You’ve seen the gimmicks: hand-lettered posters in the grocery store parking lot and junk mail promising to pay cash for your house. You’ve probably wondered how it works and if it’s a scam.
No financial investment is without risk, and the decision to sell your house to an investor is one that requires careful research and a knowledge of the real estate market.
Real estate investment is soaring in the U.S., and that includes everybody from small home buyers to professional companies. In 2018, the rate climbed to over 11 percent, slightly higher than the buying frenzy that occurred between 2012 and 2014.
Whether you sell to a corporation or a small-time buyer, knowing how the process works will make the sale safer and more profitable.
Is selling to an investor a wise choice for you? It depends on many factors, including the condition of your home and how fast you need to sell.
We have the facts you need to understand the pros and cons, learn how it differs from the traditional market, and avoid scams.
Should I Sell My House to an Investor or a Traditional Buyer?
In 2016, traditional first-time homebuyers purchased 38.5 percent of homes sold in the U.S. Although home ownership levels are declining, there are more Asian, Hispanic, or unmarried owners.
In a 2019 survey from the National Association of Home Builders, buyers put laundry rooms, environmentally friendly construction, and energy-efficient appliances at the top of their wish list.
Traditional buyers are often willing to pay more for a house that has special features or is in a good school district.
An investor could be an individual with one or more investment houses or an institution that incorporates residential housing into its business strategy.
Individual owners frequently resell homes for a quick profit while investors usually have long-term plans.
Because large investors have access to quick cash, they can buy houses more quickly that traditional buyers and eliminate closing fees.
If I Sell My House to an Investor, What Will They Do With It?
Investment buyers use four strategies: buy and hold, wholesale, flipping, or a combination. Investors keep buy-and-hold properties for long-term investment, possibly selling later.
Wholesalers buy and sell quickly without spending time or money on repairs or improvements. Flippers buy an as-is property, fix it up, and resell or rent it.
The tech boom has created another type of buyer, the iBuyer, a company that uses the internet to make instant offers on homes. Although they all operate in unique ways, iBuyers can make selling faster and more convenient for traditional sellers.
They estimate the value of your house, make you an offer, and do the sales and marketing.
If you’re selling, you have a lot of options: selling yourself, listing with a licensed broker, selling to an investor, or making a deal with an iBuyer.
If you’re in the middle of a crisis and need to sell quickly, an experienced investor might be the answer to your prayers.
You still need to find someone with experience and good references, or you could trade one set of problems for another.
Should I Sell My house to an investor?
If you’re going through situations like these, think about talking to a real estate investor:
- Inflexible timeline
- House under foreclosure
- Disposal of an inherited home
- Financing issues
- Contingency on another home
- Job relocation
- Tenant-occupied home
Even if you aren’t in a hurry to get out, selling your house to an investor means you don’t have to be ready to show it to buyers while you’re waiting for an offer. You can also simplify legal issues and negotiations.
What Are the Pros of Selling to an Investor?
Although the internet is changing things, most people are more familiar with the traditional real estate market than the investment or internet market. Here are some benefits of selling your house to an investor:
1. You can sell it like it is.
Investors buy homes in “as-is” condition, and that means you don’t have to spend time and money on staging, making repairs, or replacing things like worn carpet or old appliances.
2. You can close in two weeks.
When you sell to an investor, you don’t have to wait weeks for closing, make trips to the bank to fill out legal documents, or cross your fingers and hope the house passes inspection and appraises for the right amount.
Investment buyers close in around 14 days, and there are fewer things to go wrong at the last minute. Traditional closings take at least 60 days, and technical delays are common.
3. You have a variety of payment options.
Investors pay sellers in a variety of ways, including cash, certified check, scheduled payments, or taking over your existing mortgage. Many make the entire purchase in cash, and some also provide other services at no cost to the seller.
4. You can negotiate your move.
In a traditional sale, there are strict rules about when you have to be out of your house. With an investment sale, you can negotiate deals like staying longer, getting help with relocation, or leasing your house back to live in.
What Are the Cons of Selling to an Investor?
When we talk about the cons of selling to an investor, we assume you’ve done your homework and found somebody you can trust. There are trade-offs, some in your favor and some in theirs:
1. Your house might not sell for fair market value.
Investors are looking for bargains, and they aren’t legally required to tell you what they plan to do with your property.
They could tear down the house and use the lot for a parking lot, build a duplex, or rent it out like it is. It’s hard to know the true worth without knowing how it will be used.
2. Investors don’t need a real estate license to buy.
The law doesn’t require investors to tell you who is buying your house. Because a license is not a requirement, there is no governing board for certification, making it harder to investigate investors.
3. A sale to a foreign buyer will take longer.
Selling your home to investors who are not U.S. citizens can create problems and extend the length of the deal, sometimes by months. Legitimate foreign buyers can run into regulations in their own country that tie up their funds and complicate the sale. Here, you need the help of a lawyer.
4. The buyer could be a scam artist.
Sometimes, individuals pretend to be buyers from another state or country, or they may pose as the broker for out-of-town clients. They offer to pay cash without seeing the home, and then the “investors” give the seller a fake cashier’s check or ask the seller to sign a phony sales document.
Involving a real estate agent in the deal, potentially on a onetime basis, might keep this from happening.
Can I Negotiate With Investors?
Now that you know the pitfalls and benefits of selling to an investor, it might be time to talk about negotiating with cash buyers and investors. Keep these rules in mind:
1. Be fair.
Be honest with the investor about what you need from the sale, but be realistic too. You can usually work out a successful deal if both parties are willing to give and take.
Don’t be afraid to tell the buyer what you think your house is worth, and have some idea of the fair market value in your neighborhood.
2. Do your research.
Whether you’re working with an individual or company in your area or talking to someone further away, you need to check them out. Ask for references from past clients, but don’t forget to follow through.
Call several and ask them if they were satisfied. If not, what went wrong? Don’t settle for just one reference or the first one you’re given. You can also check online, but remember not all reviews are legitimate.
3. Ask questions.
Try to find out why the investor wants your property. Is it a bargain that needs a facelift but can be easily resold? Is the land worth more than the house?
The fair market value will rise or fall, depending on the location and intended use. Will the real estate be worth more to the buyer than it is to you?
4. Be transparent.
Don’t play games with the buyer. Know what you want, and expect the same from them. Ask upfront what the investor is willing to pay and find out how they came up with a price.
5. Compare offers.
Gather information about your location, the size and condition of your home, and the prices of similar properties that sold recently.
Online estimates aren’t always correct, but they will give you an idea of what houses are going for before you start to negotiate. If possible, get more than one offer, but don’t immediately settle for the highest one.
Does one of the investors seem more professional? Did you get an offer that would allow you to lease back your home after the closing? Most investors have websites that allow you to request an online estimate.
How Can I Sell My House to an Investor and Not Get Scammed?
Bankrate.com, a finance company with free financial tools for readers, has four tips for avoiding real estate scams:
1. Watch out for wire fraud.
Scammers call, email, or text you and say they’re from the title company. They may even set up fake websites that look like the real thing.
If you wire money, it goes to an offshore account and disappears. Don’t click on links in emails or texts, and don’t send money online because someone asks.
2. Don’t fall for predatory lenders.
Watch out if you get repeated requests from lenders who want to refinance your loan, especially if the amount of the loan is going up.
You could get stuck with outrageous fees, spend thousands on points, and end up owing more than you did on the original loan.
3. Be careful if you have a house in foreclosure.
Predators take advantage of people who are desperate. Work with a lender you trust, and ignore offers that offer you pie- in-the-sky deals or tell you not to talk to your lender. You can get free credit counseling from HUD or from nonprofit counseling agencies.
4. Be aware of rental fraud.
It’s easy to feel vulnerable when you need a place to live, and it makes even more likely to be the victim of a rental scam. Con artists list unavailable rentals in classified ads, sometimes using fake photos from another home.
Know who you’re dealing with before you pay rental deposits or sign a lease. Never use cash, check references, and show up in person instead of using the computer or phone.
How Can I Get More Information About Selling My House to an Investor?
Selling your home yourself, hiring a broker, and getting estimates from an investor all have their pros and cons. Now that you have an overview of the process, the choice boils down to picking the method that’s right for you.
You can avoid investor scams by using a published phone number to call the office and request a list of recent sales. Find out how they operate on the company’s website, or ask for more information on their policies.
Finally, read online reviews, and search the Better Business Bureau to see if they’ve had complaints and if they’ve settled them properly.
No money should change hands before the closing date, and that should always involve an escrow or closing agent.