There is no shortage of companies and advertisements promoting "no obligation cash offers." This seems too good to be true. What are the risks in inquiring about these offers and how can those risks be mitigated?
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3 Answers
I'm just going through this process right now. I've already turned down two offers that claimed to be, "no obligation," one up front and the other after review by an attorney.
The biggest problem is the amount of cash they offer. The best cash offer I was given from a company was 80% of the list price. They validated and agreed that the list price was fair and reasonable. In contrast, I was given a 94% cash offer from a local buyer who was a person, not a company.
Also, beware of complicated deals with time periods, etc. I investigated one other deal that, as explained, would allow me to get cash from equity, then get it all back later. The contract included a forced cash sale to the lender after 120 days for 31% of list. They wanted to charge 2.4% in fees on top of it. It took me reading the contract 3 times and 45 minutes with an attorney to get to the bottom of just how bad the offer was.
The best mitigation: know actual values. If they offer you a price that's bad, walk away. Make it clear to them that you're not interested in any offer that doesn't directly increase the cash offer.
On top of this, don't provide any information that you normally wouldn't. There are scams where houses are sold illegally, but these are rare in the US. For instance, if you're not applying for a loan, they don't need your SSN.
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1"The best cash offer I was given from a company was 80% of the list price." I used to develop expert systems for approving loans last century, and the absolute maximum our client (building society) would lend was 81% of the market value: this was 90% of the quick sale value, which was defined to be 90% of market value. So 80% is what a conservative lender considered to be zero risk, i.e. guaranteed sale. Commented May 5 at 20:58
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@SimonCrase thanks for the insight. That was the one number that I eyeballed. I wouldn't be surprised if I went back, did the precise math and it came to exactly 81%. Commented May 6 at 19:45
The risk is that they mislead you about how good their offer is vs. other offers and use high-pressure-sales tactics to try to get you to sign. They are looking for people who are desperate enough for cash to accept a bad offer.
The real question is why you would want to spend the time talking to them. If you need cash immediately, maybe. If you really detest the combined auction and negotiation process houses are normally sold by, maybe. If you are in a buyer's market and are having trouble unloading the place, maybe; it would cut off the carrying costs of continuing to maintain and insure it while finding the right buyer.
But I generally classify these folks with ambulance-chasing lawyers. They may be competent, they may actually be appropriate, but they are calling because they hope to make a larger than usual profit on the deal.
There is one case where they might be the right buyer: if you have a property which is worth more as a tear-down/rebuild than as a house. A friend has a ranch house in a neighborhood zoned for two-family. A builder could buy it for its appraised price, raise the roof to add a second floor, and flip it as condos for twice their costs... So they might be willing to pay more than someone buying it for themselves, and have been Really Eager to make an offer in the hope that the current owner doesn't understand this scenario.
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I think being misled about the value of their offer could be mitigated by checking values on real estate sites as well as shopping multiple house buyers. I'm curious to know what specific high-pressure-sales tactics to be aware of. Could you elaborate on that? How much time are are you talking about being wasted: Just time on the phone and evaluating an offer? Or could I get locked into some exclusivity contract for a period?– psaxtonCommented May 3 at 3:10
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18This answer is spot on. I can't seem to locate the article, but I read something recently about these companies misleading people on the value of their property. In one case, I recall the buyer convinced the seller that their property needed a lot of work. The buyer purchased it and put it right back on the market at a significant premium with no improvements. This isn't inherently a scam but it's akin to going to a pawn shop when you need cash fast. You aren't going to get the best price for your property. Commented May 3 at 15:21
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7I got off those guys call lists a few years ago by telling them $800k. Houses in the area were worth about $500k-$600k at the time. To my surprise they came back the next day trying to negotiate down. I asked why they didn't recognize goaway pricing. They never called back after that.– JoshuaCommented May 3 at 15:39
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3@psaxton There's no free lunch, these companies need to be paid for their work, market risk, and to turn a profit. There is one case where you get a good deal for cash, which is corporate relocation companies ("relo"). That's because your employer is paying them, easily, $60-80k, which should give you an idea how much you'll get undercut by. Commented May 3 at 19:11
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14The pawn shop analogy is a good one. These are exactly that - you're trying to extract value quickly in cash from an otherwise illiquid asset, so that must come at a significant discount over FMV. Commented May 3 at 23:04
Assuming there really is no obligation, the only "risks" I see is that you will be suckered into a bad deal, and you will be added to a million mailing lists of people who fall for these sort of pitches.
I have never made any effort to investigate any of these "cash for your house" offers, so I can't speak from personal experience. But just logically, assuming they are completely honest (which may or may not be the case), they are providing a service: Immediate cash for your house, saving you all the time and trouble of the traditional process of getting a realtor and waiting for offers. They're going to expect to be compensated for that service. That is, I would expect that they will offer you less than what you would get in a traditional sale. How much less? I understand that the rule of thumb in real estate circles is that such people pay about 70% of what you would get in a traditional sale.
My biggest fear if I contacted such a company would be that they would use high pressure sales tactics or some clever manipulation and trick me into a bad deal. Like, have you ever gotten one of those "no obligation" offers to get a free dinner or a free trip in exchange for listening to a pitch for a time share or a retirement plan or some such? I went to one once and didn't buy anything. I'm sure lots of people say, "Hey, I'll just turn down any offers they make, and I walk away with a free ." But I worry, will a skillful salesman manipulate me and I wake up the next morning realizing that I just signed a contract for half a million dollars? They know many people are attending thinking they just want the freebie, and they have their pitches ready.
So assuming you're not suckered by a slick salesman or an out-right con man, when would it be smart to use such a service? I can think of two situations: 1. If you need to make a sale quickly because you need the cash NOW. If you have a rational reason to accept $140,000 today instead of $200,000 in a few months, this might be a smart move.
I can think of rational reasons to want a fast sale. If you've already moved in to another place, then you're now paying two mortgages. You have to maintain both homes, or pay someone else for maintenance. You have to worry about the empty home being vandalized, or invaded by squatters, etc. I recently moved to another country and put my house up for sale, and for a few months until it was sold it was quite a burden.
A good reason is NOT "I'm anxious and I want the money now". If the discount was 2%, that might be rational. But the discount is way too big to accept it for purely emotional reasons.
The other rational reason I can think of is if the house is hard to sell. Maybe it doesn't "show" well. Maybe it's in a bad neighborhood. Etc. These factors likely affect what the cash buyer will pay, but it might be worth it.
