Homeowners May Be Losing Millions When Selling to "We Buy Houses" Investors

I'm sure you've seen the yellow signs with black handwritten lettering on the corners as you drive by, advertising all cash purchase, fast sale, easy sale, etc.  There are also some TV advertisers along the same lines.

Here is a story about research done in a Philadelphia market where such purchasers approach poor and vulnerable homeowners in areas where owners may not want to approach a real estate agent for various reasons.

A report from a Drexel University Nowalk Metro Finance Lab states sellers are often short-changed when selling the people behind the "We Buy Houses" signs, visible throughout the Philadelphia area. This report found that owners selling to such investors without listing on the multiple listing service (MLS) typically receive less than half the value they would receive if using the traditional method of selling. In that market, a seller received $126,000 less than a similar home on the MLS, an estimated $500 million loss in the Philadelphia market over 4-1/2 years.  This study also states only two cities and four states regulate the wholesale market, which unlike real estate agents, does not require a license to work in.

The investor may approach an owner with a price in mind that accounts for his/her after-resale value minus their capital costs and then quotes a price to the homeowner. If the purchaser is not a contractor himself/herself who will do the work, then that investor may be looking for a connection who is looking to enter that market and sells the contract to them for a profit to the investor.

In Philadelphia these transactions are concentrated in certain areas where the majority of homes never go on the MLS.  The Finance Lab looked into the reasons why these owners would not list with an agent and skip getting a higher price - it had to do with factors involving racial discrimination, economic discrimination, and lack of knowledge and assistance on how to fix up a home for sale in today's HGTV-style market. So a lot of home equity ends of being lost to the owner, and eventually the sale leads to gradual gentrification of neighborhoods by new owners.

Not addressed in this article are the more recent Fair Housing and Fair Appraisal requirements which are now required in Realtor contracts, but which appear to be completely washed over in the Philadelphia areas because investors are typically unlicensed free agents, not regulated except where described above.

There are also licensed groups operating in a similar way in the wider real estate market in many states, including California, with the same aim - to buy low and sell high.  Sellers of these properties often feel they are being saved the hassle of preparation to sell, especially if they are near foreclosure, a short sale, or are low of funds to paint, repair and fix up to sell. But so often it's the same story - they don't realize how much money they're leaving on the table -- and in fact, there are now some loan programs which will analyze the equity and front the money to owners for just that purpose, who can they repay the short term loan out of escrow proceeds -- and still walk away with profit.

If you are wondering about a cost-to-sell, or a value for selling without prior repairs, this is the time to find out, as non-investor buyers are looking for a chance to own.

Please contact me, an experienced Realtor with 28 years experience, for a no-obligation market estimate for your house, condo or multi-unit residential property.

 

Julia Huntsman, REALTOR, Broker | http://www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996