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Review of all things Real Estate:

Watch out for i-Buyers

“My PCA and I are going to be evicted soon. I let vultures buy my home with very little profit left for myself. It was my Mom’s home and she owed more than I originally thought.”

I read this in an online community forum the other day and the thought came to my mind that the “vultures” were either i-Buyers or flippers. To refamiliarize readers, i-Buyer are investors who make a lot of money when the stock market was riding sky high, and they want to reinvest.

They make big claims about the savings of “no commissions” as they purchase directly from owners, so everyone saves money… except their processing/ administration fees are often 8-13% which dwarfs typical real estate commissions of 5-6%.

Additionally, since there are no real estate agents in the transaction, the owner/seller likely isn’t aware of the state required disclosures that must be provided to the buyer. This can foreseeably end up in litigation when the property is subsequently sold to another party and property defects are discovered.

When the subsequent buyer addresses the issue with the i-Buyer/seller, the answer is that the issue isn’t with them because they never received disclosures when they bought the property, so relief must be sought from the original seller who has no awareness of the state laws they violated.

This scenario and the huge potential of legal exposure is likely why Zillow and Redfin ceased their i-Buyer programs. So, to recap why selling to an i-Buyer is not in an owner’s best interest: the seller has legal exposure (ignorance of the law is no defense) and sellers/owners make less proceeds than when selling conventionally using a licensed local real estate agent.

Pretty simple to get to the right answer; if it sounds too good to be true, then it’s likely not a good deal.

Other “vultures” who often buy directly from owners are flippers. These are also investors, but they purchase “dog” properties at less than market value then make cosmetic fixes and resell at a higher price.

Their key selling point to homeowners is that it will be a cash deal that can close escrow in seven days and the owners don’t have to fix anything. It all sounds very attractive, particularly if the home visibly needs repair and the homeowner doesn’t want to undertake them or perhaps can’t afford to make the repairs, so an offer like this might seem like a lifeline from heaven.

However, with both of these programs, the devil is in the details. It sounds to me that the person who made the bemoaning comments about “vultures” either hadn’t read all the details of the offer or perhaps didn’t understand the implications of their action.

And oh, by the way, the same disclosure requirements exist selling to flippers as well. That’s where your friendly local neighborhood real estate professionals (real estate agents and/or real estate lawyers) can be the real lifesavers.

I get it, we all want to save money, particularly in these challenging economic times. But, if an action ends up costing more than if the appropriate professionals were engaged from the beginning, then is that a savings?

We live in an age of DIY (do it yourself) and it’s great to be able to say “I did that,” but if “that” ends up being a money loser or it costs more to fix what has been done, then what has been gained?

If you are approached by investors who want to save you a bunch of money by eliminating the need for those expensive commissions, please avail yourself of a conversation with a local, licensed Realtor or a real estate attorney. These no cost/low-cost consultations might just save you a lot of your hard-earned equity.


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