If the prospect of selling your home seems daunting and arduous, you may want to consider a house buying company, such as an iBuyer, real estate investor, or house flipper. However, if you’re like most sellers, you also want to get the highest return on your investment and approach the transaction with confidence in who you’re dealing with. Going with a house buying company is definitely not a one-size-fits-all approach, but could be a viable path for some situations.
Seasoned real estate agent Alyson Gulassa works with the North Carolina-based Ginger Vereen Peters brokerage team, which sells homes more than 57% quicker than the average Raleigh-Durham area agent. She advises sellers to keep house-buying companies on their repertoire of options and shares insights about when to consider using one.
Although the difference in sale price between selling on the open market and selling to a house buying company can vary widely even from one neighborhood to the next, according to Gulassa, using one will likely mean leaving some money on the table. For this reason, she says selling to a house buying outfit makes more sense as an option for sellers whose primary focus isn’t maximizing their return on investment.
“It definitely depends on what a person’s motivation is for selling the property,” Gulassa explains. “The cases I see where it makes the most sense to target that type of iBuyer (instant buyer) or investor type buyer is when someone is in a situation where they need to move quickly and money is not their primary focus.”
Circumstances that require a fast sale
Scenarios arise such as a death in the family where out-of-state relatives are suddenly burdened with the task of selling a property from a distance, or couples going through a divorce who want a quicker exit strategy. Another situation could be a seller who lacks the time and energy to update the property, get it staged, and deal with the inconvenience of showings. In such circumstances, house buying companies can help facilitate an easier, faster-selling process.
The catch is that you’ll end up selling for less, and although there’s no way to know exactly how much less, Cliff Auerswald, president of All Reverse Mortgage, Inc., says that you should only expect to yield about 70% of your home’s market value. Depending on the particular market and the company you choose, the number could be considerably higher or considerably lower. We’ll share some example yield comparisons later in this post.
What is a house buying company?
House buying companies have proliferated in recent years and pose a very different experience for sellers compared to the open market. Though there are several different types of house buying companies, one essential commonality is that they’re a business entity seeking to make a profit off of home purchases, not individuals or families wanting a place to live.
These companies buy homes directly from homeowners, and the reputable ones will have ample financial reserves enabling them to buy with cash. This results in a faster, simpler transaction for the seller who doesn’t have to worry about staging or repairs, or potentially finicky open market buyers looking to purchase a home with a traditional mortgage that takes time to close.
The increasingly competitive real estate market has enticed an array of new house buying companies into existence, effectively speeding up the market. While the average transaction period for traditional mortgage-backed buyers is 51 days as of mid-2021, selling to a house buying company can shorten the time frame to as little as two weeks or less.
How do house buying companies work?
There are five major types of house buying companies that buy directly from homeowners with cash. The most typical companies you’ll find in your search are iBuyers, buy-and-hold investors, house flippers, trade-in companies, and local investors. Here’s a rundown on the company types:
iBuyers: These are tech-driven companies that rely on digital tools to make instant offers on properties. They allow sellers to bypass staging, showing, repairs, and lengthy negotiations by agreeing to buy properties “as is” and may permit flexible closing or move-out dates. iBuyers have become more commonplace with the advent of companies like RedfinNow, Opendoor, and Offerpad. Zillow Offers was a major player in the industry until the end of 2021 when Zillow shut down its iBuyer program.
Buy-and-hold investors: These investors are in it for the long haul as an investment strategy. They’ll typically buy houses with the plan to generate rental income in the interim until market conditions are ripe for maximizing a profit for resale.
House flippers: Popularized by HDTV shows, flippers typically buy properties that need some TLC. These companies will buy relatively inexpensive fixer-uppers, make visible improvements and then sell for significantly higher within a short time frame. House flipping companies are widely available across the U.S. and include cash-for-homes outfits like We Buy Ugly Houses®.
Trade-in companies: A company that provides trade-in services will make an offer on your current home while you shop for your next one, giving you the flexibility to avoid a double mortgage or a gap in homeownership. With a service like HomeLight Trade-In, if your original home sells for more than we paid for it, we give you the additional proceeds minus selling costs and program fees. Trade-In is not available in all states.
Local investors: These are generally small companies or individuals in your community with cash on hand to buy properties to rent, redevelop or resell for a profit.
What other cash offer options are available?
There are other ways to sell your house quickly for cash with similar advantages. HomeLight, for example, provides an all-cash offer for homes in almost any condition through its Simple Sale platform. The platform enables you to sell your home in as little as 10 days.
Simple Sale has a network of cash buyers on its platform, and partner investors have a wide range of investment strategies, including fix-and-flip and buy-and-hold. This enables Simple Sale to provide cash offers for a wide array of properties, even those that need some or a lot of work, in different locations throughout the U.S.
There’s no need for staging, repairs, or renovations. HomeLight provides a cash offer to buy your home without agent commissions or upfront selling costs. Just answer a few basic questions about your home’s condition, how much work it might need, and your selling timeline. You’ll receive a no-obligation cash offer.
How much do house buying companies pay?
How much a house buying company will pay for your home depends on a number of factors, like which company you choose, your neighborhood, the details of your property, and overall market conditions.
The important thing to keep in mind is that — unlike a traditional buyer who may value the home for various reasons like its proximity to good schools, the sunny backyard or charming kitchen — house buying companies are only interested in your house to turn a profit. That’s why you shouldn’t plan to get as much as you would selling on the open market.
It changes day to day with how quickly the market is moving and changing
- Ginger Vereen Peters Real Estate AgentCloseGinger Vereen Peters Real Estate Agent at B & B Realty Group LLC (Keller Williams Preferred Realty)
- Years of Experience 12
- Transactions 1312
- Average Price Point $297k
- Single Family Homes 1064
The 70% rule does not always apply
While some sources say to go with the 70% of after-repair value (ARV) rule to get a sense of how much you’ll get for the sale, the range is much broader than that, with some flippers paying as little as 50% of the after-repair value to some iBuyers paying up to 85% or higher.
Gulassa cautions that it’s very hard to pinpoint an exact percentage of market value due to all the variables, and the only near certainty is that a seller will walk away with less than if they sold on the open market.
“It changes day to day with how quickly the market is moving and changing,” says Gulassa. “We’ve been navigating some things that are unprecedented in our area. I’m not going to say that it’s never the most profitable route because we did see one of the major players in the game offering some very compelling numbers to purchase properties, but that business model didn’t work for them. Some people did take advantage of that and did remarkably well.”
Market value minus repair costs and convenience fees
Marty Morrison, co-owner of Property Bridge Solutions based in Omaha, Nebraska, says that if his team decides to make an offer on a property, it will be based on the fair market value of the house, meaning that they consider the top dollar value minus the work and repairs needed. They also deduct about 10% to 20% from the offer for the seller’s convenience of buying the house with cash, “as is,” with no Realtor® fees or closing costs.
In other words, if the market value of a home is $350,000 and needs about $50,000 worth of repairs, less the 10% convenience deduction would leave the seller with $270,000.
Meanwhile, a home valued at $350,000 in good condition in a competitive market might garner an 85% of market value offer from an iBuyer. After paying the company a 5% convenience fee, the seller could walk away with $282,625.
Predatory companies can exaggerate costs
Some sellers might farewell with these companies, especially if dealing with trying to maximize the sale on the open market isn’t in the cards. However, it’s important to remember that there are predatory companies out there who may try to take advantage of less-informed sellers and exaggerate the cost estimate for repairs or give an unfairly low offer.
A wise seller should do their own research about their property’s value. One initial way to get a ballpark figure is to use HomeLight’s Home Value Estimator. You can also ask an experienced real estate agent to provide you with a comparative market analysis, or CMA. This is a report that many agents provide for free to give you an estimated valuation based on recently sold comparable properties in your area.
What are the benefits of using a house buying company?
One of the main benefits of selling to a house buying company is the speed of the transaction. Generally, selling a home can be a lengthy process that includes spending time and money on repairs, improving curb appeal, staging the home, having to vacate the premises during showings, and waiting on the buyer’s mortgage process, which can typically take a month or more. Selling to a house buying company can eliminate many of those steps.
There are many circumstances in which a seller might prioritize these benefits over maximizing the sale price. For example, sometimes homeowners are facing foreclosure and they want to offload the property before the foreclosure process is complete.
Another seller might have a dilapidated property with code violations. In another scenario, someone might get a job offer in another part of the country and need to sell right away to execute a quick move. Divorce, a death in the family, illness, or disability are also situations where a house buying company could serve as a lifeline during difficulty.
Here are some of the top advantages of using a house buying company:
- Cash offers for those in need of quicker funds
- Closings as fast as 7 to 14 days
- The simple, lower stress process
- Can receive a no-obligation offer
- No need for repairs
- No agent commission is required, though there may be fees
- Can help prevent foreclosure
- Less stringent inspections
- Potentially no contingency clauses
- No staging or showings
- Flexible closings and/or move-out dates
- More privacy with no “for sale” sign is needed in the front yard
- Easily unload inherited or probate property
- Some companies also provide assistance buying next home
- Can help avoid paying a double mortgage or double moving process
What are the potential drawbacks of using a house buying company?
All house buying companies are not created equal, and one drawback could be working with a disreputable company, or one that makes lowball offers. Another potential issue that could arise is dealing with a company with poor financial health, jeopardizing closing the transaction.
Gulassa says she was contacted by homeowners in 2020 who were selling to a house buying company and were under contract to close on a new home in a matter of days. Unfortunately, the company had to terminate operations during that time, putting the homeowners in breach of their contract as they could no longer go through with the purchase. Such situations warrant thorough vetting of companies to ensure that they have the cash reserves necessary to conduct sound business.
Some potential drawbacks of doing business with house buying companies include:
- Lower-priced offers
- Lack of bidding wars between buyers to drive up the sale price
- Convenience fees or hidden fees
- Not necessarily having an agent to represent you
- Potentially falling victim to a disreputable company
- Potential to work with a company that lacks the necessary cash reserves
Despite these risks, one of the best ways to avoid them is to get a real estate agent to represent you during the process, Gulassa says, adding that many sellers don’t realize that they can still work with an agent while selling to a house buying company, but acknowledges that some companies might balk at the notion.
“The biggest thing is to have someone who is well versed in the documents who can catch small things,” Gulassa says. “For example, even though the property tax might be prorated for the year, the company might ask the seller to pay for the whole year. Also, HOA transfer fees are typically paid by the buyer but the company might pass it to you at closing – small things add up.”
Are house buying companies legitimate?
There’s nothing inherently illegitimate about house buying companies – they simply give you cash for your house. However, the world of real estate can be complicated, and a few players may be unscrupulous, so it’s best to do your homework and get connected to an experienced agent who can guide you.
Although real estate agents need a license to operate, investors do not, and their main goal is of course to make a profit. However, any legitimate business needs to establish a good reputation. One way to determine the legitimacy of a house buying company is to research online consumer reviews or talk to other sellers who have worked with them.
You can also search the Better Business Bureau to find out more about a company’s reputation. While house buying companies don’t yet have any specific regulations as a class, they are subject to Federal Trade Commission oversight. Beyond this, here are some red flags that should alert you to steer clear:
- The company wants you to sign documents without reading them thoroughly or seeking third party advice
- They push verbal agreements instead of written offers
- The company promises to sell your property after you sign over the title to your home — this could be a scheme known as “equity skimming” where those facing foreclosure can be scammed by those who offer to help by assuming ownership only to refinance the mortgage, drain the equity and then hit the road
- Your initial offer gets repair deductions that seem inflated
- You can’t access the company’s financial disclosures
- You find an abundance of negative consumer reviews about the company
How can I request a no-obligation cash offer from a company I can trust?
Many house buying companies will offer a no-obligation cash offer upon request. It’s a good idea to make a list of some companies of interest, do online research about their reputation and peruse their websites for information about how each one goes about the cash buying process.
If it’s a reputable company, you can often find an FAQ page on their website that discusses whether no-obligation cash offers are provided, some of the perks of using the service, and any fees involved. The websites will also include testimonials singing the praises of the company, however, it’s best to find reviews from an independent source.
If you’re looking for a no-hassle, all-cash, fast way to sell your home in any condition, then check out our Simple Sale platform first to learn more about the easy selling process.
Talk to a top real estate agent before choosing a house buying company
If you decide to sell to a house buying company and want to maximize your return, your best bet is to work with an experienced real estate agent, says Gulassa. If you go it alone without representation you may end up taking all the company’s claims at face value and walk away with less money than if you had an experienced professional in your corner who knows what’s reasonable in the market.
Keep in mind that house buying companies also have professionals that they work with who look out for their bottom line, so you don’t want to be the only one without expert backup.
According to the National Association of Realtors, 90% of home sellers have worked with a real estate agent to sell their home. Some agents have valuable experience working with iBuyers and investors and can help you navigate the process. About 29% of agents in iBuyer markets have assisted with negotiations to lower repair credits, and another 30% negotiated a longer occupancy period for the seller to remain in the property.
Bottom line: Time vs. money and the home selling experience
As you contemplate how to sell your home, definitely keep a house buying company open as an option, but know that the opportunity of an open market is still out there. While you’ll more than likely leave money on the table by choosing a house buying company, the process may also be considerably faster and easier without having to schedule showings and advertise that your home is for sale to the world.
If situations arise in your life that make convenience and timeliness more important than your bottom line, definitely consider an iBuyer, investor, buy-and-hold investor, or house flipper. You can always get a no-obligation cash offer and decide if you want to proceed or switch gears to the traditional route.
Remember to fully vet the company you choose to work with and consider having an agent represent you to get the most money for your home. 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. A real estate agent will also provide a personal touch.
Find the perfect agent today with HomeLight’s Agent Match tool. It takes just two minutes to match you with the best real estate agents who can successfully guide you through the process.
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