Be cautious of companies that claim to buy houses for cash. The popularity of cash for homes is rising and more and more people are selling their homes to companies buying fast and closing with cash. However, there has also been an increase in unethical practices. These companies look credible, they are convincing. They disguise themselves representing a company name, but they are not a true investment company. The most common type of organization you will run across is known as a "wholesaler". These companies want to get a contract signed to purchase your home, then they re-sell the contract to a cash buyer. These wholesalers have no intention of buying your house and they generally don't have the capability of closing themselves.
Below, we discuss We Buy Houses unethical practices and other behavior and how to protect yourself from scams.
We Buy Houses – Unethical Behavior and Practices
1. Asking you to sign a purchase contract that is assignable. Assignable contracts allow the "wholesaler" to sell the contract to another buyer.
2. Asking for contingencies in the contract for inspections, financing, or investor approval. This indicates that the buyer likely can't close on the property themselves. A true cash investor will sign a contract as-is with no contingencies.
3. They tell you that they will send some contractors, inspectors, or appraisers to check your house. These people could be the real buyers, and the agent you thought was the buyer is trying to sell your house wholesale so they can get a commission fee.
Protect Yourself from We Buy Houses Scams
The best thing that you can do to protect yourself from these We Buy Houses scams is to do research. The internet is a great place to start. Research the company name and the person's name online. Here are the things that you can do to protect yourself from these scams:
1. Check the Reputation of the company and person – BBB (Better Business Bureau) and Secretary of State
Check the reputation and credibility of the companies that purchase houses for cash. Are they accredited by the Better Business Bureau? Do these companies have past issues and complaints? How are their customer reviews? Are they in good standing with the Minnesota Secretary of State? You can look them up at MN Secretary of State website here: https://mblsportal.sos.state.mn.us/Business/Search
and you can search them at Better Business Bureau here: https://www.bbb.org/en/us
2. Look at Their Website
Does their website promote their company name? Does the website show who the people are behind the business? If they don’t show who the owners are, ask yourself why that would be? Most local small businesses want to promote their brand and relationships in the community. Businesses should promote their brand or company name as much as they can, and whenever they get the chance to, especially on their business websites. If they don’t promote their company name or their own identity on their own website, then there must be something not quite right about these companies.
3. Research the Owner/Owners
If you can find the name of the owners, search for them in Google and check what and who they are affiliated with, or if there are some issues or complaints that are associated with their name. This is one way to ensure that you don’t sell your house to scammers.
4. Ask Questions, Ask about the terms
A true cash purchase should not have any contingencies in the contract. It should not be contingent on inspection, appraisal, approval by investors, etc. Also, you should get a down payment or earnest money to secure any agreement. In Minnesota, a purchase agreement is not valid unless earnest money has been exchanged. This is usually held at a title company. Make sure the contract states that it is “NOT ASSIGNABLE”. Contracts in Minnesota can be sold and assigned to another buyer unless you write this on the contract. Your terms and agreements must be clear to both parties. If there are terms that seem vague to you, ask the buyer or the agent to clarify everything and have a 3rd party review it. Don’t make assumptions.
5. Read the Contract
Do not sign a contract on the spot or under pressure. These are legal documents and you should take at least a day or two to review them before signing.
6. Sell to Reputable Companies that Buy Houses for Cash
By thorough research, you will find the companies that are in good standing and conduct ethical business practices. Look for those companies, ask for the right price, and sell your house quickly, as-is and for cash.