Families, Not Flippers
As a fast growing city with an increasingly expensive housing market, Austin is a prime target for real estate investors looking to buy properties, then “flip,” or sell, them for a profit once the market price appreciates.
Selling to a real estate investor or a house flipper may have its attractions, but homeowners should be careful any time they sell their homes. While people may be responding to personal circumstances—such as job relocation, divorce, inheritance, property tax costs, or potential foreclosure— selling to a real estate investor may not be for everyone. It is important to note that a house flipper or investor and a homeowner do not have the same interests in the sale. A flipper’s goal is to buy the house at the cheapest price and sell it for the maximum profit. A seller’s interest is to get the best price as a return on their property investment.
Below are helpful facts and recommendations that homeowners should keep in mind if they are approached by a house flipper or investor.
What is a Real Estate Investor/House Flipper?
Professional real estate investors buys residential properties as an investment strategy to either quick-sell at a profit, or turn it into rental property—not as a family seeking a residence. Some investors are corporations while others are individuals buying and selling on their own. Generally, real estate investors fit into one of five types:
- Buy-and-Hold Investment buyers look to build a real estate portfolio over time. An investor may buy a home to rent for income, or simply trying to let the property appreciate in value over time.
- Wholesale Investments buyers purchase properties at well below market value, package them into a portfolio of properties, and then resell them quickly (often without improvements) to another investor for a higher price. Successful wholesalers usually have a large list of buyers lined up beforehand and use direct marketing to identify inactive or off-market homes they can buy inexpensively.
- House-flipper investments are investors who buy houses, renovate them, and then sell them at a higher price. While the level of renovation varies by the individual home and the local market, the goal is to make a profit on the resale, after clearing all the renovation expenses.
- Buy/flip/hold investment is something of a hybrid of the previously mentioned strategies. Investors buy a property, renovate it (in either minor or major ways), and then rent it out at a premium, while maintaining ownership.
- Instant Buyers (iBuyers) use advanced algorithms to make cash offers on homes, then bundle them into portfolios and quick-sell them online—all while promising to sell your home in a specific time. While it may seem efficient, there are some downsides. Typically, iBuyers charge up to 10-12 percent in commission and repair fees before listing, versus the typical 9 percent combined seller and buyer costs with a Realtor. iBuyers may also sell up to 30 percent below fair market value to sustain their high-volume business model.
Are House Flippers/ Real Estate Investors Licensed?
Not always. Investors do not need a license to buy property or conduct real estate business. Since investors they are only representing themselves, they do not need a license to buy your house. Investors are not legally required to tell you who or what is actually purchasing your home. So the investor could purchase the home and then turn around and repurpose the property.
What Are Your Rights When Dealing With a Flipper?
Get solid, professional advice—preferably from a licensed real estate professional.
A real estate professional works to protect the homeowner’s interests in getting a fair-market price for the house through market exposure and advertising, works on commission, and thus shares your financial incentive. A real estate agent is licensed by the Texas Real Estate Commission to conduct real estate transactions in Texas. A REALTOR® is a professional real estate agents whom abides by a strict Code of Ethics that exceeds legal requirements and commits them to honoring and respecting clients' interests.
Do Your Research
Know who you are dealing with. Check references, or call the Better Business Bureau. You should be sure you are dealing with someone reputable and it never hurts to do your homework.
If nothing else, you can get a reasonable estimate of how much your house is worth by checking the recent sale prices of homes in your neighborhood. You can find sale prices online at the multiple listing service (MLS) database. Be sure to compare the number of bedrooms and bathrooms, square footage, and any unique features to estimate what your home is worth. A real estate agent can usually provide you an idea of the value of your home based on the market and home prices in your neighborhood.
Avoid Hefty “Processing” or “Administrative” Fees
Beware investors or flippers who promise to buy the house, but require upfront fees. Scammers will take your money and disappear. A legitimate buyer will submit a written offer, and give you the option of accepting the offer. You will then receive a payment.
Beware Signing Contracts Without “Earnest Money”
Some investors or flippers will want you to sign a contract promising to sell your house to them, but does not want to put up earnest money in exchange. It is called “bird dogging:” They trap you into a contract then fish the house to other investors for a fee, for however long that takes. In the meantime, you are stuck in a contract you cannot escape.
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