Mildew and opportunistic investors — those are two entities that absolutely love natural disasters like Hurricane Harvey, which leave homes ravaged and bend occupants over a barrel: Is it better to sell, or rebuild?
For perhaps the first time in their lives, a lot of Houstonians are probably pondering the merits of selling their homes quickly, and for cash, to a fast-cash house-flipping company. And they'll probably run into a lot of highly biased advice — such as real estate brokers saying to avoid fast-cash companies because, for just a little more effort, you can get more money in a traditional sale; and for those cash-buyers who say that it's a true boon when your priority is saving time and headaches.
Steve McLinden, an Arlington-based real estate journalist, falls squarely in the avoid-cash-buyers-at-all-costs camp.
"They are the lowest of the lowball buyers and are in the express business of making a fast buck off you," he wrote in Bankrate in 2015. "Their aim is to buy at an average of about 65 cents on the dollar but they may pay even less...They’ll then quickly flip the property for a profit to a landlord or owner-occupant who will be more than happy to buy at, say, 85 percent of market value."
But McLinden also noted some advantages, writing, "The companies pay cash, meaning you won’t be sweating out the buyer mortgage contingency, and they purchase as is, eliminating the repair headaches. They close fast because they aren’t waiting on financing approvals, inspections, appraisals and the like, and they typically pay some or all closing costs."
As the consumer advocacy site Truthinadvertising.org points out, companies like HomeVestors (the "We Buy Ugly Houses" franchise) need to make a profit, which is why they need to keep their costs low. Which is why their website states, "Our franchisees will buy your house, but only at a price below market value so it can resell after renovations for a profit." But they point out that the seller is getting cash, and the franchisee will "take care of normal closing costs and close quickly so you can move on fast."
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On average, today's house-flipper grosses $64,284 per flip, according to industry tracker ATTOM Data Solutions' June 2017 report. Flippers paid a median price of $135,716 and then sold for a median of $200,000. Not bad. (The study shows the hottest pre-Harvey local flip ZIP code was 77088, which encompasses Acres Homes. It comes out to an 18.7 percent flip rate for the first quarter of 2017, with a gross profit of $26,194 per flip.)
You may be wise to follow the common-sense tips from the Better Business Bureau of Greater Houston, which emailed us the following handy list:
- Research a few companies by checking information online at sites like the Better Business Bureau, where you can read complaint details and customer reviews filed by prior clients.
- Schedule an appointment to meet in-person with the businesses at their office to learn more about their home buying process.
- Check if the companies have a local presence and experience with real estate investing in your specific area. You might also speak with friends or neighbors for recommendations.
- Ask for proof the business will be able to finance the purchase from the outset. You may even ask for an initial deposit of up to $5,000 or higher.
- Request copies of bank statements, if you are unsure the business has the cash, or ask to call the business’ lender. You don’t want to wait to receive cash until the home is resold, as some companies may do.
- Sellers should not pay “application fees” or “processing fees” to the home buying business. Avoid upfront payments entirely; the business should be paying you to purchase the home.
- Read contracts carefully before signing and ask questions if anything is unclear. Avoid high pressure deals; you should take your time to review everything carefully.
- Check the contract to make sure you will no longer be making mortgage payments after you have signed away the home.
- Consider hiring a reputable Realtor or attorney to represent you and review any contracts or transactions during the selling process.
In light of Harvey, where too many homeowners are really desperate for cash, these may be especially good tips.