How to Vet A Cash Buyer
Cash Buyer vs Wholesaler
In 2021 it’s highly unlikely that you aren’t familiar with a cash offer for your property. The idea of iBuying and cash offers has really become mainstream over the past five years. However, it is important to know that everyone claiming to make a “cash offer” isn’t exactly who they say they are.
You are probably familiar with the major iBuyers Opendoor, Offerpad, Orchard these companies are usually looking to buy homes that are in close to retail condition that they can buy cash and turn quickly with minimal work needed. These companies have large verifiable footprints, they usually aren’t too bad to work with but still much to know before you wheel & deal. Learn the “7 Questions A Homeowner Should Get Answered Before Engaging an iBuyer”
What is probably unfamiliar territory is engaging with the smaller entities/ “investors”. While there are some investors actually doing their own marketing and sourcing for opportunities, many rely on “wholesalers” to bring them opportunities.
What is wholesaling?
Wholesaling is the process of finding highly motivated sellers securing property via purchase agreement and assigning that agreement to another buyer for a profit. While some will paint this as deceitful, unethical, unlawful, I will not. I strongly believe the opportunity for wholesaling was born out of laziness by my realtor peers. As realtors many focus on the extravagant retail-ready homes that can be plastered all over social media. Leaving some of the people who NEED our help by the wayside.
What’s unfortunate about when a homeowner takes on a wholesaler or any other for-profit buying entity for that matter is without someone to watch their back, no one to protect their interest, they are going up against skilled professionals who do this for a living. It’s not a great match-up kind, of like the Sixers & Lakers in 01 Finals… We are all rooting for you but that Lakers team was just too much the Sixers were going to lose no matter what.
Wholesaling is not all bad… Hear me out good wholesalers usually have the ability to perform meaning getting you the price that was agreed upon and closing at the time agreed upon. The benefit to working with wholesalers is usually the ability to sell discreetly quickly and without any red tape from a bank.
To paint a better picture
Example
Homeowner agrees to sell the home to an investor for 100k that investor with a few pictures and a cashable contract markets the home to an investor who will pay 125k for the property however as the seller you will still be paid the 100k the wholesaler will make 25k.
Just to compare
Paying a realtor to market the home in this case would have cost 3-6% or 6k. Quick simple math means the homeowner potentially missed out on 19k. With that 19k could have come a process that could be perceived as more cumbersome because of the formal documentation and increased amount of parties involved. Now inputting potentially another agent and buyer you haven’t had a chance to build rapport with.
You can give yourself a much better experience dealing with agents that are knowledgeable and have tools on their tool belt to serve you in similar ways wholesalers can so you still get to have someone as your fiduciary if you choose.
The first step is educating the public on what wholesaling is teaching them how to determine if you are working with an investor or a wholesaler…
Here are 5 Questions to Ask to Vet a Cash Buyer
Ask About their Experience
As a seller, you find it pertinent to know how long an “investor” has been in business. The formal entity they use to buy. How many homes have they purchased in the past 6 months? Can they provide the addresses of a few of the properties they’ve revitalized? With the help of a neighborhood realtor, you will be able to verify this info. You will also want to do your due diligence regarding any lawsuits.
2. What is your plan or strategy for this house?
Any investor that’s going to make an offer is going to know what their strategy is in order to determine how much it makes sense for them to pay for your property.
Fix and flippers will evaluate your home differently than a buy and hold investor they will also have different criteria for the condition of the home they are purchasing. This could mean the buyer being more or less open to necessary repairs.
3. Ask to see their standard purchase contract.
Are they using the state realtor contract with standard language created to outline many forgotten pieces of a transaction? Or does the entity have its own contract they use? If they do use their own then you need to be looking for very particular verbiage that gives the express written consent to assign the contract to another party.
This will usually show itself next to where the buyer’s entity would go with the phrase “and or assigns”.
Sometimes the contract may actually spell out the authority to assign the contract.
4. Demand Proof of funds
This here will push out some of the newbie wholesalers but an experienced one will be able to show you proof from somewhere so, I recommend getting a bank contact to follow up with. Even if you have no intention of calling them, the ask alone can show your ability to ask the right questions putting the buyer on notice.
5. Ask what inspections will be done, by whom, by when?
Surely anybody preparing to spend their on money on an investment is surely expected to do their due diligence. While many investors will buy your home for the right price almost despite anything an inspection can expose, however it is still logical step to mitigate risk to perform inspections.
Whether these or formal or not you want to know when the buyer plans to come out. Sometimes wholesalers will use this opportunity to bring the end buyer (the buyer they want to assign the contract to)
6. Ask about Earnest Money Deposit
You want to be sure that the cash buyer has intentions to give you an earnest money deposit. I would recommend this payment be at least 1% of the purchase price. This deposit will force the cash buyer to have some skin in the game with something to lose giving them more reason to perform!
To sum it up…
There is a difference between wholesalers and cash buyers, both playing pivotal roles in off-market property sales of distressed houses however a well-versed agent with the proper tools on their tool belt (ie Express Offers, investor buyer list etc) would be the perfect person to talk to about your situation.