We Buy Houses Sign - Wikimedia - Photo by Infrogmation - June 2007

Are “We Buy Houses” Signs Scams?

Meghan Riley Home Seller Tips

You’ve seen the signs on the side of the road and nailed to utility poles, many handwritten on yellow corrugated plastic. They come with a variety of messages, including: “We Buy Houses for CASH!”, “We Buy Ugly Houses!”, and “Avoid Foreclosure!” They hype quick closes and easy solutions that anyone with a looming home sale may find eye-catching, but any person of sound mind will wonder why a legit service for a major investment would be advertising roadside. Is this low-key guerrilla marketing or are these “We Buy Houses” signs advertising scams? Here’s what you need to know.

Is the Service Legitimate?

You may be surprised to learn that many of these “We Buy Houses” signs are backed by legitimate companies. We can’t attest to their reputations or experience levels, nor can we say that none of them are scammers (hey, people can be awful), but most are authentic. They’re flippers and investors who want to buy houses cheap and make money off fixing them up or holding onto them. The cheapness is often what earns them the “scam” label. However, these companies are not trying to swindle homeowners out of money or perform real estate fraud. If they can’t purchase the home at a certain price, they can’t make the money they need. Sometimes their offer price isn’t high enough to cover a seller’s financial obligations, so the transaction doesn’t occur. Despite the sign’s strong message, calling the phone number does not guarantee a sale.

What Happens When You Call the Number on the Sign?

If you decide to call the number on the sign, you’ll be connected with a representative of the company. Depending on its size, that may be the investor, their administrator, or sales representative. They’ll gather pertinent information, like the address, each owners’ full name, mortgage balance, etc. They’ll then make an appointment for the real estate specialist to view the home and assess its condition. After completing some homework, they’ll present an offer price that you can choose to accept or decline.

How Do They Come Up with the Offer Price?

The real estate professional from the “We Buy Houses” company will analyze recent sales in the neighborhood to determine what types of homes are selling and the potential After Repair Value (ARV). They’ll then assess the cost of repairs and materials to get the home to a comparable condition. They add the cost of repairs and materials to the cost of holding onto the home (taxes, utilities, etc.) and then tack on their target profit. They subtract that number from the ARV and that’s the offer price. Never contact a “We Buy Houses” company and expect to get the Fair Market Value of your home, unless your home needs a lot of updating and repairs.

After Repair Value (ARV)

Offer Price

Who Benefits from “We Buy Houses” Signs?

Not everyone will benefit from using a “We Buy Houses” company. The value in it rests heavily on the owner’s motivation and needs. With that said, those who benefit from this service include:

  1. People who inherit property or property that’s in probate. These sellers likely don’t need to live in the home and aren’t eager to go through the process of selling it. This service would help settle the sale quickly.
  2. Distressed property owners. Homeowners facing foreclosure or looming debt may find fast relief selling their home this way. Of course, this depends on how much equity is in the home. There needs to be enough to cover said debts.
  3. Divorcing couples. When homeowners need to divide assets due to a divorce or separation, they’re likely trying to break ties as quickly as possible. Selling the home this way can provide quicker access to the funds than putting the home on the market.
  4. Worn out landlords. Property owners tired of dealing with tenants and repairs may be ready to just move on. Selling the home as-is, tenants included or not, may be easier if they’re selling to a buyer already in the business to handle investment properties.
  5. Failed flippers. Flipping homes is a business that a lot of people are wanting to get into thanks to popular do-it-yourself network shows. However, some who take the leap find they aren’t as able to finish the job as they thought. Most buyers won’t purchase a home that’s gutted or in disrepair, so the best buyer would be another flipper.

The Disadvantages of Selling Through “We Buy Houses”

While selling your home to a “We Buy Houses” investor may sound like a quick and easy solution, it does come with some disadvantages.

  1. Your best interests are at stake. The sales representative who handles everything has the investment company’s best interests in mind, not the homeowner’s. You can hire an attorney to review the documents and provide guidance, but that will be more money out of your pocket, which is what many people are trying to avoid when they call these signs. The average seller has little experience in real estate and property law, which can put them at a big disadvantage knowing not only what the Offer to Purchase is saying but what it ISN’T saying, as well as other responsibilities that may arise with the sale of the home that are no concern of the buyers’ but will affect the seller.
  2. You could get more money putting the home on the market. As mentioned above, the people behind these signs are investors, and they must purchase a property at a certain price to make money off it. That’s why you should never expect to get Fair Market Value for the home, unless the home is in such bad shape that no average buyer will want it. That aside, listing a home on the real estate market does not eliminate investors. Properties in our area that are best suited for flippers often receive an overwhelming number of showings that usually lead to multiple-offer situations. Demand determines fair market value and showing a home to only one buyer removes demand from the equation, thus leading to a lower sale price.

Conclusion

If you’re hard up for money or don’t want to deal with selling the home on the market, “We Buy Houses” companies provide an opportunity to make quick cash. Not every home is suited to this system and will receive an offer, but there are people who can benefit from it.

If you aren’t desperate, selling a home the traditional way through a brokerage could earn you more money than this method by opening the sale up to other buyers. If the home needs work, raising the listing price could be as easy as just a few key repairs. You can get a good idea about strategy by speaking with a local real estate broker, who will do a comparative analysis and make suggestions for improvements that should be made prior to listing. They usually do this for free and will have names of service people who can help you make the repairs quickly, so there’s less stress on you.

Located in North Carolina’s New Hanover, Brunswick, Pender, or Onslow Counties? We’d love to take a look at your home and create a custom market analysis. You can also learn about the seller services we provide. Fill out one of the forms on our website or give us a call at (910) 202-2546 and we’ll be in touch A.S.A.P.

Are Those We Buy Houses Signs ScamsAre Those We Buy Houses Signs Scams

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About the Author
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Meghan Riley

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Meghan is the Client Care Coordinator for The Cameron Team and a published author of two young adult books.