How to Avoid Cash House Buyer Scams

There are many reasons you may be looking to sell your house to a buyer fast for cash. It might be that you're facing foreclosure, need to relocate and need the equity in your home to do so, can no longer afford the home and had a loan modification request denied, or numerous others.

You may have been contacted directly by a cash house buyer or may have seen an ad, sign, or billboard offering to buy an ugly home for cash and wondered if it was too good to be true. While there are many legitimate cash house buyers out there, there are unfortunately a lot of we buy houses scams and fake house buyers around as well.

Below, we'll discuss 11 tips on what to look for (and avoid) when dealing with cash house buyers.

Key points from this article:

Disclaimer – The information on this page is intended for general informational purposes only and not to provide legal advice.

1 – Money should only flow from the buyer to the seller

At no time should you be asked to pay money to a house buyer. Money goes from the buyer to the seller and not in the reverse direction. Legitimate cash buyers do not charge you to come to evaluate the home, to provide you with a written offer, or to do any type of inspections (if applicable). Closing costs are typically paid by the buyer in off market cash sales. If a company tells you they have administration, contract, or processing fees, or asks you to wire them money for any reason, you know you're dealing with a we buy houses ripoff company and you should run in the opposite direction.

2 – You want a contract that offers you protections

Most legitimate companies use the standard Texas Real Estate Commission (TREC) 1 to 4 contract – as AMI does. You don't need to be a real estate agent to use this contract, and it offers protection for you as a seller that most one page contracts do not. You want to ensure the contract doesn't leave a bunch of loopholes that allow the buyer to leave you stranded at the closing table without them incurring any financial repercussions. A lack of loopholes is especially important if you have a firm date you need to sell by.

3 – The buyer should be willing to put down a standard amount of earnest money

Legitimate buyers are willing to put down at least 1% of the sales price in non-refundable earnest money. Earnest money is a buyer's financial promise to the seller that they will follow through with their end of the contract. Once a buyer is past the option period, if they fail to close on the home per the terms of the contract, the buyer will typically have to forfeit their earnest money as “damages” to the seller.

An unwillingness to deposit 1% in earnest money is a sign the buyer is unsure they'll close and don't want to risk losing a significant amount of money as a result.

A failure to put down significant earnest money can also be a sign that the “investor” you're dealing with is a wholesaler who doesn't have any money of their own. While there's nothing wrong with wholesalers, they need to be willing to put their money where their mouth is. Earnest money helps motivate the buyer to ensure your home is purchased for the contract price by the date specified in said contract.

Bonus tip – always verify that the title company has received the earnest money. In the standard TREC 1 to 4 contract, the buyer has three days to deliver the earnest money to the title company. Failure to do so is a breach of contract. If the deposit isn't at title within three days of signing the contract, you can terminate the agreement for failure to perform using this form. Upon termination of the contract, you can find another buyer for the house.

4 – The buyer should be offering a realistic sales price

Beware of sales prices that seem too good to be true – this is especially something to be wary of if the buyer is not willing to put down a significant amount of earnest money as detailed above, or requests a long option period even with standard earnest money. All investors need to buy at a discounted price. The difference is how much of a discount each attempts to obtain.

Sometimes buyers will tell you whatever price you want to hear to get you under contract (which prevents you from selling the home to anyone else). Then they will later attempt to beat down the price to a lower amount. If the seller is unwilling to lower the price, the buyer may be able to walk away without repercussion, depending on the terms of the contract. The buyer then bailing on the sale can cost the seller valuable time in a hard deadline situation.

5 – Reputable buyers don't use high-pressure sales tactics

Beware of anyone pushing you to sign a contract on the spot. A legitimate house buyer is not in the business of pressuring or scaring a seller into signing immediately or discouraging the seller from taking time to vet the buyer. They're looking for win-win situations where everyone involved feels they're getting a fair deal.

6 – Smart investors don't sign contracts blind

A reputable buyer may make you an offer – or give an offer range – on a home sight unseen to see if you're both in the same ballpark. But, a cash buyer is highly unlikely to sign a contract that provides non-refundable earnest money without seeing the home in person. When iBuyers do this, they often come back requesting repair credits before the deal is closed.

7 – Always verify proof of funds

A best practice is to verify that the buyer has the money available to them to purchase your home – otherwise known as “proof of funds.” Verification may come in the form of bank statements (require a date) or letters from private or hard-money lenders (treated like cash in most sales). Remember, in the age of graphic software, documents could undergo editing or falsification. You should call and speak with someone to verify the information. You want to be sure the person who is putting you under contract can close on your home.

8 – Real companies have a verifiable business presence

If you're dealing with a legitimate company, you should be able to find information about them via internet searches. They'll have a basic business presence. They'll tell you about their company and its owners as we do on our About page. The company's contact page should give multiple methods of contact, including web forms, email, phone numbers, and postal mail address as our Contact page does.

9 – Seek out the experiences of past clientele

Take the time to seek our testimonials and reviews – legitimate house buyers will have reviews from consumers on both their own websites – like our reviews page here – and on review sites like Google, Yelp, and more.

10 – Look for a Better Business Bureau membership

The BBB has restrictions that can prevent a company from joining (such as them being too new a company to apply). But, BBB membership and a company's BBB rating can help indicate that the company you're dealing with is on the up and up.

BBB membership costs a significant amount of money be paid into dues each year, and can help you separate true house buyers that build, care about, and have money to spend on their reputation from fly by night operations that could leave you in a bind. AMI is a member of the BBB with an A+ rating. We care about our reputation and work hard to maintain it. Work with a company that does the same.

11 – Always trust your gut

Never ignore your gut. If someone makes you feel uneasy, there is probably a reason. Trust your instincts, combined with the above tips, to ensure you work with a reputable buyer who will close on your home as agreed.

If you'd like a free, no-obligation cash offer for your home from a legitimate buyer, you can find our cash offer request form here.