What are the risks of accepting an offer on your home from a Home-Buying Company sight unseen?

When selling your home, numerous options are available to you. Unfortunately, not all the options are suited to your needs. When time is your biggest concern, speed and ease are probably your most important deciding factors. But sometimes what seems the fastest way to a solution may just end up wasting your time. Selling your property to a company focused on purchasing homes quickly may be a very viable option, and there are very reputable companies that do a great job at creating solutions for sellers in need. But there is one Red Flag Indicator that may end up costing you more time than you have. In this article, we are going to discuss what pitfalls may arise when you accept an offer on your house sight unseen.

Understanding Who is Making the Offer

Homebuying companies purchase properties with the intent to make a profit. Whether they invest in long-term rentals or purchase with the intent to renovate your property and resell it, either way, there has to be a profit involved. So, in order to buy your property, they will ensure they do the proper research to come up with an offer that gives them the best chance to achieve their goal. This research will probably include extensive underwriting, an inspection of your home to determine condition and renovation cost, as well as a thorough comparable sales analysis. After collecting information from this research, they will then determine your offer.

What does it mean when a home-buying company makes an offer without doing its research?

There are multiple reasons why a home-buying company may be very quick to make you an offer, and most of them are likely to cost you time.

They are not the end buyer.

A common strategy in real estate investing is to contract on a property and then look for an end buyer who is willing to purchase their contract for a fee. The original company will evaluate your property based on the information you provide them, as well as comparable sales in the area, and come up with an offer that they feel gives them a good chance to sell their interest to an end buyer. You may be fine with this plan, but if they are not able to find an end buyer, they will likely cancel their contract, and you will be forced to start all over again. As we discussed earlier, without doing an inspection of the property, it would be very hard to determine the condition and renovation budget, which is a key factor in determining an offer. This should be considered a red flag.

They plan on renegotiating their offer.

Another common practice of investors is to identify your need to sell quickly, and they make an offer high enough that you will sign their contract, but it would not normally make sense to a homebuying company. Usually, they intend to get you excited that you are going to be able to sell your property, then, during the closing process, they have either an end buyer they are trying to sell their contract to or one of their inspectors to inspect your house. Usually, what happens next is they come up with different reasons as to why they can not purchase your property at the original offer, in hopes that you are so excited to sell that you are willing to sell at the reduced price. Now, with that being said, occasionally, there are extenuating circumstances that prevent the buyer from purchasing at the original price. These may include unforeseen damage, termite infestation, or title issues, to name a few. It is best to get proof from the buyer and do your own due diligence. Again, not wanting to see your property before making an offer of what could be multiple hundreds of thousands of dollars should be a red flag. It is likely that if they can not get a price reduction, they will cancel the contract, causing you to start again.

What can you do to reduce risk when dealing with Home-Buying companies?

• Do your due diligence. (Look at their website, check their reviews, ask them about properties they recently purchased. Ask to speak to the previous homeowners they purchased from.)

• Ask them about their process and what to expect during the closing process.

• Be curious as to why they want to go to contract so fast without seeing the property.

• Try to identify how long they have been purchasing properties.

• Ask them about their plans for the property after purchasing.

In Closing

This article is not meant to deter you from doing business with home-buying companies. Many companies truly provide solutions to homeowners like yourself and can help you when time is not on your side. I just wanted to give you an insight into what you may experience and what you can do to prevent dealing with companies that may rob you of time that you don't have.