What it means when they say ‘we buy your house for cash’

By Joni Ribera, Let's Talk Real Estate

  • Tuesday, February 26, 2008 2:29pm
  • News

By Joni Ribera, Let’s Talk Real Estate

I recently had someone ask me what to do about their home that had been on the market for eight months.

The seller had transferred to another state and now had two mortgages. They wanted to know about those “buy your house for cash” operations, how these businesses operate and how much they typically pay.

Most of these companies are legitimate and basically play the role of a fast-acting, lowballing investor. The larger buyers have a good credit line and can close deals pretty quickly. But they usually pay less than smaller investors — sometimes much less.

Still, these businesses have a broadening spectrum of customers in today’s market. Sellers range from those trying to avoid foreclosure or who are selling off recently inherited property to those who are retiring, right-sizing or going through a divorce. These sellers also include those who are caught in less-than-desirable mortgage structures or who owe a multitude of back taxes. Or as in your case, they may be transferring jobs.

Some sellers don’t want to go through the hassle of multiple repairs and welcome the convenience of a quick disposal.

The pluses are that such operations pay cash, move quickly and buy “as is.” Many will also pay most standard closing costs. The minuses are the deep discounts they command.

What do they pay? That can vary widely. Most of them use software to analyze how much a home will cost to repair and how much to offer for it. Officials of such operations have told the media in the past that their aim is to buy at about 65 cents on the dollar, although in some particularly depressed markets that number has dropped to as low as 50 percent, particularly on condos. Some will merely try to gauge how much equity you have in a house and offer that — and little more.

As you might expect, these are some of the lowest of the lowballers out there. The deep discounts, they say, allow them to renovate the place, pay for utility and maintenance costs while it’s under renovation, and market the home once it’s ready to resell. When these homes are repaired, the firms or their franchisees typically resell the properties to new owners and other investors, or add them to their rental portfolios.

These days, more and more of these “opportunity investors” are cropping up. The big and established ones such as the heavily capitalized HomeVestors focus mostly on starter homes and rental homes.

How does the process work? Representatives will come to your home, give it a thorough and free inspection, make their assessment, then make you an offer — usually within a few days. The offer will be limbo-low, of course, and they expect you to haggle.

Be sure you make at least a couple of counter-offers if you are going this route. If their low offer doesn’t offend you, your return offer won’t offend them. But make sure you check with the Better Business Bureau before making any commitment. There are more and more scammers out there. Ideally, the company will belong to an organization such as The Master Builders Association.

To employ an overused term, these companies “are what they are.” Most non-distressed sellers won’t bite at their offers, however. You may be better served by reducing your price, finding a midpoint between their offer and your current asking price. That should bring you a buyer rather quickly in our market.

Contact Federal Way real estate agent Joni Ribera at (253) 632-5779 or jribera@windermere.com. Also visit www.JoniRibera.com.

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