What’s the Deal With Those Companies That Buy Houses?

The real estate market is made up of sellers and buyers each looking for the best deal. Most buyers are who you’d think of in a typical HGTV episode: young professionals searching for a starter home, a family trading up for more space, a retired couple who’d like to downsize. But some buyers in the mix are actually not individual people at all. They’re companies. Companies that, as their business model, purchase homes for some kind of profit.

As a seller, it’s always a good idea to consider all your options, based on your priorities and needs. That option-weighing process includes who to sell your home to and what they can offer as far as price, terms, and peace of mind. This guide to house buying companies is meant to give you the clarity you need to make an informed decision about selling your home, while offering a little background on these companies that buy houses.

In it, we’ll cover the following:

A computer used to find a house-buying company.
Source: (Aleksander Vlad / Unsplash)

What is a house buying company?

As the name implies, these companies buy homes directly from homeowners. The main benefit for sellers is that home-buying companies, by way of paying for a house from their cash reserves, can offer a much faster, simpler process than a traditional mortgage-backed sale. As of mid-2021, selling a home to a buyer who’s using a loan takes an average 51 days — but a cash offer eliminates the mortgage process, slashing the closing timeline from months to weeks, or even days.

Working with a house buying company may appeal to anyone going through a divorce, moving for a job, or needing extra cash. Others may be uncomfortable with showings and would rather request a cash offer for privacy reasons. Some house buying companies are also less picky about the homes they buy than a traditional buyer would be, offering a helpful solution for homeowners who lack the funds to repair and update their properties for the general market.

What are the different types of house buying companies?

Not all house buying companies are the same. These entities can range in size, areas-served, and business goals. Some have the funds and experience to flip homes with major flaws. Others prefer to buy homes in better condition and make only light repairs. Below we provide an overview of the main categories of house buying companies you’re likely to encounter in the market today.

1. House flippers

House flippers are the real estate investors that transform properties from beasts to beauties. These companies purchase properties at a discount with the intention of remodeling to add value, then resell those properties quickly for a profit. House flippers look for where specific improvements — such as cosmetic updates, mechanical repairs, an addition, or a change to the layout — would immediately boost the equity.

Flippers aim for a 10% ROI at minimum

While some house flippers may only turn over a few properties annually, others flip at scale. Over the past five years, Doug Van Soest, who owns a home-buying business in Southern California, has purchased an average of 40 to 50 homes per year. While the amount he makes from reselling a home varies depending on the market and condition of the house, he says he typically aims for at least a 10% return on his investment.

Hot market causing delays

“We try to turn around houses and sell them as fast as possible,” shares Van Soest. “Normally, that’s very important, but it depends on the market. Right now, the market is really hot, which means all the contractors and sub-contractors are busy, so it’s taking twice as long to fix up the typical home. I’m okay with that, because prices are still rising.”

House flippers are everywhere

All major cities and most mid-sized metro areas have several house-flipping businesses, and you’ll also find some lower-volume companies in smaller cities and towns. One of the best-known U.S. house-flipping companies is HomeVestors (otherwise known as “We Buy Ugly Houses®”), which has franchises all across the country. 

2. Buy-and-hold companies

Buy-and-hold companies purchase houses with the intention of renting them to tenants for a profit. “Similar to flippers, they will look to acquire properties that offer enough potential equity or cash flow that they are able to make an acceptable return on investment for their owners or stakeholders,” explains Owen Dashner, owner of Red Ladder Property Solutions in Omaha, Nebraska.

Some buy-and-hold investors are smaller, mom-and-pop operations that do their own property management and repairs to save money, while the two major U.S. companies, Invitation Homes and American Homes 4 Rent, may have in-house teams to handle various aspects of the business and may have sizable overhead.

Most of these types of investors use the “BRRRR” model, which stands for “Buy, Rehab, Rent, Refinance, Repeat.” Because they tend to focus on multi-family buildings and other types of rental properties, buy-and-hold investors can be found in almost any city. 

3. iBuyers

An iBuyer, also known as an instant buyer, is a business that uses real estate market data and technology to make immediate offers on houses, sight-unseen, after being contacted by an owner. Some of the best-known iBuyers today include Opendoor, Redfin, and Zillow.

Here’s what you need to know if you’re thinking of selling to an iBuyer:

Expect service fees

Most iBuyers are fee-based companies that focus on buying houses that don’t need a lot of work. Good news: the service fees iBuyers charge have dropped. Data from a zavvie report on seller preferences indicates that between 2019 and the first quarter of 2021, they cut fees from 7.6% to 5.1%. For many individual sales, fees were as low as 1-3%.

Receive a competitive offer

In today’s hot seller’s market, iBuyer offers tend to be close to, or match, a home’s actual market value. While the average amount of their offers dipped a bit during the early days of the pandemic, zavvie’s report shows they’re now higher than ever— sometimes even exceeding traditional Realtor-driven deals.

“We’re seeing very competitive offers from iBuyers that are close to, and sometimes above, what a traditional open market sale would bring,” says Rick Ruiz, a top performing agent in Las Vegas who’s worked with larger iBuyers and other investors. “Their momentum is actually gaining in our market because the biggest objection to them used to be lower seller proceeds for convenience.”

Find them in major cities

Currently, iBuyers operate primarily in larger metropolitan areas, so they may not be an option in smaller cities or rural communities. According to a recent NPR article, iBuyers are partial to large subdivisions with cookie-cutter houses whose similar looks and amenities make them easier to price and resell.

Repairs aren’t off the table

Once an offer is accepted, an iBuyer will send out a representative to inspect the home’s condition. If any repairs are needed to bring the house to market condition, many iBuyers will request a credit at closing to cover those expenses.     

4. Trade-in companies

You’ll also see different variations of what’s known as the home trade-in business model. Some trade-in companies will offer to buy your current home, freeing up your funds to buy a new home and removing the need for a home sale contingency. Sometimes these companies will let the homeowner rent the new home until the old one sells. A few examples of today’s top house trade-in companies include Knock, Ribbon and HomeLight.

HomeLight’s Trade-In program will work with your real estate agent to make an offer on your current home — and guarantee it. We buy your home at that guaranteed price so you get the cash to close on your dream home and control when you move. We then work with your agent to list your past home. If your home sells for more than the price HomeLight paid for it, we give you the additional cash minus selling costs and program fees.

(FYI, HomeLight Trade-In is currently available in California, Colorado, Florida, and Texas. We’ll be launching in other states in 2021. Enter your information here to be notified when HomeLight Trade-In launches in your area). 

5. Local investors

Some home buying companies focus on purchasing houses in specific states or cities. Learn more about some of the different types of local investors below:

HomeVestors (aka We Buy Ugly Houses®)

Type of house buying company: House flipping franchise

With over 1,150 independent franchisees in 47 different states, HomeVestors sends a local representative to check a home before making an offer. The company buys homes in any condition, making it an attractive solution for sellers with run-down homes they don’t have the funds to fix themselves.

Invitation Homes

Type of house buying company: Large-scale single family rental investor

Invitation Homes is a publicly traded company valued at $21 billion that operates in 16 cities, with a heavy concentration in Atlanta. It makes competitive cash offers on homes in desirable neighborhoods to convert into profitable rentals.

HomeGo

Type of house buying company: House flipper specializing in homes needing repairs

HomeGo serves mid to large-sized cities in a dozen states, primarily in the South and West. The company relies on in-person visits to assess the condition of a home and its value, then makes an offer on the spot.

Express Homebuyers

Type of house buying company: Offers fast cash for unwanted homes

Working in 25 states, Express Homebuyers purchases a variety of houses, including condemned homes and those in need of serious repairs.

A phone used to research house buying companies.
Source: (Al Hakiim / Unsplash)

How to connect with a reputable house buying company

With so many different types of buyers and investors clamoring for properties, it can be difficult to determine the best one for your home. “When something sounds too good to be true, or a company’s buying process seems confusing or involves too many ‘what ifs,’ those could be red flags,” says Van Soest.

Request an offer online

As a starting point, we’d recommend looking at HomeLight, which provides cash offers through our Simple Sale platform. Our company has more than 500 BBB reviews with an average 5-star rating and offers an easy and low-hassle online home-selling experience.

In essence, 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.

Here’s a recap of how selling through Simple Sale works:

  1. Enter the address of your home and answer a few quick questions about it.
    Tell us: Does your rural ranch-style home or high-rise condo in the city need a little work, a lot of work, or none at all? How soon are you looking to sell? It could be ASAP or in 12+ months. Our easy questionnaire makes getting set up on the platform a breeze.
  2. We’ll provide an all-cash offer in as few as 48 hours.
    Skip the showings that leave you wandering the neighborhood or waiting at a coffee shop for hours on end while buyers view your home. You won’t be obligated to accept any offer you receive. If you’d like, HomeLight can also introduce you to a top real estate agent in your neighborhood for an expert opinion on what your home is worth. Feel free to check out our Home Value Estimator for a quick property value check-up as well.
  3. You sell your house in its current condition.
    A 2021 study we conducted found that on average, sellers spend more than $5,000 prepping their home for the market. But with Simple Sale, you can avoid additional repairs, prep costs, agent commissions, or hidden fees. Dated countertops or old plumbing are often of no issue; our platform will provide a full cash offer for homes in almost any condition.
  4. You can sell your house fast for cash in as few as 10 days.
    A 10-day closing translates as getting your home sold in some cases five times faster than with a buyer who needs financing in today’s market. According to the latest data from Ellie Mae, purchase loans are taking an average of 51 days to close as of mid 2021. You’ll have the ability to pick a move date that works best for your schedule, too. That’s the ease of Simple Sale.

Simple Sale client Baohan Wu turned to HomeLight because he wanted an option that was “quick, painless, easy and offered flexibility.” Simple Sale ticked all those boxes.

“I’d heard horror stories about other iBuyers doing a home inspection and taking a lot of money off for repairs,” he shares. “HomeLight didn’t do that — they gave me a very fair inspection, took zero money out and asked me when I wanted to close. That was it. Easy as one, two, three.” 

Agent as deal-maker

At first glance, it might seem that a seller would choose a home-buying company as a means of avoiding real estate agents’ commission fees. But as these types of companies grow in popularity, many Realtors are choosing to work with them as a means of getting quicker sales for their clients.

“For me, the only challenging part of working with the smaller home-buying companies is that there are sometimes title hang-ups,” says Cheesette Cowan, a top real estate agent in Tampa Florida who has worked with many property investment businesses in her local market. “But the process is still faster than a traditional sale.”

She estimates that her sellers get about 4%-5% less than they would have on the open market, but in the long run the benefits — like quick closings and extended move-out dates — make it a worthwhile trade-off for some.

Ruiz, as a top real estate agent in Las Vegas, views his role as that of a guide who can help clients navigate different cash options and choose the best one for their needs. “These days, real estate agents really need to be well-versed in the different silos of business that exist in the market so we can add value to the consumer,” he says.

Working with companies that buy houses

If the direct home-buying model has piqued your interest, you’re probably wondering how to get started and what the steps will look like. Although every company might be a bit different in their approach and requirements, you can expect a process similar to the following:

  1. The seller (or the listing agent) contacts the house buying company to discuss the potential for purchasing the home. The company gathers some basic information about the property.
  2. The company schedules a walk-through inspection of the home to gauge its condition and to check for necessary repairs.
  3. The house buyer determines the market value of the home after accounting for repair costs, known as the after-repair value (ARV). “While iBuyers will use an AVM, most house buying companies will do a comparative market analysis similar to a Realtor to determine what your home can be resold for after repair,” says Robert Taylor, an experienced rehabber in Sacramento. “They’ll then deduct for commissions, resale costs, and repairs, plus a small profit margin.”
  4. An offer is presented to the seller, including a price for the property as well as a proposed closing date and any other terms of the sale.
  5. After any negotiations are made and the seller and seller’s agent accept the offer, the closing date is set for completion of the transaction.
Cash used to buy a house.
Source: (VIKTORIUS-73 / Shutterstock)

Pros of using a house buying company

Still not sure if you’re a good candidate for working with a home-buying company? Read on for some of the most notable benefits of this arrangement:

A fast, quick sale

Most property investors buy houses with cash, which means there is no bank financing and no lender to require an appraisal. The overall closing time frame is considerably faster than a traditional sale. “If everything aligns perfectly, and all the paperwork gets signed quickly, 10 days is doable, but two to three weeks is more realistic,” says Van Soest. “That’s still pretty fast.”

Sell ‘as is’

A traditional buyer is more likely to want a home to be “move-in ready,” and may ask for concessions for carpet that needs to be replaced or mismatched appliances. But a house-buying company likely won’t be deterred by old, outdated aspects of a home, as there’s a good chance they don’t plan to live in the home and will make the improvements in preparation to rent or re-sell.

Less stringent inspections

The home inspection usually ranks right up there with the appraisal as one of the most stressful aspects of selling. But when selling to an investor, the inspection process isn’t nearly as exhaustive as with a regular buyer who plans to live in the home.

No staging or prep

When selling on the open market, there’s an interminable cycle of cleaning, staging and showing, over and over for an indefinite amount of time. When selling to an investor, you won’t need to keep the house pristine and show-ready or accommodate a parade of strangers coming in and out of your home.

Most of the day-to-day inconveniences of having a house on the market — like hiding pets, putting away family photos, and disrupting your schedule to make yourself scarce — are no longer factors.

Flexible move-out dates

Traditional buyers are often looking to move into their new home as quickly as possible, but a home-buying company will in most cases allow some flexibility in the seller’s move-out date. They may even agree to rent the property back to you (in what’s called a sale-leaseback transaction) for a period of time until you find your next home. 

Potential cons of selling to a property investor

The key is to weigh the advantages against the potential drawbacks of selling to a property investor:

Lower-priced offers

Home-buying companies are usually looking to get a price that’s below market value in exchange for paying in cash, closing quickly, and offering more flexibility than in a traditional sale. Although you may sacrifice a bit off the sale price, your net proceeds may end up being comparable in the end if you consider the savings on home prep and agent commissions.

Less competition for your home

When you request an offer from a house buying company, you miss out on the chance to start a bidding war on your home or receive multiple offers to drive up the price. In addition, a buyer who plans to live in your home will be more likely to let emotions play into their decision, as they’ll imagine family dinners and making memories when they craft their bid. A house buying company will view the property with an objective business lens, making it less likely that they’ll sweeten the price based on sentimental value.

Scam risk

Although most home-buying companies are legitimate, some are not. There’s always a chance of getting caught up in a scam with an underhanded person or company posing as an investor. To avoid this, Van Soest advises reading reviews on sites like Google or Yelp. Any company with more than one or two reviews is probably the real deal. Checking to see if they have a Better Business Bureau account, and whether they’ve received complaints and responded to them, are also musts.

FAQs about companies that buy houses for cash

We’ve already covered a lot of ground in our exploration of house buying companies and the cash-buying real estate landscape. However, you may still have some lingering questions, which we aim to address below.

1. Is a home-buying company the right choice for you?

The answer depends on your individual circumstances and goals. Different home-buying companies serve different types of homeowners.

2. What are the main reasons for selling to a homebuying company?

How you choose to sell your home is always a personal decision, but here are a few scenarios that could make working with a house buying company seem more appealing.

  • You’re relocating for a job or other time-sensitive life change.
  • You inherited a home and want to liquidate that asset.
  • You don’t want to deal with the hassle of staging and showings.
  • You lack the time, budget or motivation to make needed repairs.
  • You’re selling a problematic rental property.
  • You want to avoid going into foreclosure.
  • You found your dream home and need to make an offer fast.
  • You need cash to get out of debt.
  • You’re going through a divorce.

3. Which house buying site is best?

Remember that your house may be a better match for certain house buying companies and not so much for others. iBuyers are a sound option for those selling properties in good condition at a certain price point, rental investors are well-suited to those with rentable properties in high-yield areas, and house flippers are typically seeking distressed properties. We’d recommend requesting an offer through Simple Sale, which provides offers for a variety of property types.

4. What are the best alternatives to house buying companies?

Selling to a house buying company isn’t the only route to a quick and easy transaction. Partnering with a savvy real estate agent can make the process almost as fast and help you avoid the pitfalls of the typical finance-driven sale. A knowledgeable agent who understands your goals can guide you with pricing, marketing, and connections to local investors or qualified individual buyers who are eager to buy a home like yours and close the deal fast.

5. Are “we buy house companies” legit?

In most cases, the answer is “yes.” But do your homework to confirm a company is trustworthy.  Check for Better Business Bureau membership and reviews. Ask for proof of funds to show they actually have the money to buy your home. Request references from previous clients. And never make any kind of up-front payment before getting an offer.

6. Is Zillow still buying houses?

Yes, through Zillow Offers, currently available in larger cities in 25 states. Zillow Offers purchase newer homes in good condition in areas where they can resell them quickly . While initial offers tend to be close to market value, post-inspection final offers are often significantly lower. In addition, Zillow Offers usually charges a service fee of about 5% for repairs and closing costs.

HomeLight’s Simple Sale offers similar benefits with coverage all over the U.S.. In addition, your home doesn’t have to be in mint condition or in a desirable location for you to take advantage of a stress-free, cash sale. A unique benefit of Simple Sale is that we’ll present you with a cash offer alongside an estimation of what you could earn on the open market with the help of a top agent.

7. How long does a cash sale take?

Most cash sales close in 10 days to couple of weeks. Issues that arise on the seller’s end, like title glitches, problems with loan payoffs, or needing to go through probate on an inherited home can slow the process.

8. What closing costs does a cash buyer cover?

Typically, cash buyers pick up all the closing expenses associated with a sale, including escrow and title costs. Costs that aren’t covered include anything that’s owed on the home, such as property taxes or mortgages.

A home purchased by one of the house buying companies out there.
Source: (Vlado Sestan / Unsplash)

The final word on house buying companies

In today’s sizzling sellers’ market, a home in the U.S. takes around 17 days to go under contract. That’s fast, but you still need to factor in another 51 days to close with a loan. And beyond the typical back-and-forth negotiations and buyers’ fickleness, there are countless hurdles that can drag out a deal or even derail it altogether.

If you’re intrigued by the idea that a house buying company could offer to buy your house tomorrow, but a little skeptical of what their intentions are and if you’d be happy with the outcome, hopefully this guide cleared up the main points of confusion. For more information about your local market, we’d be happy to connect you with a top real estate agent in your area. Alternatively, get started with your home sale today by requesting a cash offer through Simple Sale.

Header Image Source: (fizkes / Shutterstock)