Beware of The “we buy ugly houses” scammers
savannah real estate market: scams when selling your home
You probably see the billboards, get the postcards in the mail, and hear the ads on the radio: “we’ll buy your house for cash, fast.” Seems like a fast cash offer could be exactly what you need, but what if you’re being ripped off? How can you know? What can you do to protect yourself?
First – let’s talk a little bit about exactly who these home buyers are and how they make their money. Most of these home buyers aren’t really buyers at all. They’re what we call “wholesalers” in the real estate industry. What is a real estate wholesaler?
A wholesaler essentially acts as a real estate agent without having a license. It’s technically legal in the state of Georgia, though there is momentum in the state house and senate to restrict or completely prohibit wholesaling. Here’s how a wholesaler operates in 4 steps:
- They advertise in order to get in contact with homeowners. They may use direct mail, cold calling, text messaging, radio, TV, or billboards. Once they make contact with an owner…
- They negotiate with the owner to sign a contract to purchase the home. They typically use high pressure sales tactics and will make sure you know that they are “all cash buyers”, can “close quickly”, don’t have burdensome inspections and buy as-is, and that you won’t have to pay agent commissions or closing costs. They will try to get your house under contract for less than its worth because in the next step…
- They will find someone else to buy your house for more than they agreed to pay you for it. They will find this buyer before they even close on the purchase of your home, and at closing it will not be the wholesaler sitting across the closing table from you, but the actual buyer.
- Remember how we said the actual buyer agreed to pay more for the home than you agreed to sell it for? Where do you think that extra money goes? It goes to the wholesaler’s pocket – now tell me that isn’t the exact same thing as a real estate agent commission? I once saw a wholesaler clear over $100,000 on a transaction like this – the exact same transaction with a real estate agent would have cost only $20,000. In this case the seller gave up over $80,000 of their equity because they fell for a wholesaler scam.
Often, the wholesaler will never find an end buyer because they often don’t understand the Savannah real estate market and will agree to purchase a home for *more* than it is worth. What usually happens next is that they will terminate the contact and not buy your house. They often do this the day before you’re scheduled to close, and there’s nothing you can do about it because in Georgia a seller cannot sue a buyer to make them close the sale. They don’t care that you might have already made plans, hired movers, etc. They’ll just walk away and leave you holding the bag.
So, when you sign a contract with a wholesaler, there are two possible outcomes for you:
- You sell the house for less than it’s worth, sometimes significantly less, and the wholesaler pockets the difference.
- You waste 30 to 60 days being under contract with a wholesaler who has no ability to actually close.
Ouch – that sounds like a raw deal! Are all of the cash buyers like this? No, but most of them are. How can you find out if someone is a real cash buyer? Here’s a couple tips:
- Ask to see proof of funds – they should be willing to show you a bank statement with their name or company name on it.
- Demand a substantial deposit in order to sign a contract, and demand that it be held in escrow by a reputable closing attorney. This deposit is called an earnest money deposit, and if the buyer does not follow through with their obligations agreed to in the contract, then you will get that money. Any legitimate buyer wouldn’t bat an eye to making a deposit of at least a thousand dollars, though you really should be getting 1% of the sale price of your home or more as deposit. A wholesaler usually will not agree to making the larger deposit, or if they do they won’t actually send it in to the attorney.
- Take a look at the contract. Does it look professionally written? Here are a few things it should contain to be legally binding:
- The county that your property is located in
- The legal description of your property. This is not the address, but rather a description of the property that should be on the first page of the deed. It should begin with “that certain lot in xyz ward, etc etc”
- Contact information for all the parties involved.
- The attorney who will be closing the transaction should be listed on the contract.
- If your house was built before 1978 a lead based paint disclosure should be included.
- Ask what other properties in town they own – then go check out the county tax records to see if they are telling the truth. If they don’t own more than a handful of properties they’re probably not the real buyer.
- If more than one or two people show up to the property inspection they might do after going under contract. Often times a wholesaler will tell you that they are sending an inspector or contractor buy to take a look, and 5 different people will show up. Those people are not contractors, they are the folks who might actually be buying your house.
- An excessively long inspection or due diligence period. Most real buyers only need a few days to complete inspections, some don’t need any at all. Anyone who asks for more than seven is wasting your time in most cases.
So how can you protect yourself when dealing with an “all-cash” buyer? There’s a few things you can do:
- Refuse to sign any agreement the first time you meet somebody. They will probably tell you that if you don’t sign today they won’t be interested in the deal tomorrow. They will ALWAYS still be interested. Don’t fall for that.
- Don’t sign any agreement until it has been reviewed by a real estate attorney. There are some great attorneys in town that we can connect you with.
- Don’t sign an agreement unless they’re putting up a deposit of at least $1,000.
- Let a local Savannah real estate agent that you trust take a look at the contract and the agreed upon price before signing the agreement. Our office is at 1216 Waters Ave, our phone number is 912-421-9013: you can stop in during normal business hours or call/text us any time and we will stop what we’re doing to take a look at your deal and make sure it’s a fair one.
In conclusion, while the allure of a quick cash offer for your home may seem tempting, it is essential to be aware of the potential pitfalls and scams associated with “we buy ugly houses” and wholesalers. Not all cash buyers are as they seem, and you could find yourself either selling your property for less than it’s worth or wasting precious time on a deal that will never close. Protect yourself by demanding proof of funds, substantial deposit, and a professionally written contract. Do your due diligence and don’t hesitate to seek professional advice from a trusted real estate agent or attorney. At Trophy Point Realty Group, we’re always here to assist you and ensure you’re getting the best possible deal for your home. Remember, it pays to be informed and cautious in the Savannah real estate market, ensuring your financial stability and peace of mind.