We Buy Houses Ripoffs: 8 Red Flags & How To Avoid Them

by | Jan 5, 2024

You may have seen a billboard or bandit sign saying, “We buy houses, cash!” around town. This offer may seem enticing if you need to sell your home quickly. The question is, how can you verify that they have your best interests at heart? Are We Buy Houses companies a ripoff?

One of the biggest fears of working with “we buy houses” companies is being scammed. Unfortunately, it’s common for people to get scammed or left in the wind by a so-called real estate investor.

According to the FBI’s 2021 Internet Crime Report, 11,578 victims reported real estate-related fraud.

In this blog, you’ll discover three things:

  • What “We Buy Houses” companies are, how they make money, and how they help you if you find the right one.
  • Common scams and red flags to look out for when selling your home to a real estate investor.
  • Questions to ask a potential cash buyer for your home so you get the best deal.

What Is A We Buy Houses Company?

We Buy Houses companies are real estate investors that buy distressed and/or unwanted properties. They look for properties that they can get at a discounted price to maximize their profits. They’ll profit off the property by repairing and reselling (flipping) or repairing it and renting it out.

An investor’s ultimate goal is to make money, but they’re often the only ones who can and are willing to help homeowners out of tricky situations. A homeowner in debt may have trouble repairing a property to sell. Thus, they have limited options for those willing to buy their property.

Enter a We Buy Houses company.

Another scenario. A homeowner just received an acceleration notice from their bank stating they intend to foreclose on their home. This means the clock is ticking before their home is auctioned, and they must vacate. Once again, the home may need serious repairs before it can be sold.

All of this means the homeowner needs to sell their home ASAP.
Once again, enter a We Buy Houses company.

We’ll tell you ourselves that we’d never pay more than 70% of the ARV for a home. While selling your home for pennies on the dollar may feel like a scam, you may not have any other options.

Why Sell To One?

  • Speed: Cash buyers can close on a home in as little as one week. This is advantageous to a homeowner who needs cash fast to pay off debt, avoid foreclosure, etc. They can typically close on a home within 1-2 weeks.
  • Poor Condition: If a home is in poor condition, a seller may not have the funds to repair a home before selling. For example, a home with a poor foundation may not qualify for lender financing, severely limiting the pool of potential buyers.

Can You Trust We Buy Houses Companies?

We’ll start by answering this question bluntly.

YES! Many trustworthy “We Buy Houses” companies operate legal and ethical operations.

A better question is, “What are you looking for with the sale of your home?” If you want top dollar, you may want to list with a realtor and try to get top dollar. These companies purposely look for homes unsuitable for a traditional sale. They also look for homeowners who need to sell quickly, usually due to a foreclosure, divorce, or bankruptcy.

If you read those reviews, you’ll notice a few themes:

  • A reputable company will NEVER push you into making a decision that doesn’t feel right.
  • They’ll present multiple options to you, not just the one that makes them profit most.
  • They’ll meet you in person and do a full walkthrough of your property.

# Red Flags/Scams To Look For

  • Phishing Emails: Someone emails you an all-cash offer and requests you send them money. These emails are usually full of typos, from unofficial email addresses, and extremely pushy. DO NOT ENGAGE!
  • Upfront Fees: Whether through email or in person, a cash buyer will request you pay a fee before starting the process. This is always a scam; they’ll disappear before your money cools off in their scammy hands.
  • Equity Skimming: This scam is more elaborate and entails an investor buying a distressed property and then promising the homeowner that they can buy it back later. Instead, the homeowner refinances the home and takes out the equity.
  • Foreclosure Relief: Scammers look for homeowners going through foreclosure. They offer them a guarantee that they can save their home, usually for a fee. 
  • No Online Presence: Never trust a cash home buyer who appears to be a ghost. Real investors are active in their community. In 2024, it’s not hard to set up a website, put up some real photos, and get reviews. The absence of all three should be a major red flag. 
  • No Physical Office: Professional real estate investors handle multiple transactions a year. This requires staff, an office, and licensure. If they don’t have a physical space, work with some that does.

They Ask For Personal Information: If a buyer asks for any personal information, find a new one. While we are on our last point, you should go through this process with the help of a realtor or attorney.

Understanding The Off-Market Home Sale Process

  • Negotiating: Negotiating a cash offer for a house typically takes less time than a traditional home sale involving financing. A seller can respond quickly to a cash offer. This is because there’s no buyer’s loan approval. Often, in cash-sale situations, both parties are motivated and agreeable.
  • Verifying Proof Of Funds: When a buyer makes a cash offer, they must provide evidence of their ability to complete the purchase. This can be in bank statements, money market accounts, or other liquid assets. The seller or agent reviews this documentation to ensure the buyer has sufficient funds to cover the purchase price.
    Singing The Purchase Agreement: Once the seller agrees to the buyer’s offer, the buyer’s agent will create a purchase agreement. Most agents have a purchase agreement template created by an attorney they work with. Your title company will need the purchase agreement for you to give your earnest money deposit.
  • Secure Title & Escrow: The home is officially under contract once the buyer signs the purchase agreement. The immediate next step is to make an earnest money deposit. Earnest money is usually due within three days of a signed and accepted offer. The money is usually delivered to and held by the escrow company. Escrow companies act as a neutral third party to collect the required funds and documents.
  • Inspection: If you’re selling a property sight unseen, the buyer may forgo any inspection contingencies. However, this is rarely the case with cash offers. Most cash buyers still want to inspect the property.
    Final Walkthrough: The day before closing, you and your agent will do a final walkthrough. You’re looking for the home to be move-in ready and the previous owners to be moved out. If you’re buying a home for cash, you may not be moving in but renovating. In this case, you’ll have your list of items to look for.
  • Closing: Since payment is entirely with cash, there would be no closing costs from a mortgage lender. Other closing costs include inspection, title search, insurance, and more.

Avoid Ripoffs And Work With A Reputable Company

In conclusion, navigating the real estate landscape requires caution and understanding. While there are certainly reputable companies out there, the potential for scams and ripoffs cannot be ignored. The key is to do your due diligence: check for online presence, avoid upfront fees, and always consult with a professional, like a realtor or attorney.

Remember, a genuine cash buyer will respect your decision-making process, provide clear and multiple options, and show their commitment through a physical office and a tangible online footprint. Selling your home is a significant decision, and partnering with someone who acknowledges and supports your unique circumstances is crucial.

Pro Tip: Attend the inspection to ensure the inspector does a thorough job. It should last 2-3 hours. Tell the inspector your plans for the property (move-in ready vs. fixer-upper) and read the full report. 

Massachusetts-Specific Home Requirements

  • Title 5 Inspection: Massachusetts requires a Title 5 inspection for properties with private septic systems. This inspection ensures the septic system meets state environmental standards and must be done before selling a property, expanding its footprint, or building additional bedrooms.
  • Lead Paint Law: Massachusetts requires homes built before 1978 to be inspected for lead paint. If lead is found, it must be disclosed, and landlords must remove or cover lead paint hazards if a child under six resides in the property.
  • Smoke & Carbon Monoxide Detector: Before a property can be sold, it must pass an inspection to ensure compliance with Massachusetts’ smoke and carbon monoxide detector regulations. Certificates from local fire departments are required at closing.
  • Transfer Tax (Stamp Tax): Massachusetts imposes a real estate transfer tax on property sales, commonly known as a stamp tax. The tax rate is $2.28 per $500 of the purchase price, paid by the seller at closing.

Step 8: Homeowners Insurance

Homeowners insurance is mandatory if you have a mortgage and must be in place before closing. This insurance covers various risks, including damage from fire, theft, and natural disasters, as well as liability for accidents on your property.

Standard policies often include dwelling coverage, personal property coverage, liability protection, and additional living expenses if your home becomes uninhabitable.

There are different levels of coverage, such as:

  • HO-1: Basic policy covering specific perils.
  • HO-2: Broad policy covering more perils than HO-1.
  • HO-3: Special policy that covers all perils except those explicitly excluded.
  • HO-5: Comprehensive policy offering the most extensive coverage.
  • HO-6: Condo insurance.
  • HO-7: Mobile home insurance.
  • HO-8: Older home insurance.

By comparing different policies and providers, you can ensure you get the best protection for your new home.

Step 9: Closing And Walkthrough

The final walk-through typically occurs on the closing day to ensure the property is in the agreed-upon condition. During this inspection, confirm that all personal items have been removed unless specified otherwise in the contract, and check for any new damages. Conduct the walk-through during daylight hours for better visibility. 

Be thorough:

  • Flip all switches
  • Turn on faucets to check for leaks
  • Run all appliances
  • Test the garage door opener
  • Open and close all doors
  • Flush toilets
  • Run the garbage disposal and exhaust fans
  • Inspect ceilings, walls, and floors.
  • Test the heating and air conditioning systems.

At The Closing Table

You will review your Closing Disclosure form at closing, which you should receive three business days before closing. Compare it with your Loan Estimate to check for major changes or inconsistencies. Some fees are legally restricted from increasing by more than 10%.

Consider having a real estate attorney review these documents if desired.

On closing day, meet at the title company. Being on time is crucial, as appointments are often scheduled back-to-back. Bring your photo ID, a cashier’s check (if required), Closing Disclosure, and any other requested documents. 

During the closing, you will sign several key documents:

  • Closing Disclosure: Details all the costs and fees associated with your mortgage, received at least three business days before closing for review and comparison with your Loan Estimate.
  • Promissory Note: A legal document where you agree to repay the loan amount over a specified period, including the interest rate and payment schedule; your promise to pay back the loan.
  • Mortgage (or Deed of Trust): Secures the promissory note and gives the lender a claim against your home if you default on the loan; outlines the mortgage terms, including the loan amount, interest rate, and repayment terms.
  • Deed: Transfers property ownership from the seller to you; includes a property description and is signed by the seller.
  • Settlement Statement (HUD-1 or ALTA): Provides a detailed list of all costs associated with the home’s sale, including buyer and seller costs; reviewed and signed by both parties.
  • Affidavits: Various affidavits may be required, such as confirming your identity, stating the property will be your primary residence, or ensuring no undisclosed liens or judgments.
  • Title Documents: Ensure you receive clear title to the property; may include documents related to title insurance, which protects you and the lender against potential legal issues with the property’s title.
  • Initial Escrow Disclosure: This document outlines the escrow account details, including the amount you need to deposit and what it will cover (e.g., property taxes and insurance).
  • Loan Application: Review and sign a final version of your loan application to confirm that all information is accurate and up to date.
  • IRS Form W-9: Used to provide your taxpayer identification number to the lender for reporting interest paid on the mortgage.
  • Homeowners Insurance Verification: Proof that you have secured homeowners insurance for the property, typically required by the lender.

Get One-on-One Guidance

Contact us below or call (978) 228-1068 to speak with us about selling your home fast.

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Elie Deglaoui - Author

Author

Elie Deglaoui

Elie is our office admin who handles all our day-to-day tasks and makes sure we always stay on track. He brings his love of music and sports into the office everyday to always liven up the environment. His outgoing personality makes it easy and fun for him to talk to homeowners, homebuyers, and everyone in between.

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