What Companies That Buy Homes For Cash Can (And Can’t) Do for Sellers

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Whether you’re moving for a new job, going through a divorce, or struggling to make ends meet, sometimes life changes fast and unexpectedly. A house that was once the right fit can suddenly  become a weight holding you back. When the need to sell is urgent, the average 70-day listing process can cause stress and financial strain. Thankfully, alternative solutions are available for sellers needing a quick out — including companies that buy homes for cash.

Companies that buy homes for cash are designed to step in and provide a no-fuss sale to a variety of sellers, whether you simply need extra cash now, don’t want to deal with showings, or seek a buyer who has deep pockets for hefty repairs. Since the reputations of “fast cash” companies haven’t always been the most pristine, this guide acts as an honest handbook to help you understand the strengths and limitations of house-buying entities: what can they do for you? What are the trade-offs? And where can you get a cash offer? We’ll cover it all here.

A home that has been staged before selling for cash.
Source: (ISO Republic)

What companies that buy homes for cash can do for sellers

House-buying companies are real estate investors who purchase homes, oftentimes at scale, as their business model. Some of these companies rehab and re-market properties, while others rent them out long-term. What they offer sellers is a convenient cash option that takes the mystery out of finding a buyer and reduces the closing timeline to a matter of weeks, or even days due to the lack of lender involvement. Here are 6 conveniences you can expect a company that buys houses for cash to provide.

1. Eliminate house showings (and the work of staging your home.)

Selling a house normally takes a ton of work. For a typical listing, you’d need to declutter and deep clean the home at a minimum. In addition, 83% of top agents recommend staging your home for a faster sale. This may involve rearranging the furniture, adding a fresh coat of paint to the walls, putting bulky items in storage, and adding final staging touches like fresh towels.

Homes in bad condition will need even more attention to sell on the open market. According to a 2020 survey from Coldwell Banker, 80% of Americans say they would prefer to buy a move-in ready home over one that requires renovations. And common pre-listing updates add up:

These types of updates will make your house look amazing, but cost significant money upfront. Then, all your hard work and investment into the property will be judged by a parade of buyers coming through your home in the evenings and on Saturdays no less.

Companies that buy homes for cash, on the other hand, don’t need your house to be pretty. They will make you an offer based on what they believe the bones of the house to be worth. They don’t plan to sip coffee on the front porch or raise their kids in this home — they’re looking at it through the lens of profit, which takes the burden off you as the seller to primp, prep, and keep the house looking perfect for weeks.

2. Waive certain repairs, even if they’re serious.

Most buyers do not have the funds or expertise to fix a home with major issues like a crumbling foundation, bad roof, and a water leak blooming in the corner of the ceiling. Since these problems will be a deal breaker for most of your traditional buyer pool, “cash buyers really do come in as somewhat of a hero for some of these clients who don’t have the money to fix up the property,” says Zandra Ulloa, a top real estate agent in San Diego who often represents sellers seeking a cash buyer alternative. “These investors are willing to take on the risk.”

Maybe, in the process of preparing the house for the market, you realize these repairs are too big a task to take on. “A lot of people aren’t willing to deal with contractors and managing home repairs —  that’s when they look at the situation like, ‘I could just accept a cash offer right now,’” adds Duane Alexander, the founder of a BBB-accredited, family-owned cash buying company in Atlanta.

3. Help you out of paying housing costs you can no longer afford.

Even prior to the pandemic, research from Harvard found that 21% of American homeowners were “cost burdened,” defined as those spending more than 30% of their income on housing. When you’re on the cusp of being unable to afford your mortgage, it may be wise to sell the asset unless you foresee your financial circumstances improving.

It’s always recommended, first and foremost, to speak with your mortgage lender directly if you’re struggling with payments and discuss your options. However, after about three months of missed mortgage payments, you’ll likely receive a Demand or Notice to Accelerate letter, informing you of how much you owe and providing 30 days notice to get your balance current. From there, it can be two to three months to the scheduled sale of your property if you take no action to square up with the mortgage company (though some foreclosure sales can take much longer — up to 10 months), guidelines from the Department of Housing and Urban Development note.

When you’re up against a foreclosure deadline, a cash buyer can remove the uncertainty of when an offer will come in. Ideally, you’re able to collect the cash for the home, pay off the existing mortgage, and cover any fees related to your delinquency with your skin intact — all before the house is foreclosed on. If you have more wiggle room in your timeline, alternatively you could work with a top agent who has experience helping financially distressed homeowners.

4. Relieve you of a house flip gone wrong.

Home flipping is a risky business. Let’s say you bought a house with the intention of flipping it and realize you’re in over your head. Perhaps you live too far away from the property to manage the flip or discover you were way off on estimating repairs or resale value. In that case, you may be best off selling that property to another investor rather than hold on longer or attempt to sell buyers on a half-renovated house.

“Regarding a soured house flip, if the seller puts it on the market ‘as is,’ people aren’t willing to go back and do that work to the home,” notes Alexander.

“The pool of buyers is going to be smaller. But investors look at it differently —  the more incomplete a home is, the better … and the more excited we get!”

5. Take an inherited or probate property off your hands.

If a relative passes away and leaves behind an inherited property, that home can turn into an unexpected hassle. You’re on the hook for maintenance, taxes, and utilities for every additional month you keep the house, and you’ll also need to account for the time and money spent traveling back and forth to manage the sale process.

Rather than coordinate contractors and worry about the house sitting vacant, you could request a cash offer for the home and make a swift exit. Keep in mind, you’ll need to be sure you have the rights to sell the home and that you’ve followed all of the necessary steps of probate if applicable.

6. Close in a fraction of the time a regular sale takes.

As of April 2021, the average purchase mortgage took 49 days to close, according to data from Ellie Mae. That’s more than a month and a half that the lender needs to perform due diligence on the borrower and make sure they can close on the loan in good faith. By way of paying cash, house-buying companies can move a lot more nimbly and offer a faster closing. Typically a company that buys homes for cash will show you proof of funds for the amount they’re willing to offer and be able to close within a week to 10 days.

Companies that buy houses for cash can’t do it all

Companies that buy houses for cash provide many conveniences and a level of certainty you won’t find with a regular listing process, and yet 89% of sellers are still assisted by a real estate agent when selling their home. So, why aren’t all people going straight to house-buying companies for an offer — what’s so enticing about an open market sale, despite the hassles involved? Much of it comes down to the price you’re able to fetch. Let’s review a few areas where a cash buyer can fall short.

1. Less competition in the open market.

When you put your house on the open market, you market it to the masses. So long as the listing is well-promoted, any number of buyers could view your property and be enticed to book a tour. As housing demand exploded during the pandemic, the element of competition in the housing market has driven prices upward at a rapid pace.

In the spring of 2021, 94% of top real estate agents nationwide said that bidding wars were on the rise in their market, according to a recent HomeLight survey. Relatedly, the entire U.S. is seeing double-digit home price gains as buyers escalate what they’re willing to pay for homes.

When you go straight to requesting a cash offer, you’re negotiating a deal one-to-one without the leverage of other buyers vying for your home. In addition, all cash buyers know that the speed and convenience they can offer is worth something to the seller. Over the past 40 years, cash buyers have paid 12% less on average than a buyer getting a mortgage.

“I would say that if a seller wants to maximize their profit, really the best and only way is to go on the market so you have competing buyers who are bidding on the property,” says Ulloa.

Some cash buyers will offer closer to market value than others, depending on their business model and the condition of your home. The lowest offers you’ll see will likely come from house flippers who pay about 70% of the After Repair Value (ARV), i.e., the amount which they believe they could sell your home for once they renovate it — but it all depends on what kind of shape your house is in and what location perks it comes with. Access to great schools, for example, could encourage a cash buyer to pay more as it may parlay into higher rental fees they can charge for the property.

“We don’t pay what you would get on the market because we have to buy at a price that makes sense for us from an investment standpoint,” notes Alexander. “We aren’t lowballing people, but we make the numbers work. We want the seller to walk away happy and us to walk away with a home that fits our investment strategy.”

2. Fewer price boosts based on emotion.

Imagine two different buyers walk into your home — one who’s planning to live there with their family. The other is sizing up their next investment. The first buyer sees family dinners, the swing outside where their kids will play, and a home office where they’ll spend a lot of time. The second buyer, an investor, sees four walls, a roof, and a price tag. Who is going to be more discerning and modest in what they’re willing to pay? You guessed it: The investor paying cash.

“A traditional sale is almost always going to procure the highest net for a seller because the next buyer coming in probably already has an emotional attachment,” Ulloa points out. “They’re willing to pay for what they believe that property will give them, which is long-lasting memories.”

3. Some companies can’t be trusted at face value.

You should never, ever sign over the title of the home to a company without vetting them thoroughly and asking for proof of funds. Proof of funds, according to Investopedia, is a document demonstrating that a person or entity has the necessary funds and abilities to complete a large transaction. The documentation typically needs to come from a bank or some sort of asset statement.

“I would suggest that, with the proof of funds, make sure that it is within the last 30 days or less, and if it happens to be an account from a different country, you want to verify those even more,” Ulloa says.

Ulloa also cautions that proof of funds letters can be forged, along with other important paperwork. Therefore, for the ultimate protection against real estate scams, it’s best to hire a representative agent or an attorney to read over paperwork.

A laptop you can use to find a company to buy your home for cash.
Source: (Styled Stock)

How to request a cash offer: HomeLight has you covered

Now you know a lot about what it’s like to work with companies that buy houses for cash, including the benefits and trade-offs of this type of sale. If you’re convinced that a fast, easy home sale is right for you, we’d recommend going through our Simple Sale platform. Through Simple Sale, HomeLight provides you with an all-cash offer for your home. You can skip the repairs, prepwork, and open houses and go straight to receiving an offer. Got a house in rough shape? No problem. Our platform will provide a cash offer for homes in any condition. Whenever you’re ready to request a cash offer, HomeLight is here to help.

Header Image Source: (@nina_p_v / Reshot)