property is perfectly safe and liveable; it just hasn’t been updated in 20, 30, or even 40+ years. While we love these “grandma nice” homes, today’s retail house buyers are much more picky.
Looking at what is currently on the market near your outdated property, you’ll find granite, stainless steel appliances, open concepts, and other modern HGTV-esque touches that today’s buyers are looking for. While it’s possible to sell the house as-is on the MLS, if it’s dated, you MIGHT make more money selling to a professional house buyer!
The property has tenants.
Retail house buyers cannot use a conventional mortgage to buy a house if it has tenants. Owner occupant mortgages require “owner occupancy” or the person buying the house to live there to qualify for financing. The exception to this rule is cash buyers or real estate investors utilizing commercial financing. You are almost always likely to make more money selling the property empty to an individual or family looking to move in versus a landlord.
If you can wait until the tenant vacates and remodel the unit before listing it for sale, you’re going to make more money. If you don’t want to wait or if they’re not paying, selling the property to a “we buy houses” company might be a great fit!
It’s worth noting that most real estate investors will heavily consider the rent you’re collecting as well as the purchase price to formulate an offer. It’s difficult to sell a property that’s under-rented for fair market value or even retail.
The property needs substantial renovations.
If a house is at the point that it needs repairs like a roof, HVAC system, foundation work, etc., it’s likely “too far gone” for a normal house buyer. It is 100% possible to sell a distressed house on the market, and you will potentially make more money by listing it.
Oftentimes, folks prefer to sell these properties privately for confidentiality and convenience. These are the kinds of projects that most direct buyers are looking for. If you’ve got an “ugly” house, someone else would love to take on the project for you!
The property has code or county violations.
Once you end up on the city’s naughty list, it’s hard to get off it. We’ve found that local government is much more likely to be flexible with a “new party” taking over a problem project, particularly when that party has previously worked with the local government. Oftentimes, our team at SoldFast can negotiate down fines and fees before closing to pay you more for your house.
The property has multiple heirs or a “messy” title.
If a property has 12 decision-makers, one is in prison, two don’t want to sell, and one is out of the country it can feel pretty hopeless. Especially if you’re the responsible party dealing with taxes, insurance, repairs, and maintenance. It’s extremely hard to sell a property when all decision-makers aren’t on board or available.
It can also be tricky to sell a property where it’s changed hands multiple times through quit claim deeds. Selling your property to someone familiar with quiet title actions and private investigative work might be your only option.
You need to close on a new property.
If you’ve moved for work, built a new place, or are trying to relocate a house that isn’t selling, timing of the closing can throw a wrench in your plans. We routinely work with sellers who need to cash out on a guaranteed date to close another transaction.
It’s tough to nail down a retail buyer on an exact date because it’s not in their control. A conventional buyer has to wait for the mortgage company to tell them when they can close, and it’s often 30-60 days after inspections, appraisals, and repairs. If you’re trying to sell your house to buy another home, it’s also somewhat challenging to get an offer accepted that is conditional on the sale of your home. A cash offer in hand from SoldFast can allow you the freedom to make offers confidently.
If your house needs work you don’t want to complete or prioritize convenience over selling for top dollar, working with a legitimate cash buyer like SoldFast might be what you’re looking for.
Understanding what you’ve got!
Knowledge is power. It’s hard to scam someone if they know what their property is worth. If you can look at your property unbiasedly, you will set yourself up for success.
What is your house worth? Is it in perfect shape? Look at what properties similar to yours have sold or are selling for. Zillow offers a “similar sold” feature that can be a great way to see what houses nearby are selling for.
If you don’t mind spending a few bucks, you might consider paying for a broker’s price opinion (BPO) or an appraisal. It’s worth noting that the most accurate valuation is going to be provided by someone who’s been inside of your home.
A “drive-by” or desk appraisal is likely going to be inaccurate. Appraisers and BPOs also rarely assess the current condition, such as any repairs that are needed, and focus more on a “post-remodel” valuation.
What about the Zestimate®?
Zillow introduced the Zestimate® back in 2006 and it’s been both a blessing and a curse. If your home is in average shape and cookie-cutter, it can be fairly close to accurate. If your property is unique, rural, or in an up-and-coming area it can be off–substantially.
According to 3rd party analysts, Zestimate® has an 80% chance of being within 20% of your property’s true value. In other words, they’re 80% confident when they say $500,0000 that it’s between $400-600k. That’s quite the range! Zillow’s founder famously sold his own home for 40% below his Zestimate® or $750,000 less… ouch!
Scope out your competition!
Take a weekend and walk the open houses nearest your property to understand demand and what the properties you’re competing with look like. If the open house is a ghost town, it might indicate a slow time of the year, an undesirable property, or an unrealistic price point.
Pro Tip: Most agents have “sign-in sheets” they’ll have you fill out. Just take a gander at if it’s full or not.
Regarding the condition, it’s a good idea to be honest with yourself about the shape of your property. Your home might be lovely and perfectly liveable, but if you’re competing with new builds or remodeled homes, you want to keep that in mind.
What repairs or maintenance do I need to take care of?
If your home has a roof that is 20+ years old and a water heater that is 15 years old, you’ll likely have to address those concerns before listing or during inspections before closing. It’s wise to get some bids or poke around on Angi.com to get a rough idea of what repairs will cost you.
It’s worth noting that remodeling kitchens and bathrooms or doing structural work can get very expensive in a hurry. At SoldFast, our licensed agents are incredibly well-versed and connected to local construction trades. Our agents can assist with any challenges you un into prior to selling or during inspections.
Avoiding Scammer Loopholes or Contingencies
Fake cash buyers will often use “legalese” and lengthy contracts to trick unsavvy property owners into selling their homes for substantially less than what they are worth. We always recommend that you consult your attorney to have them review any legal documents before signing.
E-sign software makes it very easy to sign contracts with just one or two clicks. It’s imperative that you’re very careful when opening contracts online from real estate companies. If you’re not extremely tech savvy, insist on paper contracts to ensure you don’t accidentally sign something. A legitimate house buyer can always find a way to print documents. Below are some terms to be aware of in a real estate purchase and sale contract.
Expiration of an Offer
If a cash buyer tries to pressure you into signing on the spot, run far and fast! Scammers will often try to pressure sellers by saying things like “I can only buy a few properties this month,” or “I’m going to look at a different house if we don’t get this done.”
A genuine cash offer should be good if the house is in the same shape and the local real estate market hasn’t changed dramatically. A week, two weeks, or even a few months shouldn’t significantly change an offer. Genuine cash buyers don’t put short deadlines on their contracts. At SoldFast, we’d love to earn your business today, tomorrow, next year, or whenever you are ready to sell!
Inspection Contingency
If a “we buy houses” company is buying your property as-is, they should not need to do any formal inspections. Unethical house buyers will use inspections to string you along and then try to “retrade” (aka renegotiate) after wasting a few weeks of your time.
Often, sellers will start to prepare to move, rent a new place, and be counting on their cash buyer only to have the rug pulled out from under them. One legitimate exception for an inspection would be to check something like a septic. Septic systems require professional inspections.
If a cash buyer tells you they need 14-21+ days to complete an inspection, they’re up to something funny. Some real estate investors will “retrade” before closing, counting on sellers not wanting to shop around or start the process of selling their home over again.
Partner Approval
We covered this earlier, but no one should need another person’s approval to enter into a contract. Needing someone else’s approval is a telltale sign that you’re dealing with a scammer. We’ve heard wholesalers jokingly say that their business partner is their cat, and unfortunately, we’re not kidding.
Showing or Access to the property
If a contract requires you to allow them to list your house on the MLS, do “showings,” or walk other parties through your home, it’s not a legitimate house-buying company you’re dealing with.
A legitimate house buyer will walk your home once with you there to make your offer. Then, likely once more the day before closing to ensure the house is in the same condition as when they went under contract to purchase it. If an individual asks to put a lockbox on your house for unrestricted access, run!
Financing Contingency
If they’re a cash buyer, their offer should not require their ability to raise money or have a partner fund the transaction. If they can’t show you proof of funds and commit to closing, they’re either not serious or not legitimate.
Purchasing Subject-to
There is a rising trend of “cash home buyers” requesting to take over the mortgage payments of a seller. Mortgages feature a due-on-sale clause, which enables your lender to foreclose if you do this. They might even try to offer you “more money,” but it’s imaginary as they don’t have it. Remember the old saying, “A bird in hand is worth two in the bush.”!
Furthermore, do you want to be tied to this person for the life of your loan? If they take over your mortgage payments the debt is still in your name. When they default, it’s your credit they’re destroying. Why would a cash buyer need you to be their bank?
Be An Informed Seller
Scammers often capitalize on a seller’s greed or desperation. Keeping your cards close to your chest and treating cash buyers with heavy skepticism is appropriate, especially if they contacted you initially.
Selling your house as-is on the market is very common. You are almost always likely to make more money if you list it on the MLS with a licensed agent. However, selling a home without having to make any repairs with an agent is also possible. At SoldFast, we will give you a cash price and walk you through what we believe we can net you as-is on the market.
It is always in your best interest as a consumer to shop around and get multiple opinions. Hiring the first agent you talk to or selling your house to the first cash buyer who makes you an offer is not recommended. In most major metros there are 10+ legitimate home buyers that purchase 50+ houses a year. Find a few people with a verifiable track record and have them make you an offer. Research who some of the top real estate agents are in your market and have them walk you through what they think they can sell it for. The average numbers are what you want to pay attention to and discard the outliers.
Be aware of agents that attempt to pressure you into signing a listing agreement on the spot. If it feels like a used car salesman is in your living room, politely show them the door.
If you tell cash buyers or agents that you’re getting multiple opinions, they will likely put their best foot forward and not give you the runaround.
At SoldFast, we’ve paired home buying with listing houses on the market. We provide all sellers with a cash offer and what their house is worth on the market as-is. We’re famous for our “No Haggle Home Offers”, where our first offer is our best offer. We’ve been remodeling and home buying for 40+ years and would love to earn your business. At SoldFast, we are direct buyers with a proven track record. If we tell you we’re closing… we’re closing. Call the other guys in town, and then give us a shot. Our service will speak for itself. Fill out the form below to get started today.