Are These Legitimate Companies That Can Be Trusted?
The signs. The letters. The postcard. The flyers. They all have a buyer behind them. They all have an investor, flipper or company that really is interested in buying someone’s house.
For them, it’s a matter of investment and most of these investors and companies are legitimate real estate experts. So don’t expect to get full price or market value when being offered cash for your house. These cash buyers are looking for houses that may or may not need some work and can be sold or held for profit.
How much cash they offer, really does depend on their reason for buying it and the amount of money needed to renovate, repair, upgrade, hold, and sell (or rent) to someone else. If the home is in really poor condition the amount of risk significantly increases for an investor.
How Much Money Will They Buy My House For?
Ah, this is where many and maybe you, think that they are not legit.
Remember, the people and companies that offer to buy your house for cash do it with the intention of later selling it for a profit, as a flipper might do.
Or, they want to buy and hold while maybe renting it for a while, this is what a real estate investor will do.
Next I’ll show you how they will figure out how much cash they will pay for your house.
How they will determine the cash offer to buy your house
What risks? To begin with, the flipper must know the area, the real estate market, and have buyers in mind (or know they are out there) before they take on a new project.
Then, they must figure out all the selling costs associated with making the house ready to sell, while figuring in the amount of profit they need to make so that it makes sense to even offer to buy the house in the first place.
And, for all of that to happen it takes some analysis, prior experience and guesstimates.
Here’s the formula that a flipper uses to determine the cash offer: After Repair Value (ARV) – Renovation Costs – Holding Costs – Selling Costs – Desired Profit = Buy The House for Cash Offer
So what do all these mean? Let’s take a look at each item.
After Repair Value (ARV)
This is the first step every flipper takes when evaluating a potential house to buy. When they know what people will pay for the house after everything is done, then they begin listing their anticipated expenses for repair and upgrades.
ARV is a common acronym used by real estate investors and flippers. It stands for After Repair Value and is what the house will be worth after repairs and upgrades have been made.
Sounds simple, but let’s do a quick review of how the flipper gets to the cash value they’re willing to give your house.
Where do they get the After Repair Cost from? Well, they do a bit of research online and look for similar houses that recently sold in the area and from there they figure out the “going rate” and use that as the ARV.
This is part art and part science, so it is important they know the local real estate market well in order to correctly estimate the ARV. Or partner with a Realtor who can help them out with determining the ARV.
Renovation Costs
How do they figure the Renovation Costs?
This is the estimate they work with to budget the cost of repairs and upgrades. Some flippers are so experienced at flipping that they may be able to just look at pictures or use descriptions someone gives them, add that to the age and size of the house and be able to make a really good guess on the repair costs!
Others might use a $$/square foot base to start estimating basic cosmetic renovations.
These repairs could include minor electrical and plumbing fixtures, new flooring (carpet, hardwood, vinyl), painting of the inside and outside, new baseboards, new kitchen and bathroom cabinets and countertops and appliances, interior doors and those leading to the outside, maybe a deck or patio, fencing, and possibly some landscaping.
Holding Costs
The next step for the flipper is to estimate the Holding Costs. Remember, when they purchase the house they are now responsible for property taxes, insurance, utilities, maintenance, and any homeowner association fees.
Every single one of these costs needs to be account for during the entire duration they will own the property. Holding the property for longer than estimated will increase these holding costs and eat away at the flippers profits.
Selling Costs
Don’t forget, a flipper will most likely be putting your home back on the market to resell for that ARV we talked about. Selling a house requires a lot of money.
How Do I Verify Who These Companies (or People) Are?
Here is how you can determine if they are valid cash buyers for your house.
Due Diligence is Important
Due diligence – reasonable steps taken by someone to satisfy a legal requirement, especially when buying or selling something.
In this case your due diligence will be to determine if the person or company has the money to cover the Cash Price Offer, has a reputation in the community or area for following through on contracts and keeping their word, and that they are a legal entity according to the city and province, and are able to purchase your house.
Get their Credentials and Do Some Verification Steps
Start at the beginning and do some basic research in order to determine who these companies and people are. If you are not familiar with basic online and in person measures you can take to look up people and companies, follow these tips.
- Ask for the full legal company name and the state they are registered to that allows them to do business. Typically, the business will be an Incorporated (Inc) or Private Limited Company (Ltd).
- Ask and get the full name(s) of the people you will be dealing with and their role or title in the company.
- Look up their names online. Look for LinkedIn and social media profiles and read through them and see what information you discover.
- Do some Google searches of the company name, the owners’ name and the individual names you received. You never know what will come up but look for a positive online presence.
In Summary..
The answer is, simply, to do a little research. Start by asking them easy questions. What is the name of the company? What is their actual address in or around the city? Would it be possible for you to come by for an appointment? Who is the owner of the company? Is there a website you can look at to learn more?
With every answer or non-answer that you get, it provides you with an opportunity to follow up and confirm the truth. Don’t be afraid to push for more information if you don’t get what you needed. A reputable company is more than happy to provide you with the details you need to feel safe and secure. And the more information you can verify, the more likely it is that they are a legitimate business. Plus, if they won’t give you answers to these simple questions, it stands to reason that there’s an important reason they’re withholding information.
