Undoubtedly you have probably seen commercials on TV about companies that want to buy your house. Companies like Knock, Opendoor and Offerpad and countless local investment companies. So what’s their deal? Do they really buy houses in any condition? That and more we are about to cover.
Are They For Real?
For the most part, yes. Most of these companies that you talk to or contact are legitimate business’. But just like everything else in life there are scammers and fraudulent people out there looking to take advantage of you. You have to be sure you are dealing with a company that is on the up and up. If they ask for a fee upfront – run.
So Who Are They?
Clark.com gives an excellent description of just who these companies are;
In many cases, these “We Buy Houses” companies are real estate investment firms or individual investors looking to make a quick buck by flipping your home.
If you have a home that investors are interested in, should this be a case of “seller beware?” Not necessarily. At its most basic level, the root of any transaction is based on how motivated either a buyer or seller is at the moment.
In many cases, companies that specialize in fast home sales fill a niche that serves to remove old and vacant homes from the market, oftentimes transforming them into neighborhood gems.
To hasten the transactions, many of these investors will offer cash money. Not only do greenbacks help to reduce the processing costs of a real estate deal, but they motivate the seller to lower the price.
A lot of these companies are backed by big hedge funds and are buying up a lot of real estate all around the U.S.
Advantages VS Disadvantages of House Buying Companies
Selling your home to one of these companies is not for every seller. True they are changing how people buy and sell homes, but they only constitute about 10% of all home sales. Why? Because in most cases the seller is going to receive less money than they would if they listed it with an agent.
However, if your home is in need of repairs or if you need to sell quickly for some reason, they may be an alternative for you to consider.
- It’s Fast – These types of buyers are paying with cash, so the closing process is much quicker. There’s no loan involved and lengthy paperwork.
- No Commissions – It cuts out having to find a good realtor and having to pay them. This can be beneficial if your home is in need of work in which case you would not be getting as much money anyhow, only to have to pay 5 to 7% of your selling price.
- Sell Your Home As Is – You can sell your property practically in any condition. Some of the bigger companies may want you to make repairs while others will buy it just the way it sits.
- Less Money – Like we stated above, you are probably going to get less money than you would if it were listed with an agent. But again, this all depends on the condition of your home.
Bill Gassett goes on to make another good point –
Even homes that are in relatively bad shape can often be improved to attract better quality buyers. In fact, that is probably what the house flipping company is planning on doing with your home.
They will buy it, fix it up, sell it and make a nice profit. When you sell with a real estate agent, you get to make the improvements and reap the rewards. An outstanding real estate agent will be able to guide you on the best improvements for increasing home value.
So if at all possible it may be best for you to invest the money into your home so that you can get the most from a sale.
How Much Can You Expect To Get From A House Buying Company?
The amount that you will receive will vary greatly depending on the company that you contact. So how much can you expect to get? Check this out from Investorwize –
Back in the old times, before iPods and Britney Spears, we used to refer to these businesses as EPs, meaning equity purchase businesses. These cash buyers need a fair amount of equity to work with. These companies will need to negotiate the best price feasible based off the after repaired value (ARV) of the home. To find out your net profits of deal, first consider the following:
Your offer will probably be less than 80% of the market value of your home’s minus any repairs that are needed. Remember this is the After repaired value not the current value. This means that if the investor can find a way to improve the property value above what it is currently worth you may be looking at getting more than you expected for the deal. In cases like this it can happen only if the property needs extensive repairs and you have sufficient equity to support the agreed purchase price.
We have heard stories of some of these companies going as low as 50% of the ARV! On the flip side we have heard of some going as high as 80%, while the norm seems to be around 70 to 75%.
Is Selling Your Home To A We Buy Houses Company Right For You?
If you are like most home owners in the U.S., probably not. Your best bet is going to be listing with an agent and waiting for a qualified buyer that wants your home. But, if you are in a hurry, have a need for cash fast, well, they might be an option. Just be sure to do some research on the company before you sign on the dotted line.