Professional Home Buyers, Investors, and Cash Offers

The last several years have been hard on real estate investors. With property values going sky high and inventory being the lowest it’s been in a very long time, the “deals” literally dried up. It’s because of this that professional home buyers (a.k.a. real estate investors) have had to get creative, and creative they have indeed become. 

In the past, investors would simply canvas neighborhoods with flyers on door knobs, or they would put signs on corners announcing “We buy homes” or “We pay cash for houses.” Unlike before, now investors are beginning to collaborate and cooperate, with some even franchising their proven systems for finding and securing the best deals. 

One such well-known early franchise system you may recognize is “We Buy Ugly Houses.” They did, in fact, tend to target houses that were otherwise hard to sell using traditional methods because they were in disrepair (a.k.a. ugly). Don’t get me wrong; they would happily buy a pretty home, too – for the right price. 

Since the ugly house guys, however, the investor market has set their sights on an even more specific niche – longtime homeowners relocating to senior living communities, assisted living, and long-term nursing care. Why do senior homeowners present such a robust market for home investors looking for deals? Below are just a few of the reasons: 

    1. Homeowners, having purchased their property many decades ago, tend to underestimate the current value of their homes. 

Unlike REALTORS®, who are bound by a code of ethics, investors are not obligated to educate owners as to the true value of their homes. Instead, they say things like, “We are offering you a fair price,” or “This is a competitive offer.” Despite offers as low as 25-50% of true competitive market value, longtime homeowners (often with no mortgage to payoff) tend to see low offers more favorably, making them more likely to say ‘yes’ without getting a second opinion from someone reputable. 

    2. Homeowners who are feeling overwhelmed by the process of selling a home and liquidating remaining items are susceptible to both founded and unfounded offers of simplicity and convenience. 

As a perk to homeowners willing to sell at an extreme discount (often 25-50% less than the actual home value), investors may offer to manage the liquidation of remaining items in the home or allow the homeowner to live in the residence for minimal rent until they are able to liquidate their personal belongings. Homeowners who are unaware of services that provide this support for a fair price may elect to sell at an extreme discount to avoid the hassle of doing it themselves or involving their family. 

    3. Many seniors do not check references and tend to trust people with titles despite proof of expertise or experience. 

Creative investors have begun marketing themselves as “Senior Transition Specialists,” with some even purporting to be certified in this area. Claims of such credentials are often simply marketing techniques taught online or over a weekend in local hotel ballrooms full of eager newbie real estate investors. There are legitimate trainings which require many hours and often months of education, reference and background checks, and testing; however, these professional home buyers have no such training. When asked about their certifying organization, they may share fictitious information or skirt the topic altogether.

    4. Senior living communities who are thought of as trustworthy referral sources (and usually are) may recommend investors because they may see this option as a way of ensuring a prompt and/or easy move-in. 

Sadly, these “creative” investors are now marketing their services to senior living operators in order to connect with potential senior home sellers. They provide assurances to the referring community that they can assist them in getting people to move in faster by buying their home and emptying it quickly. By making contact before a real estate professional is involved, these investors are able to convince homeowners they are getting a “fair value” while saving a commission. The offer of “fast cash” is appealing to those who may need the money to make the move and who are unaware of more reputable and less expensive ways to access their home equity and to simplify the relocation process. Senior community salespeople are just as susceptible as seniors when it comes to believing the unfounded claims of certifications and training. They often fail to check references or to fully understand the predatory nature of some home-buying schemes.

    5. When people are stressed, grieving, tired, or recovering from illnesses, they are more vulnerable and thereby susceptible to unscrupulous, unethical, and predatory business practices. 

Sadly, we have all heard of someone who has been scammed by an unscrupulous business, organization, or con-artist. No one likes to admit it, but we are all at risk of such practices. The people leading these organizations often appear kind, empathic, and even charming. Their hidden motives, however, are anything but honest or fair. When making a major life change, such as moving from a longtime home or into a retirement community setting, stress is just a reality. Investors count on that stress and use it to their advantage. Rather than encouraging you to get second opinions or have an advisor review their offer, they will encourage you to act quickly to get through the process as fast as possible. When you make fast decisions, you are less likely to see through their predatory and sometimes illegal tactics.

WHY INVESTORS DON’T LIKE REALTORS

Let’s face it, despite what they may tell you, investors are NOT on your side, and they most certainly are not looking out for your best interests. They dislike REALTORS because they don’t want you to know the true value of your home. If the investor happens to also be a licensed real estate agent, that doesn’t mean they are a member of the national or local associations of REALTORS. If they are not, they are not accountable to the REALTOR code of ethics, which means you have no recourse as a consumer should they take advantage of your lack of knowledge of the market. Having a license alone does not make them a REALTOR. 

When an investor tells you they are making you a competitive offer, there is a high likelihood they are not being completely honest. A competitive offer means that your home has been exposed to the larger pool of buyers and that other potential purchasers have weighed in on the home’s value. That is what real estate agents do and when they place your home on the multiple listing service (MLS). 

Real estate agents earn a commission when they have fully exposed your home to the market and procured for you the best possible offer and terms. In most markets, their commission ranges from 5%-7%. Depending on your contract with a broker, your agent likely serves as your fiduciary, looking after your best interests – before their own! Most reputable agents will not purchase the home of a potential client without careful consideration and full disclosure by all parties (and multiple opinions concerning fairness of price and terms).