In the five years of dealing directly with financially distressed homeowners, I’ve made hundreds of bona-fide cash offers for the purchase of real estate nationwide. In almost every case, it seems that instant trust is automatically built between the seller and I — due simply to the fact that I am a real estate investor, and indeed, I am.
But how can you be sure that the investor presenting you with an offer is legitimate?
Acting as a fiduciary to your client, you should always exercise extreme caution before advising advising your client to sign a purchase agreement with an investor, especially if the most pertinent facts about him or her have not been fully determined.
Let’s explore a few ways that you can determine whether you’re dealing with a professional homebuyer:
Before signing, vet the real estate investor properly for your client
1. Have they shown integrity through the process from day one?
Without doing any research at all, you might be able to tell more about how the transaction is going to turn out than you think, simply by analyzing your first few interactions with the potential buyer.
Determining whether the investor has integrity is key to properly vetting your buyer. Why? Because if the buyer can’t follow through on simple promises such as calling you back when he or she said or showing up on time, why should you believe them when they say they’ll close on time, or that they have the ability to close the deal?
Make it a point to ask the investor a lot of questions about the his or her purchasing process. If the specifics about the real estate transaction or the closing process continually get glossed over intentionally, then be careful; the investor’s experience might be lacking significantly. He or she might not be buying any houses at all.
2. Determine if the investor has verifiable proof of funds.
You can’t just assume someone has funds because they are making a cash offer. The truth is that many creative investors flip houses quickly without ever having the funds needed to close the transaction. An investor can simply assign his interest in a contract for a fee to a different investor or partner and then have that investor close the deal.
So what do you ask the investor to show you? Simply ask him or her to show you a copy of his bank statement (printed within the past 30 days), so that you can verify that the funds needed to close the deal are in the account and that the name on the contract matches the name on the bank statement.
Also, take note of the buyer’s name; if it says “and/or assigns” after the name, then he or she might have plans to sell interest in the contract for a fee. That’s perfectly legal, but just make sure that you’re aware of it before your client signs.
3. Check to see if the buyer has recently purchased property for cash.
One way to know that the investor you’re dealing with actually buys houses regularly, is to see their name on several deeds throughout the current year, right? Most counties deeds of record are now online, which makes it easy to search for deeds by company name or by individual name.
Simply conduct a search using your buyer’s name or company name. If they are currently buying property, you’ll find actual deed records with their name listed as the “grantee” on deed records.
A. Go to the search page and enter your potential buyer’s full company name.
Important note: If you aren’t sure of the full name or you don’t get any results, try a partial name search.
B. If the search returns results, sort them by date to find the most recent purchases.
Warning: If you don’t see any recent purchases here, then your buyer probably isn’t actively purchasing property in your area, or he or she might be having it titled under their personal name rather than their entity name.
C. Lastly, take your time and view the actual deed images for each record.
Note: Verify that the potential buyer is the “grantee” on these transactions, and also verify any of the deeds specify cash transactions or nominal consideration amounts that would indicate a cash transaction.
4. Contact the investor’s preferred closing agent and ask questions.
Typically, investors like to use the same title company and closing agent or escrow officer to close their deals. What does this mean for you?
Well, the contract should designate an area where it lists the title company name and address as well as the contact information of the closing agent. Simply call this person and confirm that the investor listed on the contract does in fact close deals for cash at their office; they probably will not have an issue saying yes or no.
5. Make sure the investor’s verbal commitments are written in the contract.
An easy way to make sure that everything that has been verbally agreed upon is also in the contract is to write all verbal agreements on a notepad as you and the buyer are verbally negotiating. Then, when the buyer presents his written offer, simply confirm that every verbal agreement made between parties is spelled out in detail on the contract.
There’s no full-proof way to know that you’re working with a true real investor or a wanna-be real estate pretender, but using even just a few of these methods might better help you through the process.