Has anyone sold their house through We buy houses for cash? How does it work and is it worth it.?

Asked by Michele, Virginia Mon Jun 23, 2008

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The descriptions below are reasonably accurate (well...I take issue with some of Vicky's response), though--of course--somewhat biased.

I'm a Realtor and I also am an investor, so I offer a "We Buy Houses" service. Here's how it works:

The investor determines an ARV (after repair value) for the property. What would the property be worth, and sell quickly for, after fix-up? Then the investor determines the repairs necessary to get it to the ARV condition. The investor plugs those numbers into the following formula:

Maximum Allowable Offer=(ARV*0.65)-Repair Costs.

(The multiplier of 0.65 used to be 0.7; some investors still may use the higher number.)

So, let's say a house, after fix-up, would sell for \$500,000. And let's say it needs \$20,000 in repairs. The formula is:

\$305,000 (MAO)=(\$500,000*0.65)-\$20,000

So, \$305,000 would be the most a "We Buy Houses" investor would pay for the property. The offer would be for less.

Next question: Is it worth it? Answer: sometimes. You almost always will receive more money for the property if you list it with a Realtor. And Realtors have a code of ethics. Now, some investors are very, very ethical. Some are less so. And it can be difficult to tell the difference.

The drawback to listing it with a Realtor is that investors really can buy the property for all cash in just a couple of weeks. You're dealing with a buyer (or sometimes a wholesaler, who will sell the contract to another investor, who then purchases). In today's market, a Realtor can't promise: "We'll be at the closing table in two weeks," or even "We'll have a ratified contract in two weeks." An investor can. And investors do buy in "as is" condition because they factor the repair costs into their offer.

Vicky is describing some of the other techniques investors will use. And they're legitimate, too. However, no ethical investor (again, there are many) will claim to be buying for all cash, then somehow switch over to a lease-option or subject-to transaction. In fact, those transactions are used in different circumstances. The "We Buy Houses" approach works best when there's a lot of equity in the property, and the owners want to sell the house and recover whatever equity they can right away.

Lease-options work when there's equity in the property, but the owner doesn't need the cash right away. The owner will receive the cash (and likely a much higher sales price) a few years down the road when the option is exercised. Subject tos work best when there's not much equity in the property and the owner is considering "walking away" and just wants out.

Also, lease-options and subject tos work best when the rental income covers the payment the investor must make (the underlying mortgage in the case of a subject to, or the lease the investor has negotiated with the owner, in the case of a lease-option). That really doesn't matter for an investor buying at a deep discount; the discount is so deep that the investor knows he/she can easily resell the property (as Mary describes).

So, the "We Buy Houses" technique is worth it if you have some equity in your property and absolutely, positively, want to get rid of the property in a matter of weeks. It's not worth it if you have the time and patience to sell through a Realtor...or (heresy of heresies) even FSBO.

Hope that helps. And feel free to contact me offline with any other questions.
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Yes, I did. I actually got more for my home than what I originally paid for it. However, there are many aspects that you need to consider. First off, be aware of what your home is currently appraised at. This is important it establishes to the company that you know what the economy is doing in your area. Next, make sure you have a list of any current repairs that need to be done with your home. By letting them know the little things, it helps. Finally, negotiate, take a look at what you still owe for your home and negotiate from there. This will help you get a good deal. Be aware though there are many companies out there that are running scams so stay on top of your game, do your research on the company that you plan to work with.
This is probably the worst way to sell a house, but here is how it works. These guys work off a MERIDIAN method. Meridian meaning middle ... so if want to sell your house for \$50K. they will offer you between \$20- \$27.500 for your house, significantly less than market. If you have problems with the house, perhaps it is a good place to try, but I seriously do not recommend this practice, especially if you are in a high market like New York or Los Angeles. These people are basically stealing and their savings is their gain. The other side of the coin is they will buy FAST!
I guess I'll provide the non-realtor's point of view and as one of those "We Buy Houses" investors I've provided many people a way out of their problem where a Realtor was unable to do so. So many people facing forclosure wait until the last minute hoping a miracle will come along, but it doesn't. Many times the foreclosure auction is scheduled and a realtor can't list and close in time. Besides a commision they receive, what risk does the realtor have? A good and ethical investor will disclose everything, show market comps, show assessed value, show the cost of preparing for sale, and then negotiate a fair price. I have been able to keep people from foreclosure when the auction was within days. Yes, sometimes the loan stays in the owners name, but sometimes I pay cash, it depends on an overall assessment and what's negotiated for a win/win solution.

There are some crooked investors out there and I've seen them, so do you due-diligence. I've taught workshops and gave presentations on advanced Real Estate Investment strategies, but the number one thing I've taught is to be fair and ethical to people.

I've worked with a fair share of realtors who were not too honest and ethical either, it really comes down to people, proven history, and after a thorough evaluation of the situation, who is best suited for your needs.

Sincerely,

Rich Blecher
Virginia
Unfortunately, I had past clients fall for that. I sold them their home years ago. I kept in touch, mailed them quarterly and when I knew they were getting ready to leave (bought the house for their son to attend college), I mailed them a market analysis.

Somehow, someway, they ended up selling their home for 70k less then I could have sold it for. Even with my fee, they would have made 55k more. I have NO idea how the company managed to convince them that the house was worth so little. Maybe there was more to it than I know but at this point, I just send my holiday cards and have never reminded them of what i would have sold the property for and they have not brought it up.. I can't help but think, every time that I address their envelope (they live out of the area) that they pretty much lost the amount that would have paid for their son's college and how happy i was when i sent them the CMA cuz I was thinking about how happy they would be to have had such a profit.
I'd be aware of those signs. I've seen some are scams, some are newbs trying to become wannabe investors, and legit ones. Becareful and do your due diligence on weeding out the bad ones.
Great long answer form Mr. Tepper. I agree with his statements. One more option I wont to add is this
If you are in a position where you are willing to go this route and you are recieving less than 10% of the properties value from the companies that advertise 'We buy houses" croud, then look for a realtor who will buy the home on option with that amount up front as escrow. You get the money now and some more later when it closes. I have done this for people who had to sell, and everyone involved was happy. The eventual buyer bought below market, my customer made much more than they would have otherwise, and I as the investor/realtor did good as well.
There are some varations but the bottom line is you get less for your home than a realtor can get you. For example I just saved a navy couple from doing the buy as is thing. They were offered \$140.000 with an open ended contract to close in 21 days. I listend and closed the home in 60 days at \$199,000. I could have gotten more but they wanted to close quick. I usually see them offering less but they new the clients owed over \$130,000 on the home. No investor is going to give you market value for your home. They need to have a comfortable profet margin to ensure success. Your choice is give your equity away or sell it at a fair price and keep what you have earned. Is 45 days to long to wait for \$44,000 in your pockted?
AND... I've recently answered questions on this very site, because they don't all pay cash. Some will do land contracts or other types of things, and keep you on the mortgage... you don't realize they;'re not paying until you are notified of the pending foreclosure. Not sure what your priorities are (quick, cash, no fix up, no conventional showings) but there are ways of marketing your property and still accomplishing your goals. Feel free to contact me if you'd like to talk through any of those ideas.
Before she became a client, one of my now clients did that with a house that was a bit run down. She didn't think she would get a "great" price because of the condition, so she accepted a very low offer from a company that bought houses for cash. She was never given comps and never got much informaiton. She didn't want the hassle of fixing up the house prior to the sale. She was pretty upset when she found out that the company turned right around and resold the house- yep- at a much greater price.

So, if you're buying that company's offer, beware.
Web Reference: http://www.mmgates.com
Not a good value - unless you dont want the hassle of selling (in the case of an estate sale) or are desperate.
We buy for Cash are investors, most of them will not pay more then 70% of the appraised value of the home minus any repairs that may be needed, and most pay less then that. Not a very good deal unless you are desperate and in need of cash now. Good luck