You see the signs everywhere. They’re posted on utility poles, and stuck in the grass at every major intersection. You can’t drive to work, or to the store, without seeing at least a few of them.
“We Buy Houses For Cash!”
If you have no interest in selling your house, you probably drive right by them without a second glance.
If you’re thinking about taking advantage of a booming housing market, you certainly realize that people posting signs on the roadside aren’t offering top dollar.
But maybe you’re getting ready to put your home on the market. Maybe your house isn’t in the best condition, so you’re well aware it won’t attract full-market offers. Or maybe something’s come up in your personal life, and you’ve got to sell your house in a hurry.
In those cases, you may think: “I might as well give them a call and see what they have to say. What harm can it do?”
You’d be surprised. In reality, it might be the worst move you could make – because the people posting many of those “We Buy Houses” signs are scammers.
How can you tell? And what could possibly happen?
Stay tuned for the sordid story, and details on the smarter ways to sell your house for quick cash.
Fast Cash for Your Home: Can It Really Happen?
There are a number of reputable, highly-capitalized companies that specialize in buying distressed homes from sellers who want or need to simply “get out.” These companies fix the homes up, and sell them for a nice profit. Think about house-flipping shows on TV; where do you think all of those fixer-uppers come from?
Speaking of which, there are some trustworthy individuals who are dipping their toes into the flipping business. They’re also on the lookout for rundown homes they can buy on the cheap, and sell after they’ve made renovations or repairs. They might even be buying the house to live in once it’s restored.
A more recent development: huge real estate operations that have established their own “marketplaces” for houses. They purchase homes from sellers who need to move quickly, or those who simply don’t want to deal with all of the rigamarole involved in a traditional home sale – pricing, finding a realtor, staging, open houses, negotiations, inspections, repairs, and worst of all, real estate agent commissions.
All of those are legitimate businesses making legitimate cash offers for houses. But just as in any booming, profitable industry, there are con artists trying to take advantage.
And they can make a lot more by putting up a few signs and cheating home sellers out of thousands of dollars, than they ever could by selling fake designer purses for $25 apiece.
What types of scams do they run?
Bottom Line: Many reputable companies do buy homes for fast cash. Many more, however, are taking advantage of the growing “homes for cash” industry to run scams. And those scams can be very profitable.
Typical “We Buy Houses” Ripoffs
All common scams have one thing on common: they get more elaborate as time goes on.
“Administrative” or “Service” Fees
You see the “We Buy Houses” placards, and call the phone number list on the signs. The person who answers is excited about buying your home, and may even throw out some ballpark numbers.
But then they tell you that they can’t go any further until they receive an “administrative” or “service” fee, so they can put your house into the system and send someone out to do an inspection.
The fee’s only $250, or $500, or $1000, a small amount compared to the cash you’re going to get for your home. So you pay it.
You can probably guess what happens next. You don’t hear back from the supposed buyer, and when you call, you get a recording but never a callback. Eventually, the number will be disconnected.
You got scammed.
The Buyer Isn’t Available
This is a variation on the first ripoff scheme. When you call the number, they say they’ll check out the house – and then they get back to you. (They may even call you out of the blue for this one.) They’ve found someone who wants to purchase your home as is, but the buyer is overseas. And getting the cash to you will be more complicated than usual.
They need some upfront money from you to take care of the banking issues and get you that big cash payoff. They might even ask for your banking information, to “make things even easier.”
You got scammed.
The buyer makes a verbal offer, and you accept. But when you get the contract to sign, the terms – and maybe even the bottom line number – are vastly different. They’re counting on you to sign without carefully reading the contract and noticing the changes.
Even if the sales price remains the same, they may include language that costs you a lot more than just a $500 or $1000 “fee.” Some unscrupulous buyers include a title transfer in the contract, so that they own the home immediately – they then refinance the home before you get your cash, take the equity payout, and disappear.
Another variation: they keep rewriting the contract because of “slight language issues,” but each time you have to re-sign, there’s less of a chance you’ll notice the major changes they’ve made.
You got scammed.
The buyer visits the home, makes a cash offer, you agree on all of the terms, and they give you a check. Easy-peasy!
Oops, not so fast. The buyer made a clerical error and sent you a check for $2,000 or $5,000 or $10,000 too much. They’re really sorry, but can you wire them back the overpayment?
You do…they stop payment on the check they gave you…and then they vanish with the “overpayment money.”
You got scammed.
This scheme has been around for years, and it seems like the best of both worlds. The buyer will purchase your home and in return, will take over your mortgage. Even better, you can keep living in it by paying them rent that’s less than your current mortgage payments.
You get out from under that mortgage you can’t afford, but you don’t have to move out of the home you love. All you have to do is sign over the deed.
The final scene of this ripoff isn’t hard to guess. They don’t make the mortgage payments. (They may even pull the refinancing scheme we mentioned earlier.) And since they didn’t assume the mortgage through the bank – it’s still in your name. So you’re the one on the hook when the foreclosure hammer comes down. Goodbye house, hello bankruptcy.
You got scammed.
Bottom Line: Scammers have all sorts of tricks up their sleeves when they claim that they’ll pay fast cash for your house. Some involve tricking you out of smaller amounts of money for “fees” or to resolve “banking issues.” But others can end up costing you your house, your credit rating and your financial future.
Warning Signs of “We Buy Houses” Ripoffs
Why do clichés become clichés? Because they’re accurate.
And one of the oldest clichés in the book applies here: If it seems too good to be true, it usually is. When you decide to look into a “We Buy Houses for Cash” offer, trust your gut and watch for the warning signs.
- Roadside signs: They’re known in the business as “bandit signs.” Not all of the people who post them are scammers – but most of them are. Tread carefully. (The signs are illegal in most municipalities, incidentally.) Cold calls offering to buy your home for cash are a red flag, too.
- Unprofessional behavior: Do they answer their phone with “hello” instead of their company name? Are they difficult to contact? Do they use a free email service (or refuse to provide an email address at all)? Do they operate a “company” without a website? Do they use non-standard real estate forms? All bad signs.
- Eagerness: Do they seem anxious to get a deal done immediately? Do they make an offer without even visiting your home to see its condition? Do they push to make a deal without letting you consult your lawyer? Oh-oh.
- Lack of references: Any reputable home buyer will have a list of other satisfied sellers they’ve dealt with in your area. If they won’t provide references, or they give you names of people you can’t reach on your own, watch out.
- Offers too good to be true: Almost all “Houses for Cash” buyers pay substantially less for homes than their market value – that’s how the buyers make their money. If the offer is surprisingly high, be skeptical; understand how they’re going to make a profit by paying so much for your house, before accepting the offer. There’s a better chance they’re going to make that money by scamming you.
- Fees, please: If they ask you for money upfront, walk away. Quickly.
You should also do your due diligence before dealing with any cash buyer. Check with the Better Business Bureau. Do an online search for their personal and company names to see if anyone’s been scammed by them. Do a reverse phone number search on the number they use.
If you decide to move forward and sell your home to one of these buyers, be very careful. Read the contract sentence-by-sentence and be sure you understand it completely – or better yet, have a real estate attorney read it. Don’t agree to last-minute contractual changes you’re asked to sign without first consulting your attorney. Don’t take checks – insist on a wire transfer for your payout.
Above all: If something seems wrong at any point during the transaction, there’s a very good chance that it is. Feel free to walk away, and deal instead with one of the reputable, honest businesses who really do want to pay cash for your home.
Bottom Line: Home buying scammers usually have “tells.” If they’re unprofessional, too eager to close a deal immediately, can’t provide references or make sky-high offers they can’t justify, they’re probably trying to rip you off. That goes double if their only ads are roadside “bandit signs.”
Trustworthy Companies that Purchase Homes for Fast Cash
Buying houses for cash is big business, and firms operating in that real estate arena use several different business models. Some are better choices than others, depending on the condition of a home, the owner’s reason for selling, and where the house is located.
Remember when we said that not all of the people who post roadside signs are scammers? A good example is HomeVestors, a large, well-funded franchise operation with franchisees in most metropolitan areas. And they do post bandit signs reading “We Buy Ugly Houses.”
The slogan is actually true; they don’t want to buy desirable homes. They want homes in poor condition, which they can buy cheaply and sell for a good profit after renovations. The payout is in immediate cash with no fees or commissions, and the deal can close in as few as 14 days.
For HomeVestors and similar house flipping companies, there are four categories of ideal sellers:
- Those who don’t want to bother with repairs (or can’t afford to make them) before moving.
- Those who have to move in a big hurry due to family issues or job changes.
- Those who are in financial trouble and need cash immediately.
- Those who may have inherited a home and simply want to get rid of it as quickly as possible.
Those types of sellers aren’t primarily concerned with the price they’ll get for their house. They’re more concerned with getting out quickly and getting their hands on the payout. So the “shockingly low” offer they receive from a home flipper may not be a deal killer – it’s a deal that can work for both sides.
Quite honestly, most reputable home flippers aren’t trying to cheat sellers. Their offers are usually based on a well-established industry pricing rule, which factors in the amount they’ll have to spend on repairs and leaves them with a reasonable 20-25% profit on the deal.
And the offers aren’t really as low as they might seem. The sellers won’t have to pay repair costs, realtor commissions, or some of the closing costs normally associated with a traditional sale. That ends up bringing house flippers’ offers much closer to the home’s market value than they first appear.
Like home flippers, iBuyers only operate in larger cities and towns, they don’t charge commissions, they pay fast cash for homes and they can close a sale quickly.
But in many other ways, iBuyers are the mirror image of home flippers.
- There’s very little personal contact; they operate almost 100% online.
- They don’t want fixer-uppers; they want well-maintained homes they can resell almost immediately.
- They don’t visit the home and rigorously calculate how much they’d have to spend on renovations; they collect information from the seller and come up with an offer based on information (on the home, the neighborhood and comparable sales) publicly available online. They may visit later just to make any necessary adjustments to the offer.
- They operate on volume so their offers are much higher, and they make just a small profit on each sale. Statistics show the average iBuyer offer is only 1-2% lower than a home’s market value.
There’s one more big difference, and it’s the most important one: they charge the seller a huge transaction fee, around 5-7% of the price they offer for the home. That’s where their real overhead and profit comes from – and needless to say, it immediately negates the benefit of avoiding realtor commissions.
You know the names of the biggest iBuyers. They’re huge companies like Zillow (through Zillow Offers) and Redfin (through Redfin Now). They’re completely reputable and trustworthy. And even considering their transaction fee, they still may pay more for a house than house flippers. However, any house that interests flippers probably won’t interest iBuyers.
“New Age” Cash Buyers
The latest entrants into the “Homes for Cash” market have combined the best of both approaches.
- Unlike flippers and iBuyers they’ll purchase homes in any condition, pristine or distressed.
- They operate in all cities and towns, not just the big ones.
- They combine online research and in-person visits to determine the most realistic offer for a home.
- If repairs are needed the seller can make them, or the company will have the work done with no markups.
- There are no commissions, transaction fees or other payments due from the seller. The offer price is the final amount the seller receives.
The best of these companies, like SellYourHome.com, make their offer to purchase within 24 hours, and can even close within a few days. Their offers are almost always higher than those from house flippers, and usually come close to those from iBuyers – with no extra fees.
Bottom Line: There’s no need to take chances when selling a house without realtors. There are several types of trustworthy and reputable companies that buy homes for fast cash, with fewer hassles and no chance of rip-offs. When choosing a cash buyer, the best choice will largely depend on the condition of the home and its location.
“We Buy Houses” Ripoffs FAQ
Q: Should I ignore roadside signs advertising that they “buy houses for cash?”
A: Not necessarily, since a few reputable home flipping companies like “We Buy Ugly Houses” use those signs as part of their business model. However, so-called “bandit signs” are definitely a red flag, so you should investigate the buyers very carefully before deciding to do business with them.
Q: Is there anyone I can trust who will buy my rundown home for cash?
A: Definitely. Large home-flipping companies and “new age” cash buyers will each purchase distressed properties, and pay cash for them in just days or weeks. Just don’t expect to make as much on the sale as you would by fixing up the house yourself and selling it through a real estate agent.
Q: How much less will these companies pay for my house?
A: It depends on their business model and how much it will cost to renovate the home. Flippers generally pay 65-70% of the full market value, while iBuyers and New Age buyers will ordinarily come much closer to the market value.
Q: How do I research someone who wants to buy my house for cash?
A: Start online by searching their name (and company name) to see if they’ve scammed other people, check with the Better Business Bureau, and speak with the references they supply to find out what the experience was like. If the buyer won’t give you names of previous customers, be careful. That’s a very bad sign.
Q: How soon do I get my money if I sell my home to a reliable cash buyer?
A: It varies, but some can make a cash payout within several days while others will take 15-30 days.