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Watch Out for These 5 We Buy Houses Scams!

Real estate paperwork and a magnifying glass looking for hidden selling fees

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It can be overwhelming to try to sell your house, especially when there are life pressures that pull and push you in lots of different directions. It’s understandable that those pressures would give you reasons to sell your house fast, and cash buyers offer a way to turn over a piece of real estate quickly and put money in your pocket. 

An important thing to keep in mind is that many of these fraudulent homebuying plots are intertwined. That makes them even harder to spot. For example, mortgage ripoff can come alongside a dishonest house improvement dealing. That can then be hidden within a fake cash investor business.

The complexity of the selling process and the emotional turmoil that homeowners are in can make it difficult to parse the truth of a situation.  Even a market value traditional sale of a home can be confusing. It’s easy to see why getting a fair cash offer warrants research to prevent common scams.

The good news is that there are plenty of reputable “cash for homes” options out there if you want to sell your house. The bad news is that there are also plenty of “we buy houses” scams out there too. To help you avoid losing your money, here are five signs that you’re dealing with a cash offer ripoff scheme.

1 – Honest cash home buyers never ask you for money upfront

Neighborhood of homes for sale at market value
Image by Breno Assis on Unsplash

If the cash home buyer you’re working with asks you for money upfront in any amount, it’s a major red flag for a “we buy houses” scam. A seller should never, ever have to pay any kind of fee before closing. The offer that you get from a cash buyer should be free from both real estate fees and commissions.

Remember, the buyer is coming to you with cash for your house. Just as you wouldn’t expect to pay someone to buy your car, you shouldn’t expect to pay someone to buy your house. 

Another real danger when selling your home for cash is dishonest homebuying fees. These are sometimes called “market risk fees”. They can be folded into the closing costs, greatly reducing the amount that you’ll get for your home.

Outlandish service charges for processing paperwork or mailing documents are sometimes snuck into the contract price. That can eat into your sales price. Though these don’t constitute an outright cash home buyer scam, it’s still a shady way to do business. Hidden fees will mean you get an unnecessarily lower price for your property.

In this same realm of real estate fraud are cash buyers who offer money before closing, then claim that they overpaid. They’ll ask for a refund before the original, bogus check clears, then run off with the cash. All of the money exchanged in a real estate transaction should trade hands during closing, never before. 

2 – We buy houses scams often come through phishing

Phishing through a laptop for a we buy houses scam
Image by Mohamed Hassan from Pixabay

A fake home buyer might show up in your email inbox via a type of scam called phishing. Phishing is the use of email marketing to attempt to get personal information from a person and then to defraud them. What they’re looking for are things like bank account numbers, passwords, credit card numbers, and other sensitive personal information that would allow the people behind “we buy houses” scams to steal money from you. 

The identity thief might find your contact information on a foreclosure notice or through other public real estate records. The problem here is that reputable cash buyers can also get your email from those same kinds of sources. Both will reach out to you if you fit their profile.

If you want to sell your house fast, it can be hard to tell the difference initially between good and bad real estate investors.

Ask cash buyers lots of questions

To avoid getting scammed by a fraudulent cash buyer, ask lots of questions. Only give the buyer information that’s directly related to the home. A reputable cash offer company will never ask for bank account information. Again, a business should never ask for any money upfront. In fact, the cash buyer should offer to provide a proof of funds that shows their ability to complete the sale of the house.

Fast cash investor companies don’t need to put their phone number on telephone poles to find someone who wants to sell as is. They don’t need to resort to phishing to find potential sellers in the open market either. A business will have an actual address. They’ll also have a depth of experience in the market dealing with people who want to sell your house.

Most homebuying con artists don’t like to engage in identifiable forms of contact. You can protect yourself by asking for a phone conversation or a video call with a real person. Any honest real estate investor will be happy to talk to you on the phone. They’ll be ready to engage in multiple ways of communication. Ensuring that any potential buyer has things like a physical address, business cards, and positive ratings will give you peace of mind because you’ve done your due diligence. Never, ever give information to prospective buyers through email without vetting them first.    

3 – Fake foreclosure relief from ripoff real estate investors

This scam is particularly sinister because it preys on people who are in the vulnerable position of facing foreclosure. It’s unknown, scary territory for most homeowners that generally comes alongside other life events that are already destabilizing. 

In these kinds of “we buy houses” scams, a company, usually parading as a law firm or a real estate agent, approaches a homeowner who is in danger of foreclosure and offers to take over part of the house payment in exchange for equity in the home or a future cash home buy. They ask the homeowner to send them a partial house payment, then they say they’ll send that plus the portion they’ve agreed to pay on to the mortgage company. The trick is that they never send anything to the mortgage company – they take the homeowner’s money and run. 

There are federal laws that prevent lawyers from taking payments from homeowners without modifying the loan with the lender, except in very, very exceptional circumstances. In order to make any kind of modification to a home loan, it must be agreed upon with the lender.

Though it can be tempting for homeowners in a foreclosure situation to take any kind of help that comes their way, it’s never worth the risk of getting scammed. Only ever make payments to your lender and never work with a third party who is unwilling to communicate jointly with both the person on the note and the company who holds the loan on the house. 

4 – Equity skimming that puts you in a worse situation

Foreclosed home sold as is
Image by Birgit Loit via Unsplash

Equity skimming or equity stripping is a nefarious practice. It targets homeowners who have either defaulted or who are in danger of foreclosure. The cash offer scammer swoops in and offers the homeowner a deal with a new loan. Then they pay off their existing house loan and acting as a foreclosure rescue. Or so it seems. 

In exchange for paying off the property loan, the perpetrator of this we buy houses scam asks the homeowner to sign off the deed to the property as collateral on the loan. That sounds reasonable, but it’s a red flag in this situation.

Often, these buyers will refinance the home and pull all of the equity out of the house. They might keep the homeowner as a tenant, only now demanding a high rent that pushes the person out. They might also just skip out of town and leave the homeowner right back in foreclosure. 

Oftentimes with this real estate investor sale, the homeowner doesn’t understand that they’re selling their house. The intentionally complex nature of the ruse makes it difficult to parse out what’s happening for someone who isn’t knowledgeable about real estate dealings.

The parameters of a foreclosure can allow a real estate investor to buy a property for a reduced price. That doesn’t necessarily mean it covers the cost that the original homeowner is facing. Equity skimming takes advantage of this feature of the foreclosure process to leave vulnerable homeowners in a terrible situation where they owe even more than they started with. 

5 – Cash buyers who put pressure on you aren’t reputable

Ugly house for sale as is

Image by Phil Hearing via Unsplash

A hard sell is never a good sell. If anyone tries to put any kind of pressure on the deal, it’s a no-go. Experienced real estate agents know this, and so do experienced cash offer real estate investors.

Consult with a real estate attorney and do your research before you sign anything. Always take your time when making the decision about selling your home as-is. A few days and some investigation to ensure you’re getting a good deal is always worth it. 

A cash buyer company that is above board can show you proof of funds documentation before you close the deal. This can come from an attorney or a bank. It’s as close to a guarantee that you’re dealing with a high-quality investor as you’ll get. How much money a company has to buy your house is part of the calculation, and investors know this.

Consult with homebuying experts

Any investor will run a title check on the property to be sure that the title is clear. When skipping the involvement of a real estate agent for the connection or lender for the sale price, many of the processes that slow things down are cut out.  Though quick turnaround cash buyers will often offer to skip things like a home inspection or an appraisal that will speed up the process, that speed should never come at the expense of your ease as a seller. 

Before agreeing to sell your home, again it’s important to take the time to consult with an expert like a real estate attorney or your mortgage holder. An honest cash buyer will never have a problem with you checking with real estate professionals before you enter into a contract. They’ll be happy to have someone look at the contract they’re offering because they know that it’s a win-win deal.

Most “we buy houses” companies are invested in doing the right thing. They might be in the business of buying and selling property, but they’re also in it to do the right thing. Integrity in real estate means allowing homeowners to be comfortable with the process. 

Remember – lots of people out there pay cash for ugly houses. No one investor is the only way sell your house as is.

Don’t ignore these red flags when selling your house

Justice in a criminal real estate investor scam
Image credit: Tingey Injury Law Firm via Unsplash

Doing your due diligence can be as simple as a quick review of potential scams or a google search to get more information about the investor you’re thinking about selling your house to. It’s a small price to pay for selling your house to a person you can trust.

Look for what people with similar houses have experienced before you negotiate with someone to buy your house. A good rule of thumb is to talk to other home sellers, look for a well-reviewed company online. You can also seek out investors who have a personal connection to you when you’re trying to sell quickly for cash.

The worst part of all of this is that there is usually very little recourse for a seller who has been hit hard by one of these “we buy houses” scams. Law enforcement can and certainly does prosecute fraudulent companies. However, it’s rare for victims to get any of their hard-earned money back. That’s even true when the cash buyer con artist is caught. 

Take solace in knowing that reputable cash buyers are out there and ready to buy your home! Not everyone is out to make dishonest money on the quick sale of property. Look for businesses that have a public presence, are quick to communicate, and have a long track record of working with sellers for a quick turnaround that’s a good deal for everyone.

Brett Riggins

Brett Riggins

Founder of Connect Home Buyers Brett Riggins started his real estate journey after graduating from Western Michigan University in Construction Engineering. After completing his first few residential flips, him and his wife Arin started Connect Home Buyers LLC, and today, they help homeowners sell their property quick and hassle-free.

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