Before You Accept A Cash Offer On Your Home, Read This!

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If you’ve decided that selling your home fast to a cash buyer is the right way to go, you probably have a few questions:

  • “How do I decide which buyer is the right one to work with?”
  • “Are they all the same?”
  • “Do they all offer the same purchase price or does that vary from buyer to buyer?”
  • If it varies, how do I know who’s going to give me the most money?”
  • “Can they really close in just 7 days?”
  • “ Are there any ‘gotchas’ to look out for?”

These are just some of the questions that you should be asking about when you talk to a potential fast-cash buyer.

If you are taking this route rather than listing with a real estate agent, it’s probably safe to assume you’re home needs some rehab work done to bring it up to full market value. That means you will most likely sell your home to someone who rehabs houses.

Unfortunately, not all of the people claiming to be cash buyers are really able to actually complete the transaction. Many have very little cash themselves and are simply “acquisition agents.” While they claim to want to purchase the property, what they really want to do is to attempt to place the property under contract so they can they quickly shop for another wholesale buyer who will purchase the contract from them before closing the transaction with you.

The acquisition agent, a.k.a., the second buyer, is who actually buys the home. The hope of the acquisition agent is to buy your home at such a deep discount that even after adding profit for himself, he can sell to a true rehabber at a low enough price that the deal still makes economic sense to the rehabber.

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You can usually identify who these people are by the terms in their purchase contract. It will have a large number of contingencies built that they call “due diligence.” These are designed to give them an “out” should they be unable to find a second buyer before you’re scheduled to close. These are the people who will offer you the least amount of money for your home because they need to create a profit for both the second buyer and themselves.

Before you take action, pause and ask any potential buyer to bring along “proof of funds” with any offer. Even if they plan to borrow the purchase money from a lender that they have a business relationship with, they should be able to show proof that they have the funds available and can close the deal.

There are several types of buyers who will offer to purchase your home. The next type of buyer is an investor who does intend to close on the transaction and then hire a contractor to complete the necessary repairs before putting it back on the market.

This buyer is planning to make a profit, even after paying the contractor. He will need to buy at a deep enough discount to accomplish that goal, and the amount he offers will be pretty close to the amount the acquisition agent will offer. The main difference here is that this guy can actually close the transaction.

The third type of buyer is one with a general contractor’s license who plans to use his own crew to repair the property before he puts it back on the market. This is typically the person who will offer the highest purchase price because his costs are lower for the rehab work. But that’s not always the case.

Don’t take for granted that the buyer with the contactors license will offer the highest price for your home. The acquisition agent has a list of contractors to assign the sales contract to, and some of them may actually offer a better price. The same is true for the buyer who will close on the home then hire contractor. He may have a relationship that gives him costs at about the same level.

The bottom line is that the best way to assure the highest price possible for your home is to get three bids. Make sure that all three know that they are competing against each other so you can get their highest, best offer.

Any fast-cash buyer with proof of funds can close the transaction in as little as 7 days, but I don’t recommend you count on it. Typically, the contract will be written with an “inspection clause,” which allows the investor to enter into the sales contract now under the terms and conditions that you’ve agreed to, while also allowing time to bring in experts to confirm his estimations of costs to rehab.

It also gives you the chance to put together all of the documentation that might be needed from you to facilitate the transaction. Count on something being uncovered during this part of the transaction that might require a modification to the original offer. For example if during the inspection process the inspector determines that the home has foundation problems that were not noticed before, expect the buyer to offer a reduced price before completing the transaction.

Real investors know how to inspect a property and chow to determine accurately what will be needed to repair the property. They will also have a good idea how much it will cost. With that in mind, it’s not necessary to make the contract contingent on an inspection. Therefore, I suggest either striking that clause from the contract completely or requiring the forfeiture to you of some part of the earnest money deposit if the clause is exercised. This will separate the real investors from the pretenders.

A well-drawn purchase agreement will clearly spell out what each party is responsible to do and when they are expected to do it. There should be no “gotcha moments” during the transaction.

In most cases, fast-cash investors who buy homes are reputable business people with no intention of cheating you. They simply want to buy your home at deep of discount so they can make a profit.

If you have still have questions about fast-cash sale of your home, you should seek council from a real estate attorney in your area before moving forward with a transaction.

I guarantee you that it will be worth the fee in worth your piece of mind.

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