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 Opendoor and Offerpad.
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 Buy Before You Sell, you can unlock equity from your current home to put toward the down payment of your new home, moving expenses, closing expenses, or property repairs. Buy Before You Sell 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.
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 fare well 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 (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.
