Step 2: Only deal with ‘true’ cash house buyers
Like the bandit who saunters into the saloon with a smile, not all cash house buying companies are what they first appear to be. Some will make an offer to purchase your property, promising a quick sale with a smile, when in fact this is just pure snake oil. They have no intention of actually buying it themselves. Instead they will act as middlemen, secretly working away in the background trying to sell your house to a third party for more than what they have agreed to pay you, hoping to pocket the difference.
Any company that is doing this is more like a cattle rustler than a cash buyer. It’s all but impossible for them to deliver a fast house sale, because their deal depends on a slower traditional sale. Pull back the curtain and you’ll see that they’re offering nothing more than an expensive estate agent service.
Find out more about this and other underhand tactics used by disreputable companies by reading our article here.
Step 3: Ask for proof of funds
The best way to smoke out companies that are trying the trick described above, is to as to see the colour of their money. You would naturally expect a buyer on the open market to prove they have the funds to buy your home, either as a mortgage, cash savings or the proceeds from their own property sale. A cash buyer should be no different.
It’s not unreasonable to ask this, and any reputable company will be happy to prove their financial position. This proof can come in several forms: it could be a confirmation of a banking facility, a letter from an accountant confirming the company funds, or written confirmation from their solicitors that their client is in a position to proceed.
This is a common request, and if the company is reluctant to respond, or doesn’t have this evidence readily available, then it’s time to circle the wagons.
Step 4: Be wary of offers that are too good to be true
Just like the Wild West, there are plenty of people out there who will promise to make your fortune in the latest gold rush. Sadly, most of these promises are fool’s gold. The most a legitimate house buying company can afford to offer you is around 80% of the market value of your home (remember, this is the likely final selling price, not your initial asking price).
There are lots of costs involved in buying your property from you and reselling it on the open market, often many months later. The home buyer not only has to account for the cost of purchasing your property (stamp duty, legal fees, cost of finance etc) but also the costs associated with potentially owning it for many months before a sale (council tax, energy bills, insurance, estate agent fees, more legal fees etc).
These costs add up, and of course they’re also looking to make a profit so they can pay their staff and stay in business.
Once you understand these costs, you can see why you should be very wary of anyone offering more than 80%. Most of these companies will come in with a high initial offer, to dazzle you and win your business, but they have no intention of ever paying that much. Don’t be surprised when they come across ‘issues’ with the property and reduce their offer significantly, often at high noon on the day that you are due to move out.
There are some circumstances where a homebuyer can afford to offer up to 85%, thanks to stamp duty exemptions, but these are rare and certainly not the norm.
For a more detailed breakdown of how homebuyers make an offer on your home, including the circumstances where they could offer you more, read our article “How much do cash house buyers actually pay”.