Listen to Al's Shocking Story:
3 Unscrupulous Investors Backed Out of Contracts at the Last Minute
"I met with a lot of investors and immediately got offers. I entered into a contract with Investor Group... I didn't read the fine print and in it (the investor) had placed a small little clause that said he could get out of it if it didn't pass certain inspections. So a couple of weeks before closing he calls me up and says your house doesn't pass the inspections so we won't be able to close. I can't buy your house at the price quoted but I'm still interested in your house but I'll offer you $100,000 less. I thought this was just an oddity and wasn’t going to happen again... Well lo and behold, it happened to me again and the same thing happened to me again! Days before closing the other person comes back and says I can’t do it BUT I’m still interested in your house but I’ll offer you $100,000 less. So it happened to me twice! I thought this was crazy. Unfortunately, it happened a third time!" ~ Al
Al's Situation Was Transformed When He Called Express Homebuyers
"I spoke with Tom and we agreed on a price right away and within seven days we were settling and I'm here at settlement and closing and everything went smooth. I should have stuck with them at the beginning and everything would have been done back in April - now it's July." ~ Al
Unfortunately, Al’s story is not unusual
There are a few reasons why investors who promise to buy your home may come back to you several weeks later and say they can’t buy it after all.
What Al experienced is the age-old bait and switch tactic. There’s at least one “we buy houses” company operating in the DC metro area that’s infamous for the bait and switch on offer price. Just like Al said, they tell you over the phone they can purchase your home for, let’s say, $200,000 in cash and can close in two weeks. You’re happy with that offer and sign a contract without first going through the Express Homebuyers Advantage Checklist you can download at the end of this article. You’re selling in two weeks because you’re in a situation where you need the money urgently or you need to get rid of the property quickly. The investor then tells you he has to inspect the property before he signs his part of the contract.
He shows up a few days later and reports that because of certain repairs, he must now lower the price to $140,000. You’re upset but because you’re in jam, you agree. Then the day before settlement, the investor calls and gives you one of a thousand different reasons about why he can’t pay you $140,000. Now he can only pay you $100,000. You are furious, but also perhaps only two days away from a foreclosure auction and losing everything, so you agree.
Al was fortunate to not be in as dire straits as this example, so he could reject the unscrupulous proposal. But this exact scenario actually played out a few months ago with a seller to whom we had made an offer. She told us another investor was going to pay her $50,000 more than we had offered. When we checked back months later, we learned she sold to that same bait and switch investor for $3,000 LESS than what we had offered. So essentially she got $53,000 less than the investor originally promised her.
Another less devious, but still devastating and common practice in real estate investing is something called wholesaling. Wholesaling is a process in which a “we buy houses” investor gets your home under contract and then assigns the contract to another buyer who actually closes on your home.
Some investors choose to wholesale instead of buying your home outright because they don’t actually have money to buy the home. Others don’t like the headaches and liability associated with renovating a home. And still others they may simply want to get paid immediately instead of waiting months to renovate and sell the property.
Here’s an example that explains the wholesaling process. Let’s say Bill investor says he will buy your home for $200,000 cash and can close in two weeks. You say great and sign a contract with him. Bill then goes to Jim investor and says “hey Jim, I have a house in Washington DC under contract. Would you like to buy it for $220,000?” Jim runs his numbers and thinks he can still make a profit by buying your home for $220,000, so he says yes. At this point Bill prepares a document called an assignment of interest and assigns the contract to Jim. In 2 weeks, Jim shows up to settlement and pays the settlement company $220,000. $20,000 goes to Bill and you get $200,000 - the contract amount that Bill promised you.
The scenario described here isn’t actually the problem. The problem occurs when Bill gets your house under contract and promises to close in two weeks with cash he doesn’t really have.
Because Bill doesn’t have the cash, he has to quickly find a buyer who does have cash and to whom he can assign the contract. That’s not necessarily an easy task and very often Bill can’t find a buyer. Or he finds a buyer but the buyer backs out on him. Either way YOU are the one left without a buyer for your home.
Needless to say, these scenarios can deliver crushing disappointment, especially if you have an impending foreclosure auction or a deadline to meet. Express Homebuyers gets calls every month from people with stories similar to Al’s!
You’re probably thinking you’re smart enough to avoid getting caught in these traps. That’s what Al thought too. Unfortunately, smart people get played all the time by these scam artists. So again, how do you avoid these nightmares?
It’s actually quite simple. You require the buyer to show you proof of funds before you ever sign a contract with a “we buy houses” company. Any reputable property investor should be able to share a current bank statement showing sufficient funds to purchase your home. You also must require the real estate investor to make a large, non-refundable deposit to the settlement company handling the closing. That way, if like in the example I just mentioned, Bill can’t find a buyer, he forfeits $5,000 to you.
To see more smart questions to ask and issues to investigate before signing a contract with a real estate investor, download the Express Homebuyers Advantage Checklist here.