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How Does “We Buy Houses for Cash” Work (and Why To Avoid It!)

August 09 2018
by Leisl Bailey

how does we buy houses for cash work

 

Watch out! If you have ever wondered how “We Buy Houses for Cash” works and whether to use it, you may want to back away slowly.

Millions of Americans have seen the billboards and online ads promoting quick closings and instant cash. Maybe you’ve even received a flyer in the mail promising that a team of investors wants to buy your house, no matter the condition, for cash.

If you really need to sell your home or are concerned about its value, you may feel excited or relieved by the possibility.

But are these offers too good to be true? Usually, yes.

In this article we will break down how to avoid the typical We Buy Houses for Cash scams as well as some healthy alternatives to try when you need to sell your home quickly.

How Does We Buy Houses for Cash Work (and Why To Avoid It!)

Here’s why working with We Buy Houses for Cash isn’t usually a good idea:

They Prey on the Vulnerable

Home sellers who do not have time to wait for a conventional buyer, or to go through the usual property transfer process, are typically experiencing some sort of extenuating circumstances. These circumstances can greatly accelerate the home buying process.

We Buy Houses schemes tend to prey on people in the following situations:

  • Sellers whose homes are stagnant on the market
  • Sellers who are divorcing and need to sell quickly
  • People experiencing bankruptcy
  • People with homes in probate or foreclosure
  • People who need to relocate for a job ASAP
  • Owners who are evicting tenants
  • Vacant homes
  • Trashed or damaged homes

These people are all typically in desperate need of selling their home. Sometimes they need to sell for financial stability. Sometimes they need to sell for mere convenience (like for those relocating for work). Sometimes they need to sell due to a need to be free from an emotionally turbulent situation, like a bad divorce.

No matter the reason, these companies are always waiting in the wings to swoop in and capitalize on people’s sense of urgency and heightened emotions.

They Save by Cutting Corners

Some of the We Buy Houses for Cash companies work with actual real estate agents, but they attempt to “set themselves apart” by insisting that they don’t charge a commission. That’s because the real estate agent represents you, the seller, and the buyer – which in this case is the company.

This is a dangerous situation known as a dual agency. A dual agency is when one agent represents both the buyer and the seller. It is usually impossible for the agent to look after the interests of both parties. In this instance, the seller (you!) will get the short end of the stick.

The reason these agents don’t charge commissions is they are already receiving money from the We Buy Houses company. Money the company will earn back tenfold when it flips your house and makes a substantial profit on its resale.

Another way these companies keep costs low is to take care of all the sales in-house instead of working with a title company. They typically pay for their own title policies and usually skip title insurance altogether – all to cut as many corners as they can to maximize profits.

You Don’t Actually Get a Good Deal

We Buy Houses companies used to be known as “EPs” short for equity purchases. This is the name for the kind of strategy these companies use to pay the lowest price on your home.

The strategy works like this:

  • Only offer a home seller 80% or less of the home’s actual market value.
  • Take title “subject to” your current home loans.

This means that the company will “take over” your mortgage. However, this doesn’t usually work properly because you can’t transfer mortgages like this.

  • Raise pools of money or credit lines to cash you out.

These companies are notorious for underpaying sellers. This because the less cash they give you – the larger their profits. They tend to rush the process because they don’t want to draw out the closing process, as it eats into profits.

When these companies tempt you, it’s important to remember: if you go the route of a traditional buyer, you can still receive cash. The only difference is that the traditional buyer will be willing to pay more for the property.

In fact, the traditional buyer will likely end up paying the same price the EP will attempt to flip the house for.

But What If I Am Desperate to Sell My House?

These companies are looking to fleece you for a fast buck – no matter what they say. If you are in a rush to get rid of your home, for whatever reason, you have other options, like choosing to rent it out, or offering a lease to own option.

Are We Buy Houses Businesses Legal?

Yes. To be fair, we are calling We Buy Houses companies scams because they will consistently rip you off, but they are completely legal.

This is because while a tax assessor can determine a property’s taxable value, the final say on its fair market value always comes from its owner. Fair market value is what a normal, unpressured buyer would be willing to pay under typical circumstances.

While we disagree that working with We Buy Houses companies constitutes typical circumstances, when you own something, you are legally allowed to sell it for whatever you want.

To take this example to the extreme, if you owned a multi-million dollar mansion, you could technically sell it for $1 if you wanted to. The IRS will definitely have some questions for you, but it is completely legal.

We Buy Houses companies are legally sound. They often employ trained brokers and Realtors. You will just never get the best deal from them. It’s always best to go with a traditional real estate agent and a normal sale.

If you need to sell your house quickly, but you still want to get the best deal, list with Clever! Clever works with top-reviewed local agents to provide you with the services you need at a great flat rate price. Call us today at   1-833-2-CLEVER or fill out our online form to get started.