If you’re in a pinch to sell, you might consider dialing the number on those yellow billboards exclaiming “WE BUY HOUSES FOR CASH” that are plastered along the highway.
‘We buy houses’ operations are flippers who purchase properties “as is” for cash and renovate them to generate a profit at resale. According to ATTOM Data Solutions, 245,864 single-family homes and condos in the U.S. were flipped in 2019; that’s 6.2% of all home sales in the country.
Flipper operations offer sellers speed and convenience, but those perks come at the cost of a low sale price. If you’re considering selling your house for cash, you need to weigh the advantages and disadvantages before signing a contract. With help from real estate experts, we’ll guide you through the pros and cons of ‘we buy houses’ deals.
How ‘we buy houses’ companies work
‘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.
- iBuyers, or “instant buyers,” refer to property tech companies who run large scale cash offer businesses, including Zillow Instant Offers, Redfin Now, and Knock. These companies use automated valuation models (AVM) and web platforms to provide an efficient and simplified process for sellers whose homes are in sellable condition.
- Buy-and-hold investors are individuals who offer competitive prices for market-ready homes. Often, they look for investment properties that they can turn into rental properties.
- Fix-and-flip investors, or house flippers, include the companies responsible for the yellow ‘we buy houses’ signs and individual investors who have the resources and penchant for remodeling. Unlike iBuyers and buy-and-hold investors, fix-and-flippers buy homes in poor condition for considerably less than market value.
Let’s focus on ‘we buy houses’ fix and flip investors
‘We buy houses’ operations will purchase a house in poor condition “as-is” for less than market value (generally between 50% to 70%). After renovating the house, the company sells it at a significantly higher price — sometimes in a matter of weeks! According to ATTOM Data, flippers received a 40.6% return on investment in 2019.
You may be familiar with some of the big wigs in the house flipping industry, such as We Buy Ugly Houses, owned by HomeVestors. We Buy Ugly Houses will buy your home regardless of its condition. Not only do they guarantee a cash buy, but they also extend a no-obligation offer, and if you decide to accept, We Buy Ugly Houses swiftly purchases your home within 30 days.
Pros of selling to a ‘we buy houses’ operation
Selling your home for cash to a ‘we buy houses’ operation is tempting for a good reason. It’s quick, hassle-free, and a sure bet. Let’s walk through some of the advantages of this option.
You’ll sell your house FAST
The allure of selling your house fast is unequivocally one of the most appealing aspects of a ‘we buy houses’ operation. According to top real estate agent Thomas Taranto, who represents real estate clients and investor pools, a traditional home sale transaction takes around 60 days, while a cash offer generally only takes 10 to 14 days.
The offer is guaranteed
A cash offer from a fix-and-flip investor is more guaranteed than an offer from a traditional buyer with contingencies — specific requirements that must be met for the sale to close. For reference, here are some common contingencies in a traditional offer:
- Financing contingency: The buyer can leave the deal if their mortgage application falls through.
- Appraisal contingency: The buyer can back out if the home appraisal comes in lower than the offer amount.
- Home sale contingency: The buyer will purchase the home if and only if their own home sells first.
When you sell to a ‘we buy houses’ operation, you won’t deal with contingencies and the uncertainty they entail.
No staging or remodeling, no problem
Since ‘we buy houses’ operations purchase your home “as-is,” you can skip the elaborate pre-listing home preparations, including:
- Deep cleaning
- Replacing old carpet
- Installing new appliances
- Bathroom and kitchen updates
- Improving curb appeal
In light of the COVID-19 pandemic, many homeowners seek to reduce physical contact when selling their home. Taranto shares:
“A lot of people are worried about COVID, and they don’t want a whole bunch of people coming in and out of their house. So, an instant offer from one party would minimize the number of different people coming into their house.”
Even in post-COVID times, the notion of fewer people coming in and out is enticing for some homeowners.
Cons of selling to a ‘we buy houses’ operation
Now that we’ve highlighted the benefits of selling to a ‘we buy houses’ company, let’s explore the disadvantages. Convenience comes with a price tag, after all.
You’ll net less money than you would selling with an agent
You will walk away with significantly less money if you sell to a ‘we buy houses’ operation than you would selling your home 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 with you to sell your home for the most money possible. They’ll advise on repairs and staging to add value to your home, attract more buyers, and ultimately receive higher offers. According to the National Association of Realtors (NAR), the purchase price of homes sold in 2020 was 99% of the listing price.
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 price before the sale closes. Though Taranto shares that iBuyers are more likely to have hidden fees than ‘we buy houses’ operations; iBuyer service fees are usually 6% to 15% of the purchase price.
The bottom line is, always read the fine print when you receive a cash offer.
‘We buy houses’ scams exist
Unlike real estate agents, real estate investors do not need a license. Yes, there are many legitimate ‘we buy houses’ operations. Nonetheless, it is still essential to research your investor to verify that they are legit. 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 indicates 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, the buyer collects monthly rent payments from the homeowner and pockets the money instead of paying the mortgage. Eventually, the mortgage lender forecloses the home, and the buyer disappears, leaving the homeowner with no home and significant financial loss.
Compare reputable cash buyers before you make a deal
If you’re considering selling to a cash buyer, don’t just ring the number on the first ‘we buy houses’ sign you see. Instead, plug your home details into HomeLight’s Simple Sale platform.
We’ll gather offers from our network of pre-approved cash buyers, including local real estate investors who purchase a couple of properties a year and large corporate investors who buy hundreds of homes each month. Once all offers are in, we’ll show you the highest offer on your home with a side-by-side comparison of what you could sell your home for on the market with the help of a top real estate agent.
Tempted by those ‘we buy houses’ ads? Weigh the pros and cons before you sign a contract.HomeLight Blog