We’ve all seen the ads. The ads are on television, radio, online, billboards… you can’t avoid them.
They all claim that they will give you a “fast, fair, cash offer” and that there are “no repairs, no showings, no realtors, no commissions, no hassles.”
Let’s break it down. Let’s start with a “fast, fair, cash offer.”
FAST: I guess this depends on how you want to define it. If you are comparing it to putting your house on the market (and I believe these “services” are) you can get an offer that closes in as soon as 2-7 days, or longer if you need more time, when you put your house on the market.
FAIR: For the purposes of this article, let’s define FAIR the way we do in FAIR market value. The basic definition is, “Fair market value (FMV) is the price of an asset when buyer and seller have reasonable knowledge of it and are willing to trade without pressure.”
According to Cornell Law School, “In the United States v. Cartwright, 411 US 546, fair market value (FMV) is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” The FMV is used in many laws and regulations, like the Internal Revenue Code and bankruptcy law. In the U.S., the FMV is commonly determined by the judge in a hearing, yet in some jurisdictions, the courts are required to hold fair market hearings though the two parties waived their rights to such a hearing. In Canada, according to the Canada Revenue Agency, the FMV means “the highest price” of the subject matter.”
Let’s repeat that last part: the highest price of the subject matter.
So, if FAIR Market Value is the highest price, then these offers really are not fair at all. In fact the “home buying services” industry average is more like 65% of the market value of your home!
CASH: There are plenty of “cash” buyers, whether they are using their own cash, an investors’ cash, hard money loan, or even traditional financing. At the end of the day, it’s all cash to the seller regardless. With traditional financing, and sometimes even with people buying with their own cash, or investors’ cash, there can be an appraisal contingency. Remember, the transaction doesn’t always end at closing, and it’s best to cover everyone’s interests before closing so there are few to no possibilities of a lawsuit later down the road.
Now, let’s look at all the things that they are claiming that you do not have to do or endure.
NO REPAIRS: Whether you put your property on the market or not, you do not have to do any remodeling or repairs. That is a choice that you make. However, if you want to get the highest price, it’s best to at least make sure it’s clean and, if possible, someone can live in it. The exception is in the event it is in such poor condition that one probably can’t get a loan on the property anyway. In these instances, prior to going on the market and being shown to prospective buyers, at least clear all personal belongings and debris from the structure(s) and property/ies. If you can’t do that, then the asking price should reflect that–but this is not a recommended course of action.
PRO TIP: There are many concierge services that will renovate your home prior to going on the market and the seller only pays at closing, through proceeds of the sale, through escrow.
NO SHOWINGS: I have news for you. No matter who is buying your property they are going to want to take a look at it. And if you want the highest price, you are going to want the most exposure to the most buyers. If you only have one or two prospects, and no one else even knows about your property, the prospective buyer is going to act like they are doing you, the one with the asset that THEY want, a favor. Always make sure your property gets as many showings, and as much exposure, as possible for the best possible outcome.
NO REALTORS: Basically, these people are suggesting that you, likely a novice, not be represented in what is likely one of the most consequential and largest transactions in your life. You have to ask yourself WHY? Why are they suggesting that you, the novice, not have any representation in this significant transaction, with them, the experienced buyer?
NO COMMISSIONS: Even if you pay realtor commissions, you are most likely to net a LOT more than if you hide from potential buyers and let these home buying “services” purchase your property below fair market value, denying you of your property’s equity.
NO HASSLES: Sellers MUST consider that these services are in business for their benefit, their profits. Profits for themselves, not the seller. They may come in with what seems like a reasonable offer, but then after their inspections they will (at least try) to beat you down with what they deem to be costly repairs.
Then there are those who call themselves “wholesalers” who tie you up in a contract to purchase your home, only to turn around and peddle that contract to a higher bidder. They even hire MLS “list only” services that market YOUR property as if THEY are the owners, when they are not even on the title. Unless they are so shifty that they have convinced you, the seller, to sign over the title of your property with the promise to sell it for you.
There are even classes and seminars to teach people how to separate you from your property and its equity:
What the real game is in these seminars is teaching the attendees to get the property into contract for a low-ball price, and then sell their contract to another buyer. This process is called “wholesaling” in the industry. In this case, the student attendee is given a letter to show proof of funds to buy your house (assuming they paid $25,000 for the ‘special training’).
The students then go out and write an all cash offer for your home. Should you accept their offer, they then take your signed contract and try to sell it to someone else who is willing to pay them more for your home. If the wholesaler can find another buyer, they “assign” the contract to the new buyer and you’re left trying to close escrow with someone you’ve never met before. To add insult to injury, the wholesaler’s marked up price is often more [costly] than the commission you would have paid if had you sold it through a real estate agent.
In summary, I would like to point out that these people purporting to help you, and encouraging you to forgo the representation of real estate professionals (that have a legal fiduciary responsibility to represent your best interests AND rely on repeat and referral business), are they themselves going to hire a realtor when they are ready to sell the house, your house, for a profit on the open market.
Because they KNOW that the exposure and representation, and the knowledge to mitigate (or eliminate) future liability has value.
Even the bank that forecloses on a property is going to hire a realtor to sell the repossessed properties when they are ready to sell.
So, if someone is telling you to avoid legally binding representation that has proven valuable since about 1900, a service that they themselves will be utilizing when they are ready to realize profits, will you trust their words, or their actions?
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