You’ve seen them…the bright yellow signs stapled to telephone posts and staked in the ground at major intersections around your town.  With the fake handwritten writing that makes claims like “sell your home for cash” or “top dollar for your home today!”.  As with most things that seem too good to be true, many of these claims are potentially misleading.

The person or entity behind these marketing campaigns are most often real estate speculators – folks who have taken a course in buying homes for “pennies on the dollar” etc etc.  Some have been doing this for years and have amassed small fortunes in rental properties or “rehabs”.  They know that in order to get your attention, they need to catch you before you talk to a real estate professional and get a market analysis done on your home – hence the brightly colored signs everywhere.  While there shouldn’t be anything inherently illegal about such operations, the possible risks and trade-offs to a home seller deserve serious thought.

Some of these real estate speculators even have websites, which is a good thing because then you can ask specific questions about their claims before making a decision.  One of their major claims is that their method is substantially better than working with a real estate professional – cheaper, and faster.  I’m sure that many of these people are well-meaning but the “facts” I’ve seen thrown out there are often misleading at best.  Let’s look at a few of them:

Claim: Selling your home with a real estate agent will take months, maybe a year – we can buy your home right now.

Reality: The location and condition determines the value of a property.  When a seller refuses to take the advice of a local professional (Zillow does not count) and sets too high a price given it’s condition and location, it’s going to sit.  Very often the fault lies with the seller and not the agent (which is not to say that there aren’t agents who still drastically misprice homes).  The market tells everybody exactly what it thinks of a price within only a few weeks – are there any showings?  If the seller isn’t willing to make price changes then a trade-off is made; a higher price for a quicker sale.

Most speculators are working with a line of credit and can generally make an offer to close quickly without any financing contingencies.  On the other hand, their offer price will almost certainly be far below the value of recent comparable sales adjusted for your property.  On a $100,000 home at market value, that could be as low as $60,000.  For the speculator, it’s all about the upside on the resale.  They are living by the maxim that “you make your money when you buy it”.

Claim: A real estate agent is going to mislead you as to what you’re actually going to make on the sale.  We, on the other hand, are honest with our offer terms.

Reality: Untrue and in fact bordering on slanderous.  Most brokerages require full disclosure at the time of the listing presentation of the cost breakdown.  For a seller, closing costs almost always will be the broker commission plus 1% transfer tax – that’s it.  One can’t forget that real estate brokers are LICENSED by their respective states and subject to censure, fines and imprisonments for illegal actions including fraud.  Also, any Realtor is subject to the Ethics code of the National Association of Realtors and take that responsibility seriously.

Real estate speculators, on the other hand, are not subject to ethical or legal standards of conduct.  In fact, there is no requirement for them to even hold a real estate license that would put them under state law.  Their contract paperwork will likely be homemade and cast distinctly in their favor by an attorney.  Be sure to read every paragraph carefully.  A question to ask a speculator right up front is whether they have a real estate license of their own – that way at least you can use the licensing law against them should a problem arise.  If they do renovations then they should also be able to produce a contractor’s license on many states.

Claim:  The buyer will make you pay for repairs and other “defects” – but we won’t.

Reality: It’s all buried in the reduced offer price.  In fact, in the absence of a professional home inspection, a speculator can literally make up a number to “take into account” repairs & defects.  I would suggest that getting any property issues out in the open via a licensed third party, and then accounting for those issues within the context of the contract through addendums provides critical insulation from litigation for both parties, not to mention the peace of mind for the seller that nothing will come back to haunt them.

Claim: Fast cash!  Quick Settlement!

Reality: This claim is actually right on.  What they won’t claim is the best price for your home, though…they’re banking on you wanting to sell fast rather than to sell for the most.

If you’re seriously considering talking to a real estate speculator, be sure you a) have exhausted all your options to sell at market price, and b) are able to verify their claims and track record.  As with most things in life, it’s all about the trade-offs.  One of my economics professors once said “there’s no such thing as a free lunch”.  Just remember that when you’re tempted by those yellow signs  promising the moon…