Making a lowball offer for a house is a time-worn strategy employed by buyers with lots of patience. They figure there’s no harm in trying, hoping to catch a potential seller at just the right moment, when for whatever reason they want to cash out fast.
And yet, when the same approach is utilized by a company on a grander scale, most people denounce it as an egregious example of corporate greed, playing on the vulnerabilities of seniors and other easy marks.
So which is it? An acceptable though distasteful way for someone to try and get a great deal on a home, or a legal if unscrupulous scheme by a business only interested in the bottom line? Well, like most topics where there is money to be made, it depends on who you talk to.
One thing for sure is that REALTORS® can represent the lowballers and still earn a commission, while the companies trying for under-market sales are their ruthless competitors. Thus, agents need to be ready to convince sellers considering taking the instant cash, which can come with a fast and easy closing, why they should not.
That’s if they even get the chance to convince them. The major companies looking to buy homes fast for cash use direct mail, a cousin of junk mail. Most homeowners have received the postcards offering to buy their house hassle-free “as-is,” with the come-ons being no need to repair, paint or clean, no agent commission to pay, no contingencies, mortgage qualifying or closing costs.
Many REALTORS®, if they get the chance, will explain to the homeowner that listing their house the usual way will result in a much higher sale price.
“My thought would be that the home sellers will make much more money in a market like this where inventory is low by putting their house for sale and getting multiple offers,” says Barbara Bross of the Bross Chingas Bross Team with Coldwell Banker Realty, in Westport, Connecticut. “These people are coming in trying to buy it below market. It’s a disservice to not list your house on the open market when there’s such a low number of houses for sale.”
The corporate buyer, however, is rarely looking to compete with an agent for every house. They’re usually hoping to interest very specific potential sellers, including:
- People who inherit a house, often in a different state, and just want to cash out fast.
- Homeowners, often seniors moving somewhere, who don’t want people in and out of their house for however long it might take to sell.
- Owners facing foreclosure who can’t pay the mortgage.
- Co-owners divorcing who must split their assets.
- Those with run-down homes who don’t want to spend money on upgrades.
- People who don’t want inspections and contract contingencies.
- People who have severe financial issues that must be addressed immediately.
- People wanting to sell a rental property that has become a hassle.
What the company looking to buy will do with the house varies. Often, they follow the ‘70% Rule.’
Flipping a house involves buying it at a low price, fixing it up and selling it for a higher amount. The 70% rule says that real estate investors should pay no more than 70% of a property’s value post-repairs minus the cost of the repairs necessary to renovate the home.
Other options are to rent the property or raze it and build condos or duplexes in its place, with each potentially selling for more than the original home, so offers for homes that are in disrepair can be exceedingly low. On a chatroom thread about these companies, someone who briefly worked for one explained their experience.
“I would go to really awful-looking houses where we knew the people were poor or struggling, and make them an offer to buy it,” they wrote. “My boss told me, ‘If you’re not embarrassed by the number you’re offering, then it’s not low enough.’”
Alexander Chingas, also with the Bross Chingas Bross Team, acknowledges that the instant-cash companies do present alternatives that some would find appealing.
“Every so often we’ll be sitting with a client having a meeting about selling their house, and they show us the mailers they received, asking what they should do with it,” he says. “It’s a numbers game probably, and the company figures if they solicit enough homeowners, someone might go for it. They are opportunists looking to probably take advantage of an under-informed consumer.”
The hard-sell pitch
Those who decide to at least hear what a quick-cash company will offer can call them at the number provided on the postcard or contact them online. A call will result in a representative coming to the property, usually within a day or so, and making an offer, usually very low. Online you must provide your name, address, phone number and email before the visit. Again, they are looking for sellers who value an instant sale over extracting every dollar they might get using a REALTOR®.
“I think they probably target cities or people in states whose properties are not going to be very valuable anyway,” notes Chingas. “But they’re chasing here, too.”
Ana Duarte Cole, a REALTOR® with RE/MAX Advantage in Waynesboro, Virginia, has had some experience with companies selling for fast cash.
“There are a few of these companies in our area,” she says. “Some of them are legit, and I have done business with one of them where they bought the property, renovated it and then hired me to list it for sale to potential buyers for profit.
“My advice for homeowners is to do your research and read the reviews about the company. Ask lots of questions when you meet with them so that you understand the process better. You’ll want to make sure their offer is the best option for you. Be aware that their offer may not be what your home is worth at market value. If your major concern is making the most money off the sale of the property, then I recommend meeting with a real estate agent as well to see which option will bring you the most return.
“If your property is too run-down and you don’t have the means or want to put in the work to make it presentable, then taking a cash offer for your home ‘as-is’ might be the best option, but keep in mind that a real estate agent can also advise you of its highest value ‘as-is’ or advise you on minor improvements that will increase the value of your property, even with paying the agent’s commission.”
