You’ve seen them on commercials, bus stops and billboards. If you’re in a distressed situation you’re likely getting mail, phone calls or, even worse, unannounced home visits! Everyone has seen the “We Buy Distressed Houses” type of business in some capacity. Every one of these organizations has the exact same motive, and I’m guessing you already know what it is: Make money!
In fact, these companies are sometimes not companies at all. It’s usually one guy who works from his basement lurking around the internet searching for a “sucker” or just someone in a real financial bind or both! Do a quick Google search with the phrase: “Learn to flip houses with no money” and you’ll see the massive industry that has been built around these pseudo-investors. There are legitimate cash buyers out there, GWG Properties is proud to be one of them, but it can be hard to tell the difference between the real deal and one of “them”. Well, we’re here to help with that!
Here are the top 4 things you have to know when you’re dealing with a “cash for homes” or “we buy distressed houses” type of organization:
#1: Can you provide me with immediate proof of funds?
The vast majority of these “Cash for Houses” people don’t have 2 nickels to rub together! And yet they pretend that they want to buy your house for cash, quickly and seamlessly. What’s the deal?
They never plan on actually purchasing your house from you. Their goal is to get you to sign a contract that grants them what is called “equitable title” or (depending on your State) “an interest in the property”. Once they’re positioned with a signed contract they now have the leverage to go out and sell your house to a real investor.
What do you do to combat this? Request immediate “proof of funds”. There is absolutely nothing wrong with this request and is actually a standard in the industry. The problem is most unsuspecting home sellers don’t know this. As a seller it is your right to ask for proof of the buyer’s ability to pay. If they have the cash it should be pretty easy for them to show you a certified bank statement or some other form of proof.
You are going to be able to tell a lot about them by their response. If they say something like “I don’t show strangers my bank account” then you know they don’t have the funds. Every bank, financial institution, lender, title company, and Realtor knows that a “Proof of Funds” statement is standard practice. Its done all day everyday on millions of real estate transactions.
There’s a “part 2” to this process. You are not just asking to see proof of funds, you’re asking to see immediate proof of funds. If they provide you with proof of funds but it takes them some time to pull together chances are they’re showing you someone else’s money. Why is this a problem?
If your “cash buyer” is borrowing the money to buy your house it means that they’re using what we call “hard money”. Hard money is money that is lent on speculative business ventures at high interest rates. You can be absolutely sure that your “cash buyer” has factored this “cash cost” in to his offer price which basically means that YOU are paying the interest.
Remember: you want to see proof of funds and you want to see them now!
GWG Properties can provide immediate proof of funds to back up any cash offer that we make on a property.
#2 How did you arrive at that price?
Most “cash buyers” are just trying to purchase your property for the absolute minimum possible. The less they give you the more they can make. Is there anything wrong with this? Maybe not, some might even call it good business. But when you’re trying to sell a house you’re also allowed to practice good business! The best way to call out a phoney offer is to ask the “cash buyer” to justify their offer. Be very direct and ask things like:
- How did you arrive at that number?
- Can you show me the comps you used?
- How do you calculate the rehab budget?
- What qualifies you to properly value my home?
There’s no use in haggling over something as large as a piece of property. Cut to the chase with these used-car-salesman types and ask them outright: “Can you justify the price you’re offering?”
They should be able to justify the price that they offer for your home using very real data and analytics. Even if you don’t like the offer you should be able to see very plainly how they arrived at it.
At GWG Properties, one of the core tenants of our business (and the reason we have been so successful for so long) is the ability to properly evaluate a home. We have a unique, proprietary and highly guarded algorithm that we have been building upon for the past twelve years. We can gauge market conditions, anticipate changes, incorporate comparable properties and determine the cost of any repairs necessary almost to a penny. In fact, the team behind GWG Properties is building a SAAS product that is meant to assist other real estate investment professionals in more accurately valuing property.
#3 Is your offer genuine or is this a “sucker price”?
This is easily one of the worst tactics of the business. A “sucker price” is a cash offer that is made simply to lockup the control of a property and then wait out the home owner. Here’s how it works:
You have a house that you want to sell FAST for cash so you reach out to a few cash buyers that you find online. One of the cash buyers actually agrees to your original asking price and sends you a contract to lock up the house. Perfect!
Here’s the problem: by placing the property in escrow you now have a contractual obligation to sell the property to this one particular buyer. However, because the buyer has the right to verify the condition of the house and cleanliness of the home title your “cash buyer” is not yet obligated to buy.
If I came to you the next day and offered you a million dollars for your house you could not legally sell it to me. You have entered into escrow with a buyer and have a legal obligation to sell it to him unless he walks away.
Now that the “cash buyer” has your house locked up they just have to wait. They wait out any other buyers you might have been talking to, make sure that any momentum you had elsewhere dries up and, because you need to sell fast, run out the clock on your timeline.
Close to the expiration of the escrow period they come to you and give you some made up story about the condition of the house and demand a price reduction. What do you do? You’ve already signed a lease on another property, the moving vans are in your driveway and your mortgage payment on a house you thought was sold is coming up. This is a dirty trick but it is sadly one that cash buyers use often.
An ounce of prevention is worth a pound of cure. The best way to fix a situation like this one is to never be in it in the first place. This means that you have to be realistic about the true value of your house. This ties in directly with Question #2: If someone offers you a price that you believe is too low, make sure you ask them to justify their price. The same is true in the other direction! If someone offers you a price that you think is too high, make sure you ask them to justify their price! Ask them direct questions like:
- How can you profit from paying me that much?
- What do you plan on doing with the house?
- What comps did you use to reach that number?
Oftentimes the specifics of their answer matter less than the fact that they actually have an answer. You just want to make sure that they’re actually interested in purchasing your house and not trying to lock up control and then force you into a position where you have no choice but to sell.
GWG Properties is exactly that, fair! Are we in business to make money? Absolutely, everyone should be. But we’re not in business to take advantage of people. Please take the time to look at our testimonials and case studies. If we offer you a price for your home then it’s the price we intend on paying. Does that change in some cases? Sadly it does. If we put your house under contract and then find out that there’s a lien against your title that you didn’t know about or you have an unpermitted addition to the property (just two examples of many) then we’ll need to renegotiate our offer to account for those things. You are under no obligation to accept the new price and we have no intention of just “running out the clock”. We’ve been doing this business for twelve years and are proud of every deal we’ve ever done.
#4 Are you just a fix and flipper or do you have other investment tools?
This question is designed to give you insight into the “cash buyer’s” business model. If you have a solid understanding of how they plan to approach the monetization of your property you are better equipped to negotiate with them. In the vast majority of cases, dealing with a “one trick pony” type company (like a fix and flip company) puts you at a massive disadvantage.
As I’m sure you can see by now, selling a house to a “cash buyer” isn’t all that they pretend it is. Are there companies that truly can provide you with immediate cash for your property? Absolutely! We’re one of them. But you always have to be careful because for every legitimate company there’s someone out there trying to find the next “sucker”.
If you have a house to sell and want a fair cash offer TODAY please contact us!
