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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
Companies that buy houses for cash are usually legitimate
Real Estate Adviser

Selling a house quick and cheap
 

Dear Steve,
Our house has been on the market for nearly eight months. I have recently transferred jobs to another city and desperately need to sell because I am now paying two mortgages. Should we relent and turn to one of those "buy your house for cash" operations? How do these businesses operate and how much do they typically pay?
-- Lonnie

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Dear Lonnie,
Most of these companies are legitimate and basically play the role of a fast-acting, lowballing investor. The larger buyers have a good credit line and can close deals pretty quickly. But they usually pay less than smaller investors -- sometimes much less.

Still, these businesses have a broadening spectrum of customers in today's market. Sellers range from those trying to avoid foreclosure or who are selling off recently inherited property to those who are retiring, rightsizing, going through a divorce and those who are caught in less-than-desirable mortgage structures or who owe a multitude of back taxes. Or as in your case, they may be transferring jobs. Some sellers don't want to go through the machinations of multiple repairs and welcome the convenience of a quick disposal.

The pluses are that such operations pay cash, move quickly and buy "as is." Many will also pay most standard closing costs. The minuses are the deep discounts they command. Critics say they welcome unsavory elements in some neighborhoods when they convert homes to rentals. Proponents counter that they actually help prevent blight by ridding neighborhoods of poorly maintained homes.

What do they pay? That can vary widely. Most of them use software to analyze how much a home will cost to repair and how much to offer for it. Officials of such operations have told the media in the past that their aim is to buy at about 65 cents on the dollar, although in some particularly depressed markets that number has dropped to as low as 50 percent, particularly on condos. Some will merely try to gauge how much equity you have in a house and offer that and little more.

As you might expect, these are some of the lowest of the lowballers out there. The deep discounts, they say, allow them to renovate the place, pay for utility and maintenance costs while it's under renovation and market the home once it's ready to resell. When these homes are repaired, the firms or their franchisees typically resell the properties to new owners, other investors or add them to their rental portfolios.

These days, more and more of these "opportunity investors" are cropping up. The big and established ones such as the heavily capitalized HomeVestors focus mostly on starter homes and rental homes in the $100,000-and-under category, located in older neighborhoods. But as home values continue to drop and conventional sales slack, some have started picking up higher-dollar houses.

How does the process work? Representatives will come to your home, give it a thorough and free inspection, make their assessment, then make you an offer -- usually within a few days. It will be limbo-low, of course, and they expect you to haggle. Be sure you make at least a couple of counteroffers if you are going this route. If their low offer doesn't offend you, your return offer won't offend them. But make sure you check with the Better Business Bureau before making any commitment. There are more and more scammers out there. Ideally, the company will belong to an organization such as The National Association of Responsible Home Rebuilders and Investors.

To employ an overused term, these companies "are what they are." Most nondistressed sellers won't bite at their offers, however. You may be better served finding a midpoint between their offer and your current asking price and re-listing the property with a different brokerage for that median price for no more than 60 days, then see if that scares up any new offers -- if you have that much time, that is.

Bankrate.com's corrections policy -- Posted: Dec. 16, 2007
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