There are investors and companies that send out postcards and letters telling people that they are looking to buy their home. They pick their lists based on many different criteria. Some target owners that are late on their mortgage. Some target non-owner occupied homes. Some target homes with owners over 65 years old. Some target people going through a divorce. Some target the obituaries. Some target all of the above.
Obviously, these investors are not looking to pay market value for the property, and they are looking for the people that are the most likely to sell their home for pennies on the dollar.
What do I mean for ‘pennies on the dollar’? The investor tries to get the home as cheaply as possible. Many will start out at as low as 40 cents on the dollar of the homes current value in the homes current condition, and the cutoff is usually 70 cents on the dollar. Please note that this is in current condition and not after repairs.
Many of these investors are hoping they can get your home under contract and then find someone who can actually buy it. They don’t have the cash in the bank to purchase the property. They will get the home under contract, then start calling everyone they can to see if someone wants to buy the contract before they ever even close on the property. If they can’t find someone, then they can’t close and you are in a worse situation.
So, what to do if you are in a desperate situation and see working with an investor as the only, or most convenient way out?
#1) Call a real estate agent. (This is not as self-serving as it seems) Pretty much all real estate agents are going to be willing to sit with you and give you an idea of what the home is worth. It will be a free service. Try to find someone who knows your area. (Side note, if you don’t know who to call, call me and I will find someone in your area) Why don’t they charge? If you decide to list the property, the hope is that you will call them to do so. This gives you an idea of what the home will sell for and how long it will take to sell the home if they were to list it. This keeps you from selling for a discount unknowingly.
In my former life as an appraiser I had the opportunity to do an appraisal for an older lady who had bought her home for $70K nearly 30 years prior. It was one of the hottest areas in Atlanta. I asked her what she thought it would be worth. She said, probably at least a 100k by now. It was worth over 700k. (Well, she wasn’t wrong, it was at least 100k) She nearly fainted when I told her.
#2) If you decide to move forward with the investor: Remember, this is a negotiation. Yes, the investor may play hard ball and threaten to walk away. Do not be intimidated. Also, don’t be scared to walk away yourself.
#3) Insist on receiving proof of funds showing that the investor has the cash to purchase your home. This should be a letter from their banker stating that they have at least the amount of the purchase price and all closing costs available in liquid assets at time of the contract. Make sure you call the bank to verify that this is correct. A letter without verification could easily be fraudulent. A deal with any investor should be one that is quick and easy. You are trading price for convenience. You are, essentially, selling your home to a business, the same way one sells jewelry to a pawn shop. Part of that convenience is making sure there is no loan to obtained, no last minute detail that can derail the transaction.
#4) Read the contract carefully and make sure you understand it. Many contracts will have a due diligence period. This allows the other side to pull out for any reason at all. Push to have an inspection period instead of a due diligence period. Look to have this period as short as possible. Best case scenario is 7 days or less. Do not accept any inspection period or due diligence period over 21 days.
#5) Make sure the investor has skin in the game. In Georgia, we call this earnest money. The sticky part here is that the attorney that will be closing the transaction will likely be working for the investor. So, insist that whoever is holding the earnest money issues a signed statement that is part of the contract stating that they will handle and disperse the earnest money as required by the contract. Also, earnest money should be significant in these cases. Ask for 10% earnest money to be held by the attorney in the event of a breach.
#6) Stipulate in the contract that the investor cannot flip the contract to another party prior to closing without specific written permission from you.
#7) Be prepared for the offer price to be reduced after the inspection. Unfortunately, one of the games investors play is to come to an agreement at one price, then negotiate for a reduction of the price after the inspection. It happens with listed properties too. Inspectors are looking to lock the property up and then negotiate the price.
#8) Stipulate in writing that the contract cannot be flipped or sold prior to close. Most important of all: Don’t ever sell your property by letting someone take over payments. It will not absolve you of the financial obligation. So, if he/she doesn’t make the payments on time, your credit takes a hit. If the home is foreclosed on, the foreclosure is on you. Even if they make every payment on time for the next 30 years, that payment will be counted against you on your credit report. It will limit your ability to buy another home or any other expensive item until it is paid off.
In many cases an investor and distressed home seller can come to an agreement that is a win-win. I am not here to bash all investors. I am here to give a word of caution to unsuspecting home owners.
The key is for the distressed seller to be informed and not to operate out of ignorance. Make sure you fully understand every implication of the agreement. If there is anything you don’t understand, reach out to a professional. (Preferably an attorney.) Do not take the investor’s verbal word for anything that is not in writing. (This should be standard practice for ALL contracts, not just ones that are offered by investors)
As always, if you have any further questions, don’t hesitate to
contact me directly. I am happy to answer any questions you may have. My number is 678-992-3817.
Obviously, these investors are not looking to pay market value for the property, and they are looking for the people that are the most likely to sell their home for pennies on the dollar.
What do I mean for ‘pennies on the dollar’? The investor tries to get the home as cheaply as possible. Many will start out at as low as 40 cents on the dollar of the homes current value in the homes current condition, and the cutoff is usually 70 cents on the dollar. Please note that this is in current condition and not after repairs.
Many of these investors are hoping they can get your home under contract and then find someone who can actually buy it. They don’t have the cash in the bank to purchase the property. They will get the home under contract, then start calling everyone they can to see if someone wants to buy the contract before they ever even close on the property. If they can’t find someone, then they can’t close and you are in a worse situation.
So, what to do if you are in a desperate situation and see working with an investor as the only, or most convenient way out?
#1) Call a real estate agent. (This is not as self-serving as it seems) Pretty much all real estate agents are going to be willing to sit with you and give you an idea of what the home is worth. It will be a free service. Try to find someone who knows your area. (Side note, if you don’t know who to call, call me and I will find someone in your area) Why don’t they charge? If you decide to list the property, the hope is that you will call them to do so. This gives you an idea of what the home will sell for and how long it will take to sell the home if they were to list it. This keeps you from selling for a discount unknowingly.
In my former life as an appraiser I had the opportunity to do an appraisal for an older lady who had bought her home for $70K nearly 30 years prior. It was one of the hottest areas in Atlanta. I asked her what she thought it would be worth. She said, probably at least a 100k by now. It was worth over 700k. (Well, she wasn’t wrong, it was at least 100k) She nearly fainted when I told her.
#2) If you decide to move forward with the investor: Remember, this is a negotiation. Yes, the investor may play hard ball and threaten to walk away. Do not be intimidated. Also, don’t be scared to walk away yourself.
#3) Insist on receiving proof of funds showing that the investor has the cash to purchase your home. This should be a letter from their banker stating that they have at least the amount of the purchase price and all closing costs available in liquid assets at time of the contract. Make sure you call the bank to verify that this is correct. A letter without verification could easily be fraudulent. A deal with any investor should be one that is quick and easy. You are trading price for convenience. You are, essentially, selling your home to a business, the same way one sells jewelry to a pawn shop. Part of that convenience is making sure there is no loan to obtained, no last minute detail that can derail the transaction.
#4) Read the contract carefully and make sure you understand it. Many contracts will have a due diligence period. This allows the other side to pull out for any reason at all. Push to have an inspection period instead of a due diligence period. Look to have this period as short as possible. Best case scenario is 7 days or less. Do not accept any inspection period or due diligence period over 21 days.
#5) Make sure the investor has skin in the game. In Georgia, we call this earnest money. The sticky part here is that the attorney that will be closing the transaction will likely be working for the investor. So, insist that whoever is holding the earnest money issues a signed statement that is part of the contract stating that they will handle and disperse the earnest money as required by the contract. Also, earnest money should be significant in these cases. Ask for 10% earnest money to be held by the attorney in the event of a breach.
#6) Stipulate in the contract that the investor cannot flip the contract to another party prior to closing without specific written permission from you.
#7) Be prepared for the offer price to be reduced after the inspection. Unfortunately, one of the games investors play is to come to an agreement at one price, then negotiate for a reduction of the price after the inspection. It happens with listed properties too. Inspectors are looking to lock the property up and then negotiate the price.
#8) Stipulate in writing that the contract cannot be flipped or sold prior to close. Most important of all: Don’t ever sell your property by letting someone take over payments. It will not absolve you of the financial obligation. So, if he/she doesn’t make the payments on time, your credit takes a hit. If the home is foreclosed on, the foreclosure is on you. Even if they make every payment on time for the next 30 years, that payment will be counted against you on your credit report. It will limit your ability to buy another home or any other expensive item until it is paid off.
In many cases an investor and distressed home seller can come to an agreement that is a win-win. I am not here to bash all investors. I am here to give a word of caution to unsuspecting home owners.
The key is for the distressed seller to be informed and not to operate out of ignorance. Make sure you fully understand every implication of the agreement. If there is anything you don’t understand, reach out to a professional. (Preferably an attorney.) Do not take the investor’s verbal word for anything that is not in writing. (This should be standard practice for ALL contracts, not just ones that are offered by investors)
As always, if you have any further questions, don’t hesitate to
contact me directly. I am happy to answer any questions you may have. My number is 678-992-3817.
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