A month ago, I sat at the kitchen table with a friend, sorting through her pile of bills. Illness and the loss of her job were making it hard to keep up with her mortgage payments. Suddenly those roadside signs touting “Cash for your home,” “We Buy Ugly Homes,” “Sell Your House Today” were sounding pretty good to her.

But how do these institutional buyers work?

Do they walk through your home and offer a fair and reasonable price? Will it cover your mortgage and expenses? Would it be better to go to the mortgage company and see what relief they can offer?

These are all questions that demand fast answers when creditors are knocking at the gates, but “haste makes waste” as your mother used to say. Better to make an informed decision based on facts, not emotions.

So, what are those “ugly homes” signs all about? After watching a friend struggle with her mortgage and bills, I decided to find out.

I was not surprised to find that some “ugly home” companies are more legitimate than others. Anyone considering this route should get a quote from three companies, if possible.

After calling one and making an appointment, I was pleasantly surprised at how informative the “Real Estate Solutions Advisor” was. His name was Tom, and the three of us walked through the home and he pointed out amenities that are “big sellers” in the current market. We went on to discuss tips, like how painting the kitchen cabinets and adding new hardware, or removing carpets and polishing up hardwood floors can increase the price.

Tom promised to call the next day to follow up with an offer… but he didn’t. So I called Tom myself. He was apologetic and told me he would definitely get back to us before the next morning. That was several weeks ago.

As we spoke to more investors and wholesalers who work with these companies, we learned that they typically offer about 65% of the market value. It makes sense; you want quick cash, it costs you. Just like selling a piece of jewelry or even a car – desperate times,  desperate measures.

If you are upside down or underwater on your mortgage, these wholesale companies aren’t interested. They are bargain hunters, looking to buy into instant equity. But if you have a mortgage balance of $160,000 and your home will likely fetch only $110,000 in today’s real estate market, you have negative equity of $50,000.

cat skeptical of fast-cash home buyersIt should be growing clear that “ugly home” buyers should be a last resort. But what are some better alternatives, for property owners in financial distress?

No matter what you do, don’t simply default and wait around to see what happens. Coming back from the later stages of the foreclosure process can be extremely difficult. Along with the mortgage payments you may be behind in, there would be mounting legal charges and fees. It can quickly become a financial quicksand. Putting off a sale because of repairs, emotional attachments to the home or just being overwhelmed is not an option.

First, consider negotiating lower payments with your mortgage company. Loan modifications, including programs such as HAMP, are an option in which your lender may alter the terms of your loan to make it easier to repay. For example, they may extend the loan term to lower the monthly payments, or perhaps even lower the interest rate.

Another option is a short sale, where the lender agrees on a lower payoff amount, to facilitate the sale of the property. Lenders may not like it, but selling a home through a Realtor on the MLS will yield a far higher sale price than a foreclosure. There is help available through the US government’s Making Home Affordable website.

Short on time? Consider auctioning off your home through a local auction firm. If you’re not upside-down, this can be a quick way to sell.

And of course, there are “cash for ugly homes” buyers. If you have equity, but don’t want to sell as-is and don’t have money for repairs, at least make sure you do your due diligence before selling to an “ugly homes” buyer.

Know ahead of time that you will not get a quote over the phone. A representative will come to the home and make a complete inspection, and they may not bother calling you back afterward. Get a good idea of what the home is worth, and talk to several licensed real estate agents. They can provide a free report, taking into account the sales of homes like yours (“comparable properties, or comps) in the surrounding neighborhood. Having the information of what your house may fetch in the marketplace is key before dealing with any buyer.

Most importantly, never forget there are always options. Sometimes a lowball offer that can settle fast is a tradeoff worth making.

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