Real Estate Experts Urge Caution When Working With 'We Buy Houses' Businesses
Stapled to telephone poles and planted along the sides of roads, “We Buy Houses” signs have appeared in some Pittsburgh neighborhoods. The signs are relatively generic prompting some residents to wonder who is behind the advertisements.
When homeowners call the numbers on these signs, they’ll typically speak to an individual investor, wholesaler or large company. A representative will schedule a time to visit the property in question and offer the owner a price that’s usually less than its actual value. That’s typical, says Alan Mallach, a senior fellow with the Center for Community Progress, because the seller isn’t going through the process of hiring a real estate agent.
Divorce, death or disrepair often motivate clients of “We Buy Houses” fast cash companies, according to Mallach, and their operations can range from legitimate to misleading.
“Let’s say you have a house that’s been occupied for the past 50 years by a couple that’s aged in place and now the last surviving member has passed away,” Mallach said. “That house may be habitable, but it’s probably pretty shabby, it’s had some deferred maintenance, it may be falling apart … So homebuyers take a look at that place and they’re just not interested.”
In older cities like Pittsburgh, this situation is common. New homebuyers are looking for move-in-ready places, not necessarily “fixer-uppers.” The buyers from “We Buy Houses” sometimes flip properties, Mallach said, but they can also be acting at middlemen for developers or landlords looking to expand their footprint. These companies will offer sellers a cost that’s somewhere between 60-90 percent of the actual value of the property, put down a nominal amount of money to show their commitment, and then find another larger seller to buy the property for more money than was offered to the original owner. The “We Buy Houses” seller will put a stipulation in the contract that allows him or her to sign over the property without ever actually holding the title of the home.
Sometimes the people behind the “We Buy Houses” signs have a real estate background, but often they’re just independent companies with an interest in the field and a desire to make relatively quick money. That’s the case for Elesha Bonhomme, the founder of PGH House Help, a local company that began operating last year. Bonhomme said she hired a mentor to help her get the business off the ground and guide her through the real estate process.
When someone calls her PGH House Help number, she said she schedules a time to meet with them and view the house, asks them questions about their situation and some specifics on the utilities and makes an offer “that suits us both,” she said. Bonhomme will also do a title search, to make sure there aren’t liens on the home.
So far, she says she’s only sold to individual investors. They’ll buy the home for a higher price than she paid and she’ll make money from the difference. Eventually she’d like to get into rental properties, but she’s not ready to go through the process of flipping a house yet.
“I’m a little leary about doing that,” Bonhomme said. “I don’t want to get into heavy lifting, major repairs. But cosmetics are fine.”
“We Buy Houses” companies aren’t necessarily hiding their business model, said John Petrack, executive vice president of the Realtors Association of Metropolitan Pittsburgh.
“They do spell out the process,” Petrack said. “But we feel it’s very important that the real estate consumer seek advice prior to entering into these agreements.”
House buying businesses aren’t obligated to act in a fiduciary capacity, meaning they aren’t required to have the best financial interest of the seller in mind. Petrack suggested that people considering these contracts consult with a real estate attorney or property appraiser to ensure they’re getting the best deal.
“[They] can point out the weaknesses in the agreements, can point out that it would be wise for them to seek valuation of their property before entering into an agreement like this,” Petrack said.