Beware of “We Buy Houses” Scams

Need or want to sell your house fast? Have those signs displaying “We Buy Houses Fast” caught your eye and made you curious if it is legit or a scam?

With a strong real estate market in many parts of the country, an abundance of “house flipping” shows on television, as well as the proliferation of self-proclaimed real estate investment “gurus,” offering training courses, there are now literally thousands of people trying to buy off-market real estate. I’d wager that if you own a “fixer” home in a “hot” market, you’ve either received a “Get a Fast Cash Offer” postcard in the mail, a phone call or text solicitation, or had someone knock on your door asking to buy your house.

The Good, The Bad, and The Ugly

There are many legitimate, and highly qualified investors seeking to buy real estate with the goal to “flip,” “buy, repair and rent,” or wholesale the property to another investor. Unfortunately, there are also people who don’t have the proper training or experience to smoothly complete a transaction. And worst of all, there are some running “we buy houses” scams. And due to the sophistication of some scams, it can be difficult to know whether the person you are dealing with is legitimate.

This is why I’ve decided to write this article. Since a person’s home is often his/her most valuable asset, the stakes are high. People have lost time, money, and even their houses to scams run by people who lack a moral compass. And since I am a Realtor, and also co-own Brothers Buying Houses, I have a somewhat unique perspective. Also, my brother, Brandon and I have also sold property directly to investors, so we’ve been on both sides of off-market real estate deals.

As a result, below are tips to help you discern whether you are working with a legitimate house buyer or perhaps someone trying to scam you. By the end of this article, I hope you are more clear on whether to hire a Realtor to sell your property, or to sell it yourself directly to an investor.

The “You May Be Dealing With A Scammer” Sniff Test

Some scam artists are smart and creative in trying to take your money. Below are only a few ways I know that could be signs you are dealing with a scammer. Most importantly, if you have a hunch or feeling that something is not right, stop the process and get advice from an attorney or Realtor. 

You Are Required To Pay An Application Or Evaluation Fee

If any “interested” investor requires you to pay a fee for them to evaluate your house, Stop! Do not do it. You are likely wasting your money. Honest investors do not make money charging property owners fees. They make money buying homes, fixing them up and either renting or reselling them. And note, any quality real estate agent will provide you with a complimentary Comparative Market Analysis (CMA) of your home.

Too Much Information is Given

Be alert if an “investor” offers you bank statements and/or pre-approval loan letters without you requesting them. These documents can easily be faked and it’s possible a person presents them to make him/herself appear legitimate. This is most likely to occur when the “investor” lives in a different area than you and communicates almost entirely by email. However, just because they are not local doesn’t immediately make them a scammer. Just invest the time to make sure you know who you are dealing with.

You’re Asked to Provide Bank Info or Other Personal Info 

A legitimate investor does not need much information from you in order to buy your property. The most important thing to remember is that they are the one buying your house. Thus, you should be the person receiving money and not the person giving it. If you owe any debts or fines on your property, they will be addressed at closing by an attorney or title and escrow company. 

Scams and Risky Propositions To Watch Out For

Leaseback and/or Buyback Option

This is somewhat complicated, but I know of it recently happening twice to homeowners so it’s important you are aware of it. This is where an “investor” offers to buy your house with an agreement for you to continue occupying it as a renter. However, they don’t want you as a long term renter — they want your house. The proposed lease terms may be for one year and the lease rate significantly below market. The investor might also give you the option to buy back the house at some point (usually 1-3 years). This type of offer may seem very appealing if you live in a house that has a lot of equity but are currently experiencing financial difficulty and need access to money. The investor will offer you a low purchase price, but justifies it with the low lease rate they are offering you or the fact that you have the opportunity to rebuy the house.

A couple problems may arise in this scenario. First, after your lease is up, they will either greatly increase the rate or not renew the lease. Secondly, they may have set the option price to rebuy the house at a price higher than market value. Either way, when someone approaches you with this offer, get expert advice before signing an agreement.  

The Foreign Buyer (For Sale By Owner) Scam 

Selling your house yourself and receive a friendly, heartwarming email from a person in another country who wants to buy your house? And even better, will pay cash? Be careful. The goal of some of these emails is to get you to provide your bank info or have you send them money. Also, if you are asked to click a link and provide username and password, or other personal info, be careful! Make sure the site is legitimate and not a phishing site.    

Kitchen Table Closings

To protect your interests, do not sign over the deed* to your house anywhere other than a title and escrow company or attorney’s office. Otherwise, you may make a costly mistake. Signing at a title company or attorney office ensures the paperwork is handled properly and all liens are addressed. You can learn more about deed scams here.

*Please do not mistake this for signing a contract to sell your house. This can, and will likely occur at your house. Just don’t sign any Deed or Quitclaim Claim without the oversight of a real estate attorney or title company.

Sub2 or Subject To

Some “investors” use a strategy called “Subject To” or “Sub2.” This is where they buy your house “subject to” the existing mortgage. They will want you to deed them the house without paying off your mortgage. The biggest problem with this is that the mortgage stays in your name. Therefore, if it goes unpaid, it will directly impacts your credit. And worse, it could result in you losing the home. 

Short Sales Scams

Short sales happen when a lender agrees to release their lien on your house for less than what you owe. If you are behind on payments but have equity in the property, a buyer may convince you to attempt a short sale. Short sales can drag on for months and the bank may wait until just before a foreclosure auction to deny it. Now you have a big problem. You won’t have time to sell it. It’s almost certain to be lost to foreclosure. Some investors don’t give you all the facts when they attempt a short sale on your house. You also need to be aware that even if the bank agrees to a short sale, they could put a deficiency judgment on the loan. You may also have to report the amount shorted as income which could cause you to owe income tax.

Offering the Highest Price

The saying, “If it’s too good to be true, it probably is,” certainly carries a lot of truth when selling your home to certain “investors.” If you are a distressed seller, perhaps facing foreclosure or your home is about to be auctioned off, be very careful. Some scammers or immoral people will offer you a high price but have no intention of paying you that price. If you are nearing a foreclosure or auction deadline, they will wait until your situation is critical to come back with excuses on why they can’t pay the agreed upon amount and ask for a price reduction.

However, sometimes the sun does shine. These days, with so many investors competing to buy houses, we do see investors overpaying for homes. So if you are offered a great price for your home, I don’t recommend you automatically reject it. Rather, ask the investor for proof of funds, and for non-refundable earnest money. Also, it is always a good idea to ask for referrals. Any legitimate investor will have no problem providing all this to you. Just make sure you understand all conditions and contingencies in the contract.

HOW TO AVOID POTENTIAL SCAMS

Do Your Homework

First, with a quick online search, you can easily determine whether somebody has a history of doing what they say. You can also find out how long they have been in business. This shows they are stable and may be worthy of your business. Unethical business people or scam artists rarely stay in business long and almost always have negative reviews.

Check Testimonials

It’s best to read reviews and testimonials about the house buying company you are considering. Any reputable business will have statements from previous customers that attest to how they do business.

Make Sure to Close at a Title Company or Attorney Office

There is a tremendous amount of “legal jargon” in contracts and deed documents. To protect yourself, have a title and escrow company or real estate attorney handle the closing. This helps ensure everything is done properly and greatly reduces the risk of a mistake.

Don’t Sign Documents You Don’t Understand

This is common sense but definitely not common practice. If you don’t understand something, don’t sign it until someone you trust explains it to you. This is where a quality real estate attorney or title company can be very helpful. They should be able to break it down for you in easy to understand terms. Owners of quality home buying companies will also take the time to explain the process and terms with you. If you find you are working with someone not willing to do that, consider another company.

Work with People You Trust

Armed with the knowledge from this article, you should be much better prepared if you decide to sell to an investor. As previously mentioned, there are literally thousands of “investors”  looking to buy real estate quickly and with cash. Take the time to find one that treats you with respect and honors their word.

However, as I stated in my article, “List With A Realtor Or Sell Directly To An Investor?” you’ll likely net the highest amount using a Realtor. Thus, if you decide to sell your house in Hawai’i , I’d love to help you achieve your real estate goals. And if you need assistance in Washington State, contact my brother, Brandon. He is a highly rated Realtor with lots of experience. Either of us is happy to answer any of your questions to help you finalize your decision.  

The information presented in this article is for educational purposes only and should not be considered legal, financial, or as any other type of advice.

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