Beware Of Fast Cash Offers

Sep 5, 2020

Beware of Fast Cash OffersWe often see signs on telephone poles and billboards advertising fast cash offers to buy homes virtually unseen. Are these buyers legitimate? The vast majority of them are truthful and will do exactly what they say. But do they provide what a property seller needs?

For the most part, these signs are posted by investors looking for properties they can purchase at extreme discounts. Their advertising targets are sellers who need cash fast and are willing to sell below market value to get it. Maybe the property is in very bad condition, the seller is trying to settle an estate quickly, or the seller has large bills to pay in the very near future. Maybe the seller doesn’t want to prepare the property for a traditional sale or go through the normal sales process. Their ideal seller is often in a must-sell position and is willing to sell at a discount just to get a deal done.

Cash offers have always been a powerful strategy for submitting a strong purchase offer. Paying cash removes the tasks tied to buying with a mortgage, such as qualifying for the loan, property appraisal, some inspections, processing the loan, and filing a trust deed as a lien when the sale is complete. These tasks and their processing or completion times often drive the overall length of the escrow period. Paying cash not only shortens the time needed to complete the sale, it also removes uncertainty from the process that is tied to the mortgage.

Signs promoting fast cash offers typically feature three benefits sellers may find attractive: short escrow, any condition, any location. Some may also mention they pay top dollar. Let’s look at each of those features to see if they meet the needs of most sellers.

Let’s start with top dollar. Most fast cash buyers do not want to compete with other buyers, so they prefer to make offers on properties that are not currently listed for sale with an agent or advertised as For Sale By Owner. They prefer to be the only dollar the seller is considering (therefore, the top). As the only offer they have more room to negotiate a significant price discount for their cash.

A property’s location is always a primary consideration when determining its value. While fast cash buyers may submit offers for properties in any location, they will adjust their offer price accordingly.

The property’s condition is the easiest feature to work with, since investors in damaged properties often start their valuation by considering each structure a tear-down. They look at the cost of clearing the lot and replacing the home with a new one as a worst-case scenario. If their process includes an initial inspection, they may try to salvage some or all of the structure, but their offer will more likely reflect the best price they can negotiate, not the property’s value based on its condition.

Finally, not all cash buyers are alike. One may refurbish the property for rent or resale and another could be a wholesaler planning to sell the property to another investor for a profit during the short escrow period (see my article Beware of Wholesale Buyers!).

Why contact a REALTOR® before considering fast cash offers? A REALTOR® is obligated to provide an accurate estimate of your property’s market value, the fast cash buyer is not. A qualified broker can advise on how quickly the property might sell, estimate a price range of potential offers, and help sellers understand all their options.

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