Earlier this year, a client approached me to help sell his family home after his mom had passed. He mentioned the next-door neighbour (who actually had a rental property next to his parents’ home) had offered him a cash offer to sell. In the end, we listed the home for sale and attracted multiple bids, with the home selling for more than $50,000 above what the neighbour offered.
I am reflecting on this experience after reading an article about a home owner who used a “cash for homes” service to sell her current home. You have seen the signs around town on street corners; “Cash for Homes,” “We buy homes in all conditions,” and “fast closing.” In the industry, we call these companies wholesalers.
This article speaks to an experience a woman had with a wholesaler. She had fallen into financial hardship and was looking for a way to sell her home fast. One of the claims the companies make is directed to people in distress. They highlight things such as more cash, no realtor fees, quick closings and a cheque on the same day. The woman in this article had a wholesaler in, and they offered a price on the spot with a contract to sign. She signed it, understanding that she may have sold the home somewhat under market value, justifying this decision by not having to wait 3 or 4 months for the property to sell and close. What she didn’t understand was that there was what is called an “assignment clause” in the contract she agreed to. What this means is that the Buyer is allowed to sell the offer to purchase to another Buyer before closing and in the event they sell it for more than they agreed to pay the Seller, this overage goes directly to the wholesaler and not the Seller.
In this case, the Seller felt that she would be paid out immediately, however, she received a deposit of less than $8,000 on the day they signed the agreement. The balance would not arrive until the property closed 2 ½ months later. In the end, the Buyer sold the agreement to another Buyer who closed the home at $60,000 more than he paid the Seller. This $60,000 went directly to the Buyer/wholesaler.
Does this sound shady? Illegal? Well, a solution was presented to a desperate seller, so I would call it “murky,” but it is definitely not illegal. The Province of Ontario has no regulations around wholesale companies, so in the end, what they do is entirely above board, even if the Sellers are being taken advantage of in some cases.
The difference between a wholesaler and a realtor can be best described as the “Wild West” vs “a regulated business where the members are held to account.” Where a wholesaler has no restrictions on what they can say or do to convince a Seller to sell their home, a realtor has a fiduciary responsibility to treat the Seller ethically and to do their best to obtain an offer from a Buyer with the Sellers best interest in mind.
Here are a few thoughts if you are interested in selling to a wholesaler, neighbour or Buyer if the property has not been introduced to the open market:
- Interview a realtor to determine what is market value or pay for an appraisal to determine the property value.
- If you are given an offer to purchase, make sure that you have a lawyer review the agreement to ensure that you are protected.
- Take some time before making a decision. You may regret jumping at what looks like a good deal if you are emotional, like the woman in the article.
- Ask your family and friends if this is a prudent way to sell your property.
When I look at the example in the article, I see a few areas that I, as a realtor, would advise or offer suggestions to the Seller. One would be the deposit. A home that is sold in the $575,000 range, I would expect a deposit around $25,000 or higher. In her example, the deposit was $7,600. A deposit is a Seller’s tool to ensure a Buyer will complete the transaction. If the sale does not close, the Buyer has lost the money, so the more money is at stake, the better the chances the home will close. The “assignment” clause that was in the example is one I regularly strike out if a Seller I am working with receives an offer including this direction. In many cases, such clauses state that the Seller has no control over who closes the property. The worst-case scenario (in the above example) is that the offer is transferred to a company with no assets, and the property fails to close, leaving the homeowner with a small downpayment and months of lost time.
One of the benefits of working with a Real Estate agent, is that they will place the home on MLS and market the property to a large pool of Buyers. Many of the Buyers we come into contact with are looking for homes in Durham region and currently live in the city of Toronto or in Mississauga, Brampton or Burlington. They are moving to our area with lower prices than where they live. When a home is exposed to the entire GTA, the chances are greater that the selling price will be at the top market value range. The example in the article mentioned that once the Seller agreed to a price, the wholesaler (who happened to be married to a realtor) has his wife place the home on the market, on MLS where they found a Buyer willing to pay more for the property. It is a shame that the homeowner lost out on the money that could have gone to help her situation.
Over the past 1 ½ years many people have had financial challenges. With mortgage rates rising and inflation spiking emotions can run high when cash runs short and sometimes easy fixes can place more financial stress on a homeowner.
If you find yourself in a situation where living in your property is causing financial hardship, my suggestion is to contact a reputable, full time realtor to help you navigate the process. In the end you will work with a professional who has your best interests in mind and you will most likely net more money from the sale with fewer issues.
The last thing a person needs, like with woman in the article is more stress when she is trying to scale down.
If you have questions about selling in this shifted market I can be reached at 905-743-5555 or lindsay@buyselllove.ca
Connect with us on Facebook, Instagram, LinkedIn and YouTube.