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The We Buy Houses Dilemma

We Buy Houses and other similar terms are used by many companies to describe what they do (purchase homes) and are not necessarily their incorporated or company name.  This makes it very difficult to determine if you are dealing with a legitimate “we buy houses” business, or some shyster, scam artist, or get-rich-quick student fresh out of a “buy homes for no money down” seminar.

If you want to sell your house quickly to a We Buy Houses company, it is critical that you do your research and ensure they are reputable, legitimate and have the experience and resources to help with your situation.

We Buy Houses: Trust, but Verify

Here are a few ways to ensure the We Buy Houses company you are dealing with is legitimate:

• Don’t call “We Buy Houses” Signs! - Those yellow or white signs on telephone poles and the side of the road cost $1 each to put up.  Most legitimate real estate investors can afford to do real marketing and not violate local city codes with cheap signs.
• Check the News. Most reputable companies will at least occasionally be mentioned by the local press.  One great example is 1-800-CashOffer, a company that is regularly covered by local and national media.  If there is NO news coverage, beware.
• Beware FAKE press.  We’ve seen a number of We Buy Houses companies that will send out a press release (Cost: $0) announcing how great they are.  ALL press releases automatically get indexed on news sites such as CNN, FOX News, CNBC and Forbes.  These unscrupulous companies point to the press release posted on the news site as if the news organization actually covered their company or wrote a story about them.  They’ll post the logos of these news organizations all over their sites, without links to a real interview about them.  If you see this, run away fast – you can be sure you are dealing with a we buy houses company that has very poor ethics.
• Who are they? You should be able to reach a live person that owns or is an employee of the company easily.  We Buy Houses companies that hide behind answering services, don’t have an address on their web site, don’t have a phone number on their web site or otherwise hide who they are – may have something to hide.  If you are running a legitimate we buy houses business, you want to make it EASY for people to find you.  Any company should be able to tell you who the owner is, how long they’ve been in business, where they buy homes, how many they buy each year, and other basic information that will help you make an informed decision on whether you should work with them.
• Do They Buy Houses? Surprisingly, many companies advertising “I Buy Houses!”, “We Buy Homes”, “Cash for Houses” don’t actually purchase ANY real estate.  They will try to put your house under contract, and then sell that contract to the highest bidder.  If they can’t sell it, guess who is left holding the bag?  ALWAYS ask any real estate investor you work with if THEY will be buying the property, or if the are assigning the contract to a third party.

Hopefully these tips will help you as you search for a “we buy houses” company!  Just like any profession (lawyers, real estate agents, stock advisors, etc.) there are great reputable companies out there – and there are a few scam artists that give everyone else in the industry a bad name.

If you do your research and take some time, you can avoid being taken advantage of by a we buy houses type company, and ensure you home is sold quickly and easily to a qualified, experienced real estate investor.

Recently a prominent real estate “expert” was on a national TV show and provided false information about short sales because they didn’t completely understand the rules.

So here is a quick guide to understanding what exactly is a short sale and how does it work?

A “short sale” is a sale of real estate in which the proceeds from the sale (sales price) fall short of the balance owed on the loan tied to the property being sold.

In a short sale, the bank or mortgage lender agrees to accept less than the loan balance for the house in order for it to sell.  It is allowed due to a financial hardship by the seller, and the bank’s belief they would receive less money for the property if they foreclosed and tried to re-sell the home.

While a short sale will prevent a foreclosure and is better for a seller’s credit overall, because it is tied to the sale of the home, a home owner can not remain in the house and use a short sale to reduce their mortgage balance.

The typical process for a short sale is as follows:

1. A home owner enters into a contract to sell their home with a real estate investor or retail home buyer.
2. The real estate agent (or investor) contacts the lender’s Loss Mitigation department to negotiate the terms of the short sale.
3. The lender will want to see proof of financial hardship by the seller, documents to show a value on the home lower than the loan balance, and will order a broker’s price opinion (BPO) or appraisal on the property.
4. If the lender agrees to the short sale, the sale of the home will proceed, and the full loan amount will not need to be repaid.  The lender will not allow the home seller to receive any money from the transaction, since they are forgiving a portion of the debt.
5. The IRS does not collect tax on forgiven debt in a short sale (in general).  It has been widely reported (incorrectly) that short sale debt forgiveness is taxed.  The 2007 Mortgage Forgiveness Debt Relief Act allows individuals to exclude from income debt forgiveness on their primary residence.  Prior to this act, if a seller was ‘insolvent’ the IRS may not view the debt as income.  As always check with a CPA to ensure the rules apply to an individual situation.

The best defense to being taken advantage of is a clear understanding of how many of these scams work.  You’ll be able to recognize and avoid them – and perhaps warn others when you run into a scam artist.

Understand what you are signing

Most scammers will attempt to convince you to sign a lot of documents without explaining them to you.  NEVER sign anything without understanding what it is.  Many home owners don’t realize that by simply signing a deed document, they may be giving up title to their home.

Research the company

Most reputable we buy houses companies will have positive press coverage about them.  You’ll be able to find who owns the company, how long they’ve been in business, and what other homes they’ve done.  Always check the Better Business Bureau to see if they are listed and have negative comments.

Meet In Person

It’s OK to contact companies over the Internet or call that billboard.  But as soon as possible, meet the company in person – preferable at their offices – to ensure they are not operating out of a garage somewhere.

Don’t be locked up without cash on the table

There are a lot of people coming out of “no money down” real estate investing seminars that don’t have a clue about real estate.  Their goal is to get you to sign a document that allows them to “control” your home, so they can go find a buyer.  ALWAYS be sure you know what you are signing, and if someone wants to put a contract on your home they have some skin in the game – i.e. cash.

There are a thousand different ways consumers can be taken advantage of, but the first step is knowledge.  Remember – always do your research on any company you deal with from the plumber to the we buy houses company!