“We Buy Houses for Cash!” the billboard proclaims. “We Buy Ugly Houses!” says the postcard that shows up in your mailbox, along with a cute drawing of a caveman-looking character. You’ve seen these signs and received their mailings for years, but now you’re in a situation where you need to sell fast and you’re wondering — what are the pros and cons of We Buy Houses?
These companies target homeowners in urgent or time-sensitive situations, such as an unexpected move to a care facility or a deceased family member. You don’t have time to make upgrades and repairs, and you may need the cash to move your family member. But no one wants to be taken advantage of, conned, or ripped off.
We Buy Houses companies are flippers who purchase properties “as is” for cash and renovate them, generating a profit at resale. They are legitimate businesses, but there are some definite pros and cons to selling to them. Here’s what you should know before calling the number on that billboard.
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What are the types of cash house buyers?
We Buy Houses operations are cash buyers or house buying companies that purchase homes directly from homeowners. There are three primary types of cash buyers: iBuyers, buy-and-hold investors, and fix-and-flip investors.
Cons of selling to a We Buy Houses operation
With the benefits of selling to a We Buy Houses company come some significant disadvantages. Convenience comes with a price tag, after all.
You’ll net less money than you would selling with an agent
If you sell to a We Buy Houses operation, you’ll make a lot less money than if you sold with a real estate agent. Flippers typically offer between 50% to 70% of the home’s actual market value. The lower the purchase price, the more profit the company can make when they flip the house.
When you sell with a real estate agent, they work to sell your home for the most money possible. They’ll give you advice on repairs that could add value to your home, recommend staging companies, and market your home to attract more buyers. Ultimately, you’ll receive higher offers and multiple offers could even spark a bidding war, driving the price higher.
If you partner with a top-rated agent, you can expect even higher profits from your home sale. Our data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 10% more than the average real estate agent. On a $400,000 home, using a top agent could mean a difference of $40,000 more in your pocket.
According to the National Association of Realtors (NAR), the purchase price of homes sold in the open market in 2022 was 100% of the listing price.
No option to improve the property and increase the selling price
Sometimes, a few cosmetic improvements could increase your selling price, but a We Buy Houses buyer won’t point this out.
A few years ago, a seller approached Ramos for help with a home in probate. The house was in bad shape and the son had spoken to several cash buyers. They had told him that the house had to be scrapped, and they’d only offered between $300,000 to $350,000. Ramos provided him with a market analysis of comparable sales, pointed out areas to spruce it up, and eventually sold the home for $500,000.
“We didn’t do too much to the house,” he says. “If they had sold to the cash buyers, they would have left about $150,00 to $200,000 on the table.”
You give up control to the We Buy Houses company
Once you sign their contract, the home sale proceeds on the company’s timeline. Unlike normal buyers, they won’t negotiate closing dates, offer a rent-back period, or make other concessions. The sale proceeds on their timeline, with their standard contracts and processes.
Cash buyers may have hidden fees
Some cash buyers rope sellers in with an attractive offer only to tack on fees that ultimately lower the final sale price. Though Taranto shares that iBuyers are more likely to have hidden fees than We Buy Houses operations; iBuyer service fees are usually 5% to 6% of the purchase price.
The bottom line is, always read the fine print when you receive a cash offer.
Some ‘we buy’ operations don’t have the seller’s best interests in mind
These companies want to buy houses — but they don’t want to pay market value for them. They’re not scouring the multiple listing service (MLS) and buying on the traditional market because they wouldn’t make money when they turned around and sold those homes.
“Investors want to buy homes at no more than 70% of after-rehab value,” Ramos says. “They’re going to super lowball the value.” They have no legal obligation to offer you a fair price or to look out for your best interests.
We Buy Houses scams exist
Unlike real estate agents, real estate investors do not need a license. There is little regulatory oversight of their actions, nor are they held to a code of ethics like a licensed Realtor®. While there are many legitimate We Buy Houses operations it is still essential to research a company to verify that they are legitimate.
Here are red flags that a We Buy Houses company is a scam:
- The company pushes verbal agreements (always request an official written offer).
- You’re required to pay upfront application fees.
- The company promises to sell your property after you sign over the title to your home.
The third red flag could be an equity skimming scheme, one of the most detrimental scams in real estate. The “cash buyer” offers to either pay the homeowner a large sum of money when the property is sold or to take over their mortgage payments while the homeowner continues to live in the house.
When the homeowner transfers the title of the property to the buyer, an unscrupulous buyer collects monthly rent payments from the homeowner and pockets the money instead of paying the mortgage. Eventually, the mortgage lender forecloses on the home, and the scam artist disappears, leaving the homeowner with no home and a significant financial loss.
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Buyers also beware
Buyers considering purchasing a quick-flipped home may also want to look deeper.
Most flippers are focused solely on profit — they view a house as an investment. Ramos points out that “there are two things that will dictate their profit — how cheap and how fast they can do the job.” According to him, this means they may not get permits because that will take time, which eats away at their profits, or will use products of lower quality to increase their profit.
A flipping company could cut corners on repairs, or use lower-quality materials. They may not closely supervise subcontractors or the work being down, leading to shoddy and possibly unsafe work. If they’re new to the area, they could use unlicensed or inexperienced contractors.
While there are some excellent, professional groups and home flippers out there, there are also those that take advantage of unsuspecting buyers and have questionable business practices. If you suspect that you’re buying a flipped house, don’t skip the home inspection!
Questions and answers — We Buy Houses companies
Need some quick answers? Here are some of the most common questions about We Buy Houses companies.
What companies can I trust that buy houses for cash?
There are many legitimate companies that will pay cash for your home. Look for how long they’ve been in business and if they’re licensed. Ramos points out that, with the fly-by-night operations, “most of them don’t even have a business license, and it’s hard to trust that.”
Some of the companies with a good reputation include:
We Buy Ugly Houses, We Buy Houses, New Western Acquisitions, Expert Home Offers, Quick Home Offers (in California), House Heroes (in Florida), Fast Home Offer, Express Homebuyers, Opendoor, Offerpad.
What are telltale signs that I should not do business with a company?
While you can check business licenses, read online reviews, and see how long they’ve been in business, also pay attention to how the company behaves. Ramos thinks that “Pushiness and a disregard for your feelings and what you need,” are warning signs. If you need six months to move but they’re just pushing to get the house under contract, be wary. If the company has a phone number with no name or address and you can’t meet someone in person, it’s another warning sign.
Are We Buy Houses and We Buy Ugly Houses Legitimate?
They are registered businesses that do buy houses but under market value. If you’re expecting an offer at market value, you may think they’re a rip-off. But their offer reflects their risk in buying a distressed property without a home inspection or other contingencies.
How much do investor companies offer for houses compared to a normal market sale?
It’s hard to find concrete data but the general consensus in the real estate industry is that they offer 50% to 70% of the home’s value.
Do We Buy Houses companies also buy rental properties?
Yes, these companies buy almost any type of property as long as they can resell it. They’ll buy a single-family house, condo, or townhome.
Compare reputable cash buyers before you make a deal
Even if you’re in a hurry, and need a quick sale, you have options. Taking a few minutes to compare reputable cash buyers could make you some extra money. Try inputting your address into the HomeLight’s Simple Sale to get a fair, all-cash offer.
A top real estate agent can give sellers even more options. They can educate you about your home’s true value, even if it’s in poor shape. You might be surprised at how little needs to be done to sell it for a higher price than you’d receive from a cash buyer. According to Ramos, “A house that needs work will sell for less than a turnkey home, but not a fire sale price. If you have an agent to market the house, build anticipation, and try to get the value up, you can get more [than with cash buyers].”
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Header Image Source (re-sized): (Baltimore Heritage / Flickr via Creative Commons Legal Code)
