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The Risks of Selling to an Underqualified Buyer

underqualified buyer kansas city

Hello and welcome to the Real Estate Industry Leaders podcast. I’m your host, John Lindquist. With me today, I have Eric Scheele who’s the owner, president of KC Property Guys. Today we are going to be talking about the risks of selling to an underqualified buyer, usually in a cash… Is it usually a cash buy when it comes to that sort of situation?

Eric Scheele:
Yeah. Absolutely.

Different Sources of Potential Customers

John Lindquist:
Okay. So I guess the first thing we can do is talk about the different places that you’re going to be looking to sell or the different people that are going to be coming to you. Obviously you’re going to have, everybody has seen them, the signs on the side of the road that say, “We buy houses for cash,” and it has a phone number on there or something.

Eric Scheele:
Yeah, of course.

John Lindquist:
So what are the different sources that you might see for this sort of situation?

Eric Scheele:
Yeah. So we get calls from all over the city. We happen to go an hour and a half outside of Kansas City area, or so. We’ve gone as far as Manhattan and Junction City. So there’s cases where we could, but anybody as a homeowner, as a potential customer, or could consider selling to a cash home investor, it’s becoming more popular, more prevalent. Personally, we get a lot of curious calls anywhere from your typical, we buy ugly house type people thinking, “Oh, I got the $50,000 ugly house.” You get those types of calls, but for us personally, we get calls into the four or five and $600,000 Johns County homes as well. So we see all types of homes and so as a homeowner who is in any type of situation, whether it’s just curious, looking to sell, looking for options and trying to avoid the traditional real estate, to an estate call or a trust where you’ve adopted home through the passing of a family member, to job loss, divorces, all the scenarios that you tend to kind of consider people thinking about moving an asset, which tends to be someone’s largest investment.

So it can come from any direction. And we’re here to talk about today how to help homeowners qualify those because it is popular. You go to HGTV and you look at all these shows and people are flipping these houses and bringing it to popularity, and of course, they always make it look much easier than it is. And so you get these interested people that want to become “investors” and the term is held really loosely. You can call yourself an investor if you have one rental house. You’re an investor. Or, like us, we do 40 to 50, 50 plus houses a year. So everybody’s an investor.

From a homeowner’s perspective, how can you deductively weed yourself through that minutiae of investors, an underqualified buyer, regardless of the situation and variables, and find a really good qualified investor that you can trust that will be there, at the closing table to ultimately bring you to your end goal, which is to move a large piece of real estate.

Cash Buy Example

John Lindquist:

Okay. So I guess going back to an example that I’ve personally dealt with, with KC Property Guys, the cabin that we recently did in Leavenworth. That was an example of a couple who was wanting to relocate to a totally different area of the country. And instead of going through the process of selling, they opted to go for a cash buy.

Eric Scheele:
That’s exactly right.

John Lindquist:
But what was it that brought them to us? When they were looking to do a sell, why did they come to you?

Eric Scheele:
We talked to them about that. I talked to most people about that, “How did you find us?” And they did what I encourage everybody to do is let your fingers do the research to weed out a potential underqualified buyer. Go to Google. Google is ta great tracker for highly qualified cash investors, especially local ones that you ultimately want to meet and meet face to face. And that’s what those people did. They went on to Google and they found cash investors. They did the research on any potential underqualified buyer and gave us a call. And by doing that, if it’s a qualified investor, you’re most likely, A, going to see a local address, B, hopefully they have a website, C, there should be more experience behind them where there are some reviews and you can actually dig in deeper to start reading the reviews and the stories behind those reviews to see whether they’re authentic or not, and authenticity that’s there. And then you can begin to qualify steps even further by going to third-party qualifiers like BBB, the Better Business Bureau, and things of that nature. This is how to weed out an underqualified buyer.

But in that particular case, that was a couple who was looking to downsize. They were empty nesters, and they were going to move back to Louisiana, closer to their daughter. And so when they called me, the house was actually in fantastic shape. It wasn’t an ugly house. It was a beautiful house. And I told them, we potentially have, we typically will provide more than one option on a cash buy. And the reason we can do that is because we do run four crews. We have four realtors. We have KC Pier on the foundation side as well. So we have a lot of resources that maybe not a lot of the other investors may have, or most of those investors may have. And so that tends to bring more options to the table and the options will come with different equities, different levels of equity. The cash buy being typically the lowest, but also the easiest.

Convenience of Cash Buy

We talk about this a lot. Let’s take that easy button, that Staples easy button, slide it on the table, and you can hit that anytime you want. Now it’s going to come at a cost, but it is easy.

John Lindquist:
Yeah. It’s done. It’s fast.

Eric Scheele:
You don’t have to do anything. The inspections are done. The closing on your timetable is literally on your timetable. We don’t care if it’s two days, two weeks or two months or two years, it doesn’t matter to us. You get to customize it. You can’t necessarily customize it in a MLS, a realtor’s environment. So it really is the easy button.

But because of those conveniences… If it has a lot of stuff in the house, another point there. If it has a lot of stuff in the house, you can leave the stuff, you don’t have to move it. My guys will take care of it and we’re used to that. We’re used to adopting stuff that comes with houses. Take the memories, take the valuables, but leave the stuff that you don’t necessarily want to take or want to deal with.

So that’s the easy button of the cash side, but it does come at a cost because now we’re taking on the risk. We’re ultimately having to pay realtors, our realtors on the back end plus the buying realtors as well. So there’s commissions that we are ultimately adopting. So we have to work onto those. But then if you’re looking for more cash or more equity, then we have to start to look at other creative options. And that’s where the creative side of real estate comes in for KC Property Guys is, we can get our crews involved in getting houses ready to list, or we can just simply list them through our real estate group, Team KCPG, and ultimately bring back more equity to the table if that cash number isn’t there.

So there tends to be multiple options when homeowners work with us. I offered that particular couple, a couple of options because the house was really in good shape. It was a log cabin built in 1996. It was extremely clean. He was an ex-Leavenworth military, sat on two acres, has a lot of advantages to it. And they kept a very clean house. And so they had the option of a cash buy, they had a real estate option tied to that, which would have offered more equity. But for them, they chose to hit the easy button. They were retired, monies weren’t necessarily as much of a worry as say, maybe an upstart family that may be in a money crunch or a pinch or something. So they took that option.

John Lindquist:
The scene that I’m seeing here is that they wanted to move. They didn’t have to move. So when you’re looking at your different options there, it’s like, “Well, we don’t need to worry about the money so much. Taking a little bit of a loss in equity isn’t a huge deal. We just want to get down to Louisiana.” I can see the motivation there for the cash
buy.

Eric Scheele:
On their timeline. And so, yeah, they took advantage of that one. Absolutely.

John Lindquist:
Okay. So for a person who’s going to be selling, and you mentioned, let your fingers do the talking, look at Google, look at reviews, look at history.

Speaker 1:
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John Lindquist:
What if a situation comes up for a seller where they’re dealing with a buyer who isn’t as established in the field of all of this, a completely underqualified buyer?

Four Types of Buyers

Eric Scheele:
Let’s take a minute and step back and let’s talk about four types of buyers, generally. Generally speaking, and you as a homeowner may not know the difference between either of them. And so you tend to have, and maybe we go from maybe your most underqualified buyer to most qualified. You can sort it however you want, but you have those that are truly just wholesalers.

A wholesaler or an assigner is someone who may not, many times does not, have the cash to actually buy the house. They’ve attended a seminar or talked to a local real estate investment group that has taught them a technique of assignment of wholesaling. And that ultimately is someone who is going to present themselves as an investor. They’re going to offer you a cash price for the house. They’re going to put you under contract to purchase that house. But their ultimate goal is to actually take that paper and reassign it to somebody else. They’re going to wholesale it for a minimal cost, say $2,500 or $5,000. So they have no intent to buy and rehab the house. They may not even have the funds to do so. And they’re ultimately going to sell that piece of paper at a discounted cost, a rate for them to profit without putting any investment back into the house, to another investor, or even maybe another end user or a realtor’s customer. There are lots of avenues that that person could take that potential paper and route that to.

So from a homeowner’s perspective, when you are agreeing to a contract, and especially at times, it’s not disclosed to you that that’s what you’re agreeing to, but that’s ultimately what’s happening on the back end. And that’s kind of seller beware of this type of underqualified buyer. Make sure that you’re working with a qualified buyer, not an underqualified buyer. We can talk about ways to help qualify them, to make sure that they may not be one of those underqualified buyer, if that’s not the direction you may want to go.

Now, sometimes in the house, though, when you hear, say you have four people in the house and you’ll hear four different prices. And some of those prices sound too good to be true. Many times, the reason it is too good to be true is because it’s probably a wholesaler who is an underqualified buyer. He doesn’t have the intent to buy. He has no means to buy it, but he knows he has to put out a number that’s going to competitively make him favorable. And so he has nothing to lose by saying, “Oh, instead of 60, I’ll give you 70.” And at 70, now he’s going to go out there and try to move it at 75, 75,000, if that’s the case. And if he can’t make that happen, then ultimately he’ll find a way to, during his last minute inspection, to back out of the house or not show up at the closing table or just go silent, something.

I get those calls 6 to 12 times a year where I’ve been in the house and of course we have the education and then ultimately three weeks later I get a call back and that happens. That’s not necessarily uncommon. So you got those types that are out there. Those quote unquote “investors” or wholesalers, or assigners.

You have realtors who are mainly a realtor and then also potentially could be an investor as well. Now, as an investor, he may have cash behind him. He may not. He may play kind of on both ends where he looks to assign or wholesale houses. He ultimately may be just putting you under contract to try to bring in a buyer as well. So there’s realtors that kind of play both sides of the fence.

You have national cash buyers, people that buy houses nationally. You won’t necessarily see them in the home. Most of them are going to deal with you over the phone. They’re going to be using wholesale pricing or percentages or algorithms to produce a price for you. And then they’re going to rely on localized through some inspector to give them kind of the last say as to whether they should back out of that house or ultimately follow through with the contract. They most likely have the cash. They have every intention to buy, but many times they don’t know what they’re buying. They’re looking and making a bid off paper. And then they’re relying on localized to qualify that for them.

And then you have people like myself, who’s more of the exception to the rule, who’s rather well-funded and has every intention to purchase the home, rehab the home… We happen to be rehabbers. There’s many out there that are not. They’re holders. They’re going to hold and rent. And then ultimately we’ll be the ones that show up at the closing table as well.

And so those are your four different qualifications of people. How you find them, is varying ways. We’ve talked about, let your fingers do the walking. And I would definitely always push people in that direction to help qualify who you’re working with. Do they have a company name, for one? You can look up the company with the state of Kansas or the state of Missouri too, just to see, make sure it’s an official company or not, just a DBA.

Does he have a website? On that website, does he have an actual address? Is the address a business address or his home address? Those types of things can give you an idea of what you’re actually dealing with. Then from that website, does he have a web presence? Are there reviews? Has he had experience with other customers where they’ve gone public with their opinions of working with that person? Is he qualified with third-party services? Like the BBB qualifiers line, the Better Business Bureau. Does he have a relationship with them? Are there any reviews through the Better Business Bureau on that particular company?

There’s multiple ways for people to go out there, but many times the research doesn’t necessarily get done because they get so enamored with that price. That number. That’s all they’re really looking for is that number and then when it does, many times when it sounds too good to be true, it turns out that way because they are an underqualified buyer. But if you would just do a little legwork and research upfront, it can save you a lot of headache on the back end. We’ve had lots of stories of hearing from people when things have fallen through.

Importance of Research

John Lindquist:
So it’s really making sure that you’re sitting down and doing the research, not only on the person that’s coming forward with an offer, but maybe on the area that you’re in with other potential buyers. Just really making sure that you cover your tracks, you cover other people tracks that they aren’t an underqualified buyer.

Eric Scheele:
Who do you want to call into your home? This is your largest investment, most likely, is your home. Your largest lifetime investment. Who do you want to call into your house? Are you going to call a guy that you have found on a handwritten, with a marker sign that’s stapled to a corner post, or are you going to go to the web, do a little research and find someone who actually has those qualifications that you may be looking for? And that being said, the more qualifications typically they meet, the better chance that they’re going to be there when you ultimately close. Regardless of what that price is, it means nothing if they don’t show up to close. It’s all paper money at that point.

And so that’s ultimately what buyers tend to be looking for is they’re trying to move and care for, in their best interest, their largest lifetime investment, the real estate. And so it means nothing if that person can’t show up at the closing table. So by qualifying or pre-qualifying people that you’re working with, it helps guarantee that that day will come where it ultimately gets sold and put into good hands and you’ll know how that’s going to be handled moving forward.

John Lindquist:
When we’re talking about the research and what we’re looking for, it looks like everything sort of boils down to reputation. Reputation with Better Business Bureau, reputation with reviewers and customers, past customers, or a complete lack of reputation. If there’s a lack of reputation, that could be a huge red flag, it looks like.

Eric Scheele:
It’s no different than if you’re hiring a plumber, hiring an electrician. You’re going to sand and re-stain your wood floors. Before you allow anybody into your house, you’re most likely going to do a little research for them. And if you don’t, everybody’s been there, everybody’s learned the hard way. If you try to save a dollar here or there, or try to cut a corner, a lot of times, you learn over life’s experiences that, that doesn’t always necessarily work out.

John Lindquist:
Just don’t let the sense of urgency take over your sense of judgment.

Eric Scheele:
And when dollars get involved with your lifetime’s largest investment, the emotions take over and the emotions can sometimes take over forethought. A little research and thought. And that’s what we encourage people is to step back, remove the emotion, do the research, find that qualified person that you want to work with, and then go with an option that works in your best interest from there.

John Lindquist:
So we’ve talked about how to find somebody who is qualified and somebody who is going to work with you and not try to cause damage in the long run. But what is some of that damage? What are some of those risks that a seller could see if they don’t do the right research, or if they get burned?

Eric Scheele:
The biggest thing that you see is you’re counting on this house being sold and doesn’t get sold. No one shows up at the closing table, or you go on a contract and all of a sudden they’re MIA, they’re missing in action and you don’t know what’s going on. If you’re looking for a closing within a specific timeline, or for us, we get a lot of calls from people out of state that’s adopted a house through the passing of a family member. So it’s either in a probate or will or trust or some form of an estate. We have one right now that we’re working with them and I’ve never met them. They’re in Oregon. We just did one in Prairie Village about three weeks ago. They were in Florida. The whole transaction was handled while they were in Florida.

But they’ve adopted these houses through probates and estates and wills and trusts. And now they’re trying to call somebody that they can count on, that’s going to be there to handle this situation. For the couple in Oregon, we had to actually help them walk through getting them through probate. Of course we have real estate attorneys here that can help people with that. And they’re affordably priced and are reputable as well that they can ultimately work with, that they can trust to make that happen. And so for that one, we actually helped them walk through that process and then ultimately get them officially blessed through the court system as owners of the property. So they have the right to ultimately sell it and bring it to the closing table.

So that’s the biggest risk you’re running. And that’s ultimately what everybody’s goal is, is to get that sold and sold on time. Because if not, you get to the point where that thing is about to get sold, and then it doesn’t sell. And guess what? You’re back to square zero. You got to start the whole process over again. You either got to recall the people that you had in your house, or you got to find the ones that you really want to work with, again. And then you got to start that timing and that re-closing process all over again.

John Lindquist:
So you could really be, I don’t know, for certain sellers that could already be a high emotion scenario for you. Especially if you’re getting the home after the passing of a loved one. And then you’re getting people into the house to try to buy it from you and someone comes through with a huge number that you weren’t expecting. And you’re like, “Oh wow, this could work for me. This could be great. This could turn out to be a good thing.”

Eric Scheele:
Right. If it’s too good to be true, it, sometimes, many times, is.

John Lindquist:
They could be taking advantage of you. So you just really have to watch your back and your sides because there’s just predators everywhere with everything in life. But when it comes to money, the predators are even sneakier.

Eric Scheele:
And unfortunately, with cash buying and houses and real estate, there is an attraction to it because of the popularity. And there’s the ability to essentially have zero entry into an industry. And so it opens itself up to a less qualified individual. So inherently it pays to be a smarter, more educated home seller, but they’re disguised as one and the same. So it’s very hard and difficult to do. So by taking that time to step back and do that research, it will weed through the competition extremely, much easier. We tend to be the exception to the rule. If 10 people enter a house, we’re probably one of three that ultimately have goals to ultimately buy it and have the means to buy it. It could be that small of a percentage. So you really have to watch what you’re doing and become that educated seller to make the best choices ultimately to handle the real estate that you’re trying to move.

John Lindquist:
Well, thank you so much, Eric, for sitting down and answering my questions on the risks of selling to an underqualified buyer and giving me some information as well. In the world of real estate, there’s so many different angles and laws and just types of people that are involved with any kind of transaction when it comes to real estate.

Eric Scheele:
There’s always lots of variables involved. And that’s what we talk about. We lay out variables with homeowners. It’s more than just timing and cash. Those are two big ones, but some people are emotionally invested in these houses and they want to see to it that these houses are taken care of on the backend. Some of them are just worried about the front end, “Hey man, give me the cash and that’s all I need. I’m emotionally detached from this thing. So let’s move.” But there are many variables and they’re not all geared towards cash. So by sitting down and communicating and talking through with homeowners and educating them, that tends to bring out the right option for the right reasons for homeowners. And so by those homeowners, as a homeowner, by calling a few people in and doing the research on those people prior to making those phone calls, I think it will pay off in the long run for you.

John Lindquist:
All right. Well, you answered all my questions on the risks of selling to an underqualified buyer. I don’t think I have anything else for you.

Eric Scheele:
Right on.

John Lindquist:
If anybody else wants to find some information more about this topic, you can obviously contact us on our website, just look us up on Google, KC Property Guys. Look us up on YouTube, got plenty of videos there that show many different situations in which people have approached us to sell their home. And we’ll look forward to talking to you guys next time.

Eric Scheele:
All right. Take care.

Speaker 1:
Thanks for joining us this week on the Kansas City Real Estate Industry Leader Show as we talked about the risks of selling to an underqualified buyer. Please support all things local to Kansas City.

Speaker 2:
And hey, be sure to subscribe and share our podcast on Facebook and LinkedIn. This has been a KC Property Guys production. kcpropertyguys.com.