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Dear Ms. Lank, What's the real story behind all of these companies that advertise using the "we buy –fill in the blank--houses" or "we pay cash for--fill in the blank--houses" shtick?
For example, if I owned a home assessed at $200,000, but with $140,000 left to pay on my mortgage balance, how much cash, if any, could I expect to pocket and would the company really pay off my mortgage balance |
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A few of those companies didn’t. They are being prosecuted for fraud, because they took the properties but never paid off the mortgages, leaving the original owners holding the bag. Most dealers are perfectly reputable, though.
First off, the assessment on your home shouldn't be used as a reliable guide to its market value. The figure is there for property tax purposes. No matter how carefully arrived-at, it’s seldom the same as probable sale price. But okay, let's assume your home would bring $200,000 on the open market.
Those dealers who buy immediately for cash can't pay what the place would be worth to someone who intended to live there. Dealers hope to sell the house for a retail price, but they must buy it at wholesale.
They will have expenses for the legal costs of buying and selling, property taxes until they find a buyer, possibly fix-up costs, insurance premiums, utilities, snow removal or lawn mowing and a margin for risk. Add in lost income from the cash they give you, and finally something for profit -- else why buy the house at all?
This means they must offer you a discount from market value. In your example they must also pay off a mortgage for 70 percent of the property's value. If your place is in good condition, maybe you could find a dealer who figures a discount of 25 percent would cover those expenses. From your value of $200,000 subtract $140,000 for the mortgage payoff and $50,000 for the dealer's discount, and you might walk away with the remaining five percent, $10,000.
Selling for immediate cash is useful in some situations, but for top price, stick to the normal open market. Or, if you do sell to a dealer, use your own lawyer and make sure that mortgage is really paid off.
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