If you’re a homeowner, you may have recently received some unsolicited offers from total strangers who say they’ll buy your house, sight-unseen, for cash.
The housing market is red-hot, with median home prices at record highs, so why would any homeowner respond to such an appeal?
Josh Stech, CEO and founder of Sundae, a company that facilitates home sales to investors without using a broker, said these solicitations are targeting a certain type of homeowner – one who is desperate.
“The industry is partly fueled by a cottage industry of real estate gurus who make money offering to teach people how to find and prey on ‘desperate’ sellers,” Stech said in an interview with ConsumerAffairs. “While I won’t name names, I can confirm that wholesalers will use a number of well-honed predatory practices such as the bait and switch tactic.”
Middlemen for investors
Stech says many operators don’t really buy the home at all, but rather are “wholesalers” who act as a middleman for an investor. They persuade the homeowners to agree to a below-market price, citing needed repairs, and then find a way to reduce that price even more.
“They’ve also been known to use phony inspections and legal threats to lock in the seller at a price far below what the house is worth,” Stech said. “Once they have done all they can to secure the home at the lowest possible price, they then turn around and sell the house to an investor and pocket the spread as their ‘assignment fee’ without ever purchasing the home or putting up any money to make repairs.”
Stech says the wholesaler’s profit comes at the expense of the homeowner, who loses a significant amount of their equity.
“In some cases, an offer can be $70,000 below what the home is really worth,” he said. “That is a lot of money to a person who may have fallen on hard times and needs to sell their home.”
Homeowners have options
The problem many homeowners face is a lack of money to make the repairs and improvements needed to sell the property at its market value. If significant repairs are required, the property might not pass a mortgage inspection and must sell for cash. Cash buyers typically offer well below market value.
Stech says his company can provide an alternative by putting a homeowner in touch with a number of investors who purchase “as-is” properties. The difference, he says, is his company provides a platform where buyers must compete with one another.
“Sundae serves as an advocate to ensure the seller gets the best price,” Stech said.
There are other alternatives as well. A homeowner may apply for a home equity loan to make the repairs, then list the home for sale with a real estate broker.
While they may be more likely to get closer to the market value, there are costs involved. There are usually closing costs for the home equity loan, and a typical brokerage fee is 6% of the sale price.