Tell me about the "We Buy Homes For Cash" businesses

November 30, 2005 7:28 AM

Tell me about the "We Buy Homes For Cash" businesses that are seemingly popping up all over.

Please note: I have no interest in starting one of these businesses or selling my home to one. I'm just wondering why someone would choose to sell this way, and if they pay anything near market value or if they're - as I suspect - greedy parasites looking to take advantage of people in dire financial situations.

posted by Optimus Chyme to work & money (17 comments total)

I don't truly know, but have a feeling your suspicion is right on the money. Quick easy sale, far under the market price
posted by poppo at 7:34 AM on November 30, 2005

You have it: they're greedy parasites, paying a fraction of the market value of a property, or flipping the property to onerous terms while the person lives there, in the case of refinancing loans.
posted by Rothko at 7:38 AM on November 30, 2005

Short answer: to avoid forclosure. 40% below market value is still better than wrecking your credit and potential bankrupcy if you can no longer afford your mortgage and have fallen thousands of dollars behind.

There are also some cases when selling quickly is more important than getting full value. For example, senior citizens in failing health who suddenly need full-time care in a nursing home or care center. Also, some companies specialize in purchasing homes that are so far into disrepair that the owners can't afford to fix them up.

I agree that these enterprises are shady, though some are shadier than others. I did some marketing for one of these companies once (the above are several of the selling propositions we focused on), and they offered several thousand dollars in cash as part of the closing, to help the family get back on their feet. On the levels of scum, I'd put them above the payday loan places, though perhaps not by much.
posted by junkbox at 7:39 AM on November 30, 2005

A combination of parasite, gentrification, and the hyperinflated real estate market plus over extended consumer credit.

They come in, give you cash (at a serious discount off market, mind you, but it's cash, right now.) rehab the place, and sell it for a profit (or gather a group of houses and sell to a rehabber at a profit, since a group of houses rehabbed is worth more than scattered houses.) It's not new, but with the real estate market what it is, it has become endemic, and with transportation prices increasing, the market for city housing is being boosted even more.

Cities love them -- they turn $25-40K houses into $100K-200K houses, and there is so much profit that the cities don't need tax abatements to attract developers.

Naturally, it seperates the poor from the one asset they have (you never see these billboards in affluent suburbs.) However, that's what America has been built on since the 80s. The poor don't have the capital or credit to rehab and sell thier houses, and once some debt hits -- medical, credit card, mistakes or stupidity, whatever -- they're going to lose the house no matter what, so they have to sell.

This is, after all, what capitalism is all about. The invisible hand *doesn't care.*
posted by eriko at 7:43 AM on November 30, 2005

They're mostly preying on the desperate, but they have legitimate uses. My father-in-law bought a house in Camden, NJ (no really, it was supposed to be on its way up). But he couldn't sell it when he realized that property values in Camden were going nowhere. So he used one of those companies. It wasn't victimizaqtion. He knew that investment has risk, he took the risk, and was prepared for the loss. The purchasing company helped him out a little bit, really. Also, people inherit decrepid properties, whatever.

So the companies are sort of amoral. They just buy properties. Whether the seller is getting screwed depends on the circumstance.
posted by Mayor Curley at 7:54 AM on November 30, 2005

That was quick. I might agree with you, Curley, that the companies are amoral, but the fact that they specifically target older or run-down neighborhoods really irks me, along with the probability that most of the time it's probably more of a scam, and finally, those ridiculous little signs that litter the highway are a blight. Ugh.
posted by Optimus Chyme at 8:22 AM on November 30, 2005

Many are tied to organized crime and street gangs and I'm not kidding.
posted by Pollomacho at 8:35 AM on November 30, 2005

Jesus Christ.
posted by Optimus Chyme at 8:48 AM on November 30, 2005

Optimus is right on - and my hubby has taken to writing on these signs whenever they show up in our area - he uses a red magic marker and writes "SCAM" diagonally across it.
He used the same tactic for the "Lose 350 lbs in 10 days!" signs too. After he's targeted them, they go away. We call him Red Writer...
posted by dbmcd at 8:56 AM on November 30, 2005

Just a note, the first billboards with this pitch are the "UG" character with the "We Buy Ugly Houses" -- Homevestors America, which takes pains to distinguish its rehab-for-profit franchise approach from flipping and other scams. I don't think Homevestors does any of the stuff like mortgage and leaseback that get people evicted from houses they thought they still owned -- these are clear sales and the company overtly wants to make repairs and upgrades before reselling the property.
posted by dhartung at 10:19 AM on November 30, 2005

Most of these signs you see are put up by franchisees of HomeVestors. They buy low and sell quick, "offer[ing] owner financing to buyers who have small down payments or credit problems." They aren't as sinister -- or even in the same category, as its not an MLM -- as "lose weight"-Herbalife.
posted by fourstar at 10:20 AM on November 30, 2005

He used the same tactic for the "Lose 350 lbs in 10 days!" signs too. After he's targeted them, they go away. We call him Red Writer...

I love your husband. In a platonic sense -- but it's love, nonetheless.
posted by thanotopsis at 11:19 AM on November 30, 2005

In most cases, a good minded/hearted real estate investor can take a run down, decrepit, and dangerous (sometimes poor) area and turn it into a very nice, safe, and sustainable renovation.

Who else is going to rebuild such areas? Do you suggest we just leave the remnants and continue suburban sprawl? If so, in the case of foreclosures, why should banks be responsible for said remnants?

Yes, there are scams, but legit real estate investors can offer an easy way out of a bad situation. Having a foreclosure on your record is way more costly than losing some money because you can't afford your mortgage any longer.
posted by sublivious at 12:16 PM on November 30, 2005

I must profess . . .
. . . my love for dbmcd's husband as well.
posted by annaramma at 12:29 PM on November 30, 2005

In most cases [snip] can't afford your mortgage any longer.
posted by sublivious at 12:16 PM PST on November 30

The company I am most concerned with is definitely not what you're describing.
posted by Optimus Chyme at 12:53 PM on November 30, 2005

Somewhat related, asked on February 9, 2005: I live in a very depressed urban area (Baltimore) where there are blocks and blocks of boarded up or burnt out houses. I see signs around town that say "We Buy Houses-Any Condition." Why are these folks buying houses?
posted by WestCoaster at 6:34 PM on November 30, 2005

Thanks, WC. People sure are forgiving of predatory and unethical business practices 'round these parts.
posted by Optimus Chyme at 10:22 PM on November 30, 2005