Are Cash Offers Questionable?
You’ve seen those signs on the side of the road “will buy your house for cash” but, how reputable are they? I mean, a sign on the side of the road is questionable enough, but what about typical buyers that agree to buy your house with cash? Well, that’s a different story.
In real estate the term “caveat emptor, or the buyer beware” is a frequent saying. This is why it’s important to have your own buyer representation when purchasing a property. It’s important to be aware of all the legalities and your rights a during the process. But, once the deal is done, it is up to the buyer to handle the property from then on. The seller typically has no responsibility once those final documents are signed.
So all of those cash homebuyers a bad thing?
Surprisingly, most of them are legitimate. However, there’s always going to be someone that will offer bare-bones minimum for the house just to try to get a bite, when the homeowner could get a lot more for the property. In Other situations could be on a monthly cash flow basis, which actually could be a good deal as well for the homeowner. The seller will be able to sell the property and take payments on an installment basis. But this doesn’t work for everyone. Having someone on your site through the process can help clarify all the details of a transaction.
This situation is a unique one in which a buyer agrees to pay the seller on a monthly basis any equity that exists in the house. But there are drawbacks to this situation:
#1. The buyer goes into bankruptcy. If the buyer goes into bankruptcy the proper protections are taken at the time of settlement and this could cause a delay in payments or neglected payments altogether. As a worst-case scenario, the homeowner will get the house back eventually. But, if there’s a first mortgage on the house and the buyer does not pay that off in full, you can only obtain a second trust from the buyer which is a greater risk.
#2. Encumbrances. If the homeowner owns the property free and clear there’s nothing to stop the buyer from taking out a new mortgage on the initial home after settlement. If that new lender does not receive the monthly payments on time it can foreclose.
#3. Due on sale clause. This is in most mortgages and upon the sale of the property to a third-party, your existing lender can call the entire unpaid balance of the mortgage do. Most lenders don’t do this, the possibility still remains and it can be a great risk to homeowners.
#4. The sale price. Homeowners need to be willing to accept this from the buyer in general, and there should be a profit motive behind the transaction. Homeowners should consider why a buyer would offer less than market price for the house.
#5. Additional guarantees. Homeowners should ask what guarantees the buyer can give to ultimately receive the payment in full. If the buyer cannot answer this, it could be a serious risk.
#6. Buyers financial status. Before entering into any kind of real estate transaction it’s important for the homeowner to understand the buyer’s financial status. Are there any tax liens against the buyer? Will you receive money after a court judgment from the buyer if necessary?
Read More: 5 Expensive mistakes homeowners make
Cash offers from investors can be very lucrative and convenient but there is also a lot of details that can go along with it. Again, it’s vitally important to have your own representation throughout the process. If you’re looking to sell your house for cash or just have some questions please don’t hesitate to contact me.