Wondering about those “We Buy Houses for Cash” signs? Before working with one of these companies here are a few things every seller should know. —-
If you’re looking to sell your home fast, you’ve probably wondered about the signs, billboards, and internet ads for companies claiming to “buy houses in any condition for quick cash.”
These businesses make a lot of promises that can sound pretty good to a seller in a pinch; a fast and flexible closing process, no necessary repairs, and most appealing of all, a cash offer in hand. But are these promises too good to be true?
Victor Miskanic, a real estate agent with over 27 years of experience selling in Port St. Lucie, Florida, suggests that all sellers first weigh their options before deciding to sell to a We Buy Houses for Cash company.
“Go onto Zillow or Google and look at some reviews of local agents. Then, ask the agent how many sales they’ve had in the year and what their references are. Next, I recommend the seller ask the same questions to the people that would buy their house for cash,” suggests Miskanic. By speaking with an agent, you may find out your home is worth quite a prettier penny more than what the We Buy Houses company is offering.
Profit aside, there are other important details every seller should know about these companies before deciding to work with one. In this guide, we’re breaking down how these companies operate, offering tips for spotting potential scams early on, and discussing when a We Buy Houses for Cash company may or may not be advantageous to your selling situation.
How do We Buy Houses for Cash companies work?
We Buy Houses for Cash companies purchase properties directly from homeowners. They offer a quick cash offer, and then it’s up to the seller to decide if they want to accept the deal or walk away.
A cash offer for a property typically comes from three types of buyers:
iBuyer: An instant buyer with a company that buys properties primarily online, often without seeing them in person. For an iBuyer to be interested, the property typically needs to be in satisfactory condition and only in need of minor repairs.
Buy-and-hold investor: A real estate professional who purchases a property, typically a condo or single-family home in an up-and-coming neighborhood, intending to own the property for an extended time. The investor does not occupy the property themselves but makes money through renting the property, and by the property appreciating in value over time.
Fix-and-flip investor: This investor purchases low-cost properties and gives them a “facelift” through repairs and renovations. They then sell (i.e., “flip”) the property for a profit at a price that’s often considerably higher than what they bought it for.
A closer look at We Buy Houses for Cash fix-and-flip companies
Most We Buy Houses for Cash ads belong to fix-and-flip investors. Their big sell is that they’ll purchase nearly any property “as is,” with the core intent of renovating the property and selling it to a buyer for a profit as quickly as possible.
Although these companies gain a fair share of attention through bandit signs – you know, those big flashy signs posted along highways, street corners, or attached to light poles – most of the time these companies are legitimate.
Fix-and-flip businesses are real estate investors who buy properties for a substantially lower cost than the market value of the home. Once renovations are complete, the sale of the home can produce a large profit. To put this in better perspective, the average gross profit in 2021 for home flips was $67,000.
What are the advantages of selling to a We Buy Houses for Cash company?
A simple, speedy sale and financing process
Most sellers drawn to We Buy Houses for Cash businesses want a quick, low-hassle sale. Selling to a cash buyer can be a good option for homes in the foreclosure process so the seller can avoid having a foreclosure on their credit report.
Another benefit is a speedy closing. With a more traditional buyer backed by a mortgage, closing on a house can take anywhere from 40 to 60 days, while a cash offer can often seal the deal in a week or two.
They’ll purchase the property “as is” (no repairs or renovations needed)
Have a few costly repairs you’ve been putting off? We Buy Houses for Cash companies love fixer-uppers since they’re planning to renovate the place, anyway. Keep in mind however that any expensive repairs are factored into the final offer price, so the larger the repair, the lower the offer.
No showings, staging, landscaping, or other prep work
These companies won’t necessarily care how appealing your landscaping is (though it may factor into their offer price). They are buying the property in its current condition, whether you lift a finger to spruce it up or not.
With a traditional home sale, there are a few contingencies and inspections to get through before closing on a house. Since a We Buy Houses for Cash company is buying the property “as is,” you won’t have to worry about a contingent offer falling through.
What are the drawbacks to selling to a We Buy Houses for Cash company?
The home often won’t sell for market value
“Cash buyers are very savvy, and they know what a home is worth. They are in business to make a profit,” says Miskanic.
The way they make that money is by building any projected profits into the offer (more on how that works soon).
Miskanic shares how his team recently lost a listing to a We Buy Houses for Cash company, and how it impacted the seller’s bottom line.
The home had an estimated list value of $300,000, so, after subtracting a 5% agent commission (-$15,000) that would have resulted in a $285,000 net profit margin for the homeowner. In this scenario, however, the We Buy Houses company bought the house for $229,000, essentially leaving a profit of $56,000 on the table for the homeowner.
Miskanic estimates the house remodels cost the We Buy Houses company around $30,000 after expenses.
“The house went on the market for $350,000.”
This resulted in a $70,000 estimated profit for the We Buy Houses for Cash company.
There might be hidden fees
Read any sales agreement closely. Many iBuyers include a service fee of 5 to 6%, so confirm whether there will be a “service charge” tacked on for later. On average, sellers who work with an iBuyer typically wind up paying nearly 9% of a home’s sale price in additional or hidden fees. Fix-and-flip investors, on the other hand, may not charge a fee, but could instead make a lower offer to cover their costs.
May fall victim to a scam
To protect yourself from scams, be wary of any offers that come in through your email – a popular method for fraudsters to gain access to your personal information. If you’re considering working with a We Buy Houses for Cash company, don’t be afraid to hop on a call or video to learn more about them and confirm their legitimacy.
You could be forgoing an even better cash deal
Another consideration is, depending on the market, you may sell your home traditionally just as quickly as selling it to a We Buy Houses for Cash company.
“The aspect of these companies saying that it’s going to be a quicker close isn’t necessarily true. Because right now our market is so hot, we have a lot of cash buyers,” says Miskanic.
How much less money will I get selling to a We Buy Houses for Cash company?
As Miskanic puts it, “I’ve never come across one of these businesses where they are giving the people fair market value in any condition – because they’re in it for a profit.”
Fix-and-flip companies commonly follow the 70% rule, meaning they offer 70% of a home’s after-repair value, minus the cost of repairs.
“These companies have to buy the house for substantially less than what they’re paying for it [to be repaired] so they can make a profit,” explains Miskanic. The lower the purchase price, the greater the profit when they flip the house.
Compare that to a traditional home sale: Our data shows that when working with a real estate agent, a home often sells for at least the listing price. And when listed with a top-rated real estate agent? Even up to 10% higher.
What kind of We Buy Houses for Cash scams exist?
We Buy Houses for Cash companies and house-flippers aren’t required to have a professional license or certifications like those held by real estate agents. A company can be legitimate without a license, but as a seller, it’s best to always research the company thoroughly and verify its legitimacy before working with them to avoid potential scams.
Here are a few indicators that may suggest you’re in business with a scammer:
The company requests verbal agreements (always get any offers, agreements, etc. in writing!)
The company requests you pay “application” or “service” fees upfront
The company is pressuring you to make quick decisions and sign a contract (like a high-pressure salesperson)
The company doesn’t have a strong online presence or reputable testimonials
The company requests you sign over the title of your home before promising to sell your property
The company tries to run an equity skimming scheme. Here, in exchange for signing over the deed, a scam company offers a new loan to a homeowner who is in danger of losing their home through foreclosure. The scammers then refinance the home and pull out all the equity.
A legitimate cash buyer should always have proof they can buy your property, have a list of good references to back up their credibility, and they should be easy to get in contact with. Dodged calls and unanswered emails are never a good sign.
In the end, to protect yourself from getting scammed, research the company ahead of time and always trust your gut. If something feels off, it usually is!
Is selling to a We Buy Houses for Cash company right for you?
If you’re trying to decide between selling your home, the traditional route or to a We Buy Houses for Cash company, ask yourself the following questions about your property:
What kind of shape is my property in?
How much cash do I have to put into property preparations and repairs?
How much extra time do I have to invest in getting my property ready for market?
How much extra energy do I have to do so?
What’s my moving timeline?
Would I rather sell my property quickly, or try to make a larger profit?
Answering these questions about your property and deciding what your priorities are can help you make the right decision for your circumstances.
Still on the fence? Learn more about the pros and cons of selling to cash buyers, and how to connect with reputable companies here.
Bottom line: Compare reputable cash buyers before you commit
“I would always recommend the seller at least get a consult with a licensed real estate agent,” advises Miskanic.
After all, the last thing any homeowner wants is to leave extra cash on the table. In chatting with a real estate agent, you can learn what your home could sell for – current condition and all – and see how the numbers stack up compared to selling to an investor.
Many real estate agents even provide a competitive market analysis based on the local market, which gives a glance into what the property could list for if sold to a traditional buyer. To easily meet agents who go above and beyond, try HomeLight’s free Agent Match tool. We analyze over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.
If leaning toward working with an investor or a quick-sale company, remember there’s a million and one out there, and you don’t have to work with the company listed on the bandit sign around the corner. Take the time to research reputable companies and compare various cash offers. It may surprise you how much one offer varies from another.
One easy way to get your first cash offer is to use HomeLight’s Simple Sale platform. Simple Sale reduces the risk and uncertainty of a traditional sale falling through. It’s as simple as entering your home details and HomeLight will provide you with a no-obligation cash offer.
Header Image Source (Jonni Lundy / Unsplash)
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