Hi, I’m Joe Maggiore, Owner and Designated Broker of Desert Dimensions Properties. In a recent Facebook Live video (which you can watch below), Realtor Ryan Simon and I talked about the pros and cons of the “We buy homes for cash” services.
You know, they’re the ones that somehow mysteriously get your cell phone number and call and say that they “just drove by” and are interested in buying your house. Or, maybe you’ve gotten mail from them with estimates for what they’d offer for your home. Essentially, they are private companies that invest in real estate by purchasing homes and flipping them, usually as-is. They aren’t necessarily scams (to learn more about common scams to watch out for, read this article), but they may not feel good from the start, and that’s because they’re looking out for their own interests. It’s best to be educated; let’s take a closer look.
Types of “We Buy Homes For Cash” Services
- The classic “We Buy Unattractive Homes”
- There’s the “Pads,” “Doors” or the companies that come off as otherwise “hip”
- The Random LLCs
And, the unofficial fourth category is some investor who’s just hoping we’re going to take a lowball offer by day three…
These kinds of companies are relevant right now because we’re seeing a lot more of these transactions. It’s important for sellers to understand the structure of these offers.
Here at Desert Dimensions Properties, we’ve been through plenty of these scenarios. A recent survey reported that last year nearly 7% of the total purchases in the market were made through these services. These companies are also hanging on to more homes than they’re selling at any given time, which amounts to something like $450 million worth of inventory. They represent a significant movement in the real estate market for sure.
Some of the common questions we get about these services are:
- “Are these We Buy Homes For Cash services that legit?”
- “What should I expect?””
- “Is it a good idea for me?”
As a general rule of thumb, these services can work for sellers who want to get out of their homes quickly, but that speed comes at a cost. These services are trying to sell you on convenience – you’re likely to get less money on the sale of your home in exchange for a quick sale.
The experience is also different based on the fact that you’re dealing with a company and not with an individual buyer and his or her Realtor. These companies are just looking at the numbers, and there it’s an unemotional transaction for them. One of the common complaints we often hear is “I keep calling them and nobody answers.”
Are They Really As-Is?
The typical transaction in this scenario goes something like this:
Step1: Offer
Step 2: Accepted contract
Step 3: Inspection find repairs that are needed
Step 4: Renegotiation – a significant renegotiation that results in a lower purchase price based on repairs that are needed
Often, sellers think they are selling their homes “as-is.” This is a big misconception. It does mean that the company purchasing the home isn’t going to request repairs. It doesn’t necessarily mean that they’re going to accept the home as-is at the price they initially offered, though. After the inspection, the company purchasing the home will go through the list of repairs that are needed. They will then decide what those repairs will cost them and then they will request a reduction in the purchase price of that amount.
“We Buy Homes For Cash” Service Fees
A more obvious cost is the service fee or holding fee, which can be from 7% to 13% of the purchase price. This fee mitigates their risk because they know that some number of the properties they buy will take a while to sell and will sit on the market before they turn a profit.
Many sellers feel mislead by these fees, which can add up quickly, especially after these companies start chipping away at the purchase price “for repairs” which they may not even make before they sell the home as-is themselves.
Look Out for Your Best Interests
Sellers see a TV commercial and respond, “here’s my address, make me an offer.” First, that means that you’re going to get an offer before they have even seen your home, whether it’s in good shape or needs work. It’s a red flag if somebody is offering to give you money without seeing your home.
Before you consider one of these companies, ask for a second opinion. Get an Arizona Realtor who is looking out for your best interests. You might find that the quick sale is worth the “convenience fees,” which is fine if you’re aware of them up front. But it’s even better when you have an agent representing you, and who can bring in other potential buyers – Desert Dimensions Realtors can even bring in other investors to create a more competitive scenario in which the seller benefits.
You also want to keep in mind that without a Realtor, you’re signing their contract. The residential purchase contract we use is a beautiful document- it’s ten simple pages, and it’s time-tested legal language. It’s clear, and both parties can understand what they’re agreeing to. If you were making a large purchase and the other party said, “Yeah, let’s make a deal but I’m going to write the contract,” most people wouldn’t go for it, but it happens all the time in these scenarios – sellers are surprisingly trusting when they want to sell their homes quickly or if they are desperate to get out.
Could “We Buy Homes For Cash” Service Be Right For You?
Could one of these investor services be right for you? If you have plenty of equity in your home, you’re in a rush to sell, and you go into the transaction with eyes wide open, then yes. These services do have a place in the residential real estate market.
But, if this kind of service is the first option you’re investigating because they seem convenient, and you haven’t done your homework, you may be in for a nasty surprise in the form of leaving a lot of money on the table.
If you’re not sure what to do and have questions, call Joe or Ryan at Desert Dimensions Properties at 480-270-5355.