Q: What can you tell me about companies that buy homes for cash? I've seen these advertisements to buy homes. My credit is great, I just don't want the hassle of selling my home the traditional way. Then there is the chance that the home won't sell (at least not quickly) and I want to buy up to a single family home. I currently have a two level townhouse.

Thanks.
L. Moore

A: You've probably seen ads touting "We Buy Homes For Cash," or "Avoid Foreclosure," or something to that effect, with a local number, web site or 800-number connected to it. It's pretty simple advertising for a very complex process.

The advertisers are real estate investors who are looking for truly distressed sellers and truly fixer uppers. The homeowners who would end up using these type of purchasers are either nearly headed toward foreclosure, in the middle of a divorce, have inherited a dilapidated house, own a dilapidated house or in some other way have a home that is in a distressed situation.

The investors are looking to pick up the house for what I would call a wholesale price. For instance, if you have received notice that your foreclosure date has been set and the bank/note holder has told you to vacate the premises in two weeks, you don't have time to pursue a traditional sale process. A call to one of these investors may be your best option.

These folks have plenty of cash and want to get to your house at a deep discount. Some people may consider this a type of real estate ambulance chasing, but the hard core facts would be this:

• Your in default – most likely several months if you've received a foreclosure notice.

• You don't have the cash to bring your payment current – presumably you're sitting on several thousand dollars worth of missed payments.

• More than likely the house needs repairs. If you lack the funds to keep the mortgage current, then you definitely haven't been spending money to keep the property in good shape. If you have kept the property in good shape in exchange for the house payments, then you lack good judgment.

• Since the mortgage is in arrears, probably so are the taxes, homeowner association dues, homeowners insurance and a plethora of other bills connected with the property.

• You may even have liens on your house you don't know about. If you've missed your home payment, you've probably missed other creditors' payments. There's a good chance the title to the house is cloudy, meaning there are liens and judgments attached to it from the creditors and tax collectors.

The investor is willing to solve all the above problems with cash if you'll provide the title to him or her at a discount. With the sale of the house, the investor pays off all the loans and gets you on your way, usually with cash in your pocket. At least enough cash to move out and get set up in an apartment somewhere. In addition, by avoiding foreclosure, your credit has been rescued from years of detrimental reports.

Now, is the investor a pariah? I think not. He or she has taken on all the risks to take the property; pay off all the debts, liens, taxes, etc.; finance the fix up costs for a sale - and then walk away with the profit.

So to answer your question – No, you should not call one of the Cash for Your Home 800 numbers. You want to list with a company to sell your house for top dollar so that you have plenty of your equity in hand for a down payment on your dream home – your new single family dwelling.

If your ultimate goal is to move up, then you need as much money from this house as possible to make the easy transition and lower your payment on the move up house.

Grin and bear the "traditional" method of selling. Depending on the market in your area, it could take a few weeks or months to get through the whole process.

Published: May 9, 2003

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Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: commonsenserealestate.blogspot.com.