How to Avoid "We Buy Houses" Scams

There are plenty of reasons to sell a home for cash to a real estate investment firm instead of placing it up for sale via more traditional means. Some homeowners who take advantage of these services are facing foreclosure, while others just need access to the equity in their homes to relocate.

The good news is, there are plenty of legitimate real estate investors out there. Unfortunately, the industry is also rife with scammers looking to take advantage of desperate homeowners. Before choosing who to work with, read on to find out how to avoid the most common "we buy houses" scams.

Work With a Reputable Company

Most homeowners have probably seen hand-written signs placed around their towns with phone numbers and claims of "we buy ugly houses." It may be tempting to assume that just calling the number on the sign will be the most convenient way to find a cash buyer fast, but it's also one of the best ways to wind up dealing with scammers.

Instead of trusting random people putting up hand-written signs all across town, look for a reputable house-buying company like PlacePitch. Check the company's website to make sure it looks legitimate and call to speak with a company representative. Don't be afraid to ask questions. Legitimate real estate investment companies will be happy to provide basic details about the company that will provide it is a legitimate business.

Be Wary of Foreign Buyers

It's common for scammers to claim they are foreign nationals who want to buy property from abroad. This excuse gives the scammers a seemingly compelling reason to buy a home sight-unseen and make unreasonable demands that could lead to homeowners losing their hard-earned cash.

One common scam involves requesting that the seller pay legal fees or administration fees before the sale goes through. The seller puts the money in an account, then the scammer takes it and stops responding to emails or phone calls. There are all kinds of variations on this scam, but avoiding them is as simple as choosing to work with local buyers.

Never Send Money

Even if homeowners seek out local real estate investment companies, they should still lookout for red flags. There's never any reason to send money to a potential buyer. If anything, the buyer should be willing to put down earnest money to indicate that he or she is serious about going through with the sale.

In most cases, buyers deposit 1% of the sales prices in an escrow account. If the buyer is unwilling to meet this industry standard, it could indicate that the investor isn't positive the sale will go through. If he or she requests that the seller send money to cover any kind of fees, it's a sure sign that the supposed buyer is actually a scammer and has no intention of buying the house.

Expect a Realistic Sales Price

Sellers should always be wary of sales prices that seem like they're too good to be true. To make money off of buying houses, real estate investors need to purchase them at a slightly discounted price. While sellers can still expect to get fair market value for their homes, they shouldn't trust offers that are far above what similar properties are going for in the area.

It's also relevant to note here that serious real estate investment companies always schedule home inspections before making a cash offer. The only way they can accurately price a home is to send an adjuster out to see what kind of shape it's in. If someone offers to buy a home sight-unseen, even if he or she is local to the area, that's generally a sign of trouble to come.

Beware of Pushy Sales Tactics

Legitimate home buyers never pressure or scare homeowners into signing contracts on the spot. They provide no-obligation cash offers and give sellers enough time to perform their due diligence before deciding whether to accept or decline the offers.

Legitimate investment companies don't want to pressure anyone. They want sellers to feel satisfied that they are getting fair deals so they can boost their companies' reputations. Only scammers and disreputable wholesalers attempt to pressure sellers or use scare tactics to speed up the sale.

Verify Proof of Funds

Homeowners who want to make sure all their bases are covered can request proof of funds from potential buyers. The verification could come in the form of dated bank statements, security statements, or letters from private lenders. Even if the verification letter looks 100% legitimate, it's always wise to contact the issuer to make sure it's real. Scammers are often adept at forging documents.

Wait Until Closing to Sign Over the Deed

There's a particular type of real estate scam going around these days in which the scammer requests that the homeowner sign over the deed, then continue living in the home while making monthly rental payments. It may seem like a sweet deal at face value if homeowners need huge amounts of cash, but the reality is very different.

The scammer may make a down payment, then offer to make the homeowner's mortgage payments in return for a rent. The scammer will then stop making the mortgage payments, leaving the previous homeowner on the hook and often kicking him or her out of the house, to boot. At that point, the victim will not legally own the house, but will still be responsible for making continued mortgage payments. It's the worst of all worlds.

The best way to avoid this scam is to wait until closing to sign over the deed. This essential task should only be performed in the presence of a real estate agent. In most cases, cash buyers will pay the closing fees, although it's worth clarifying in advance. If the seller is expected to pay any fees, he or she should wait until closing to pay them.

While "we buy houses" scams are very real, homeowners shouldn't let that put them off from pursuing cash sales. If they pay attention to the advice and warning signs above, perform their due diligence, and trust their guts, sellers should have no problem identifying scams or finding a reputable real estate investor.