Are "Cash For Your House" ads genuine or a scam?: Internet Scambusters #863
In times of financial difficulty or slow real estate markets, you might be tempted to sell your home urgently in response to one of those "Cash For Your House" ads you see plastered around empty lots, telephone poles and, increasingly, on social media.
But when you think of it, someone will only give you money if they know they're going to make even more out of your misfortune.
Worse, some of these "buyers" are out-and-out scam artists. But we'll tell you how to spot them and what's at risk in this week's issue.
Let's get started...
"Cash For Your House" Ads Could be a Scam
"We pay cash for your house" - you've probably seen those signs posted on streetlights, planted on empty lots and, increasingly, on social media sites.
And, if you're in a hurry to sell or having difficulties attracting an offer, it seems like a tempting deal.
These guys are known in the real estate business as "opportunity investors." Their "opportunity" is someone else's distress - victims of foreclosure, divorce, bankruptcy, that sort of thing.
And, if you know what you're doing and you take the right steps to check out the cash buyer, you might cut a deal that at best gets you out of financial trouble. You won't get the price a regular realtor might land for you though.
On the other hand, you won't pay a commission and other charges like escrow.
It's easy to see why. According to broker Elizabeth Weintraub, writing on the personal finance site, TheBalance.com, the average cash offer is about 65 percent of a home's fair market value (FMV). A realtor might get up to 125 percent of FMV, in other words almost twice what the cash buyer offers.
The buyer will then almost certainly relist your home and since, unlike you, he's not in a hurry, earn himself a fat profit, maybe even double his money. Oh, and he'll make you sign a contract that prevents you from seeking any further amount after the sale.
Their tactics usually involve pitching an offer that matches your outstanding mortgage and other debt (if it's not too high). They know how tempting it sounds.
How to Avoid the Cheats
Less reputable firms may also try to gouge you even further. Here are some things to do to minimize the risk of being cheated.
- Have your home professionally appraised so you're in a better position to judge the value of the offer.
- Check out the reputation online of the cash buyer. In particular, watch out for so-called "bird-dogs" - people who are just trawling for potential business, selling on your contact details to investors.
- Ask for references, like details of houses they previously bought, with names of the sellers. And ask for the buyer's bank details so you can check that they even have the money. Some disreputable sellers have no cash but try to borrow it from a bank once they prove they have a good deal lined up.
- Be wary about any company that charges fees for processing or administration. This is not the norm in this side of the real estate business.
- Likewise, beware of offers-to-buy "sight unseen." It's not uncommon for a legitimate cash buyer to forego a formal inspection but if you get an offer from someone who hasn't seen your home, it's almost certainly a scam.
- Watch out for an advance fee fraud. A scam buyer will send a dud cashier's check and ask you to forward part of it to pay for an attorney (who is really the scammer) to cover fees. You know what happens next: you bank the check, you forward the fee, then the check bounces. You end up out of pocket at a time when you can least afford it.
In an article in Time magazine, online real estate Trulia also offered the following red flags that may indicate a cash for your house scam:
- The "buyer" says he's based overseas and you never get to meet them or even talk to them.
- The "buyer" is too open about his finances - an attempt to convince you he's legit, has lots of money, and is eager to buy.
- You're offered a contract with no earnest money and a get-out clause that allows the investor to walk away from the deal.
- The investor behaves unprofessionally, using poor language, pinning notices to telephone poles, using high-pressure tactics, and offering no references.
Is it the Right Strategy?
Even with all of these checks and warnings in place, and even if the buyer is legit, you should consider whether going down this route is really the most sensible strategy.
Have you spoken to a financial advisor about the alternatives?
One interesting possibility is that online real estate company Zillow, which has a powerful reputation to protect, has started buying homes in certain areas.
The firm's Director of Communications, Emily Heffter, recently told ConsumerAffairs.com that in those areas where it's active on this front, would-be sellers fill out a questionnaire, provide photos, and then click a "get an offer" button.
"We show them what we would pay for their home, and then we also show them what we think the market would give them if they just go with an agent, so they have something to compare it to," she told the consumer site.
In this case, Zillow does charge a commission of up to 9 percent, but there's no fee for seeking an offer. And, like cash buyers, when the deal is done, the firm relists the property.
For more on this, see https://www.zillow.com/offers/. We can't vouch for this cash-for-your-house service because we've never used it, but you'll find some useful testimonials on their site. Just remember that Zillow still aims to make a profit on the deal.
Alert of the Week
Are you intrigued by the thought of making money from crypto-currencies -- virtual currencies like Bitcoin? What if they were available for free? A scam surely?
You're right. An ad currently appearing on some websites offers $5 to $30 worth of Bitcoins for free every day through a program called "Bitcoin Collector." All you have to do is download the Collector program and it'll get to work automatically.
But it won't be doing what you think it should. It'll be placing malware on your computer, which will steal log-in credentials from every site you visit.
There's no such thing as free Bitcoin -- remember that!
That's all for today -- we'll see you next week.