Are 'We Buy Houses' Companies a Rip-Off?

If you're looking to get top dollar for your home, you're probably not going to get it from a 'we buy houses' company — but that doesn't necessarily mean they're a ripoff.

In a situation where you've fallen behind on your mortgage or need to quickly offload a home that needs major repairs, a fast cash offer might be your best option — but be prepared to leave some money on the table.

• As a general rule of thumb, 'we buy houses' companies offer between 60–80% of a home's after repair value — what they think it'll be worth after fixing it up — minus the cost of the rehab.
• "We determine the resale value of the property, then multiply that resale value by 75%, and then deduct the renovation cost to achieve that resale value from its current condition," explains Charles H. Chandler III, who has purchased more than 300 properties as CEO of My Tennessee Home Solution.[1] "That final number gives us our offer amount."

Investors need a steep discount on the purchase price to make a profit when they resell the home at market value later on. So if a home could sell for $300,000 after $30,000 in repairs, an investor might offer $180,000 for it. However, if your home needs a lot of work, that may be the best price on the table.

Your best safeguard against getting ripped off by a 'we buy houses' company is to know your home's 'as is' market value and compare multiple offers to get a realistic idea of what cash buyers are willing to pay.

Free services like Clever Offers can help you gather multiple competing offers from legitimate cash buyers. They also provide you with a professional home valuation and one-on-one support to ensure offers are fair and investors follow through on their end of the agreement.

If you want a convenient way to compare offers, we recommend starting with Clever or looking into other well-rated companies that buy houses for cash.

Is selling to a 'we buy houses' company a good idea?

"The only time you should sell to a cash buyer is when you have some reason when you need to handle it fast," says longtime real estate investor Don Chambers. 

In fact, Chambers says that most sellers who reach out to him ultimately decide not to sell to him at all. Of the roughly 25 people per month who submit their information through his website, he closes on approximately one home every two months. "Most people get the agent," he says. "They want to try to get market value."

"With an agent, it's going to take six weeks, three or four months, maybe. But if you get an agent and list it on the MLS, you're going to expose it to many more buyers. And when you get more buyers, you'll get a higher price," Chambers says.

Plenty of data supports Chambers' opinion:

• In recent months, investors have paid a median purchase price of $260,000 for homes, while the typical U.S. home sale price has hovered around $440,022.[2]  
• The average flip takes 161 days to complete and results in $60,000 (+23.1%) gross profit for the investor. In about 22% of markets, flip sells for at least 50% more than the investor's original purchase price — representing $100,000 in gross profit for every $200,000 spent on a home purchase.[3]
• A study of probate home sales conducted by Maker Real Estate found that properties sold on the MLS earned estates an average of $49,000—110,000 more than selling directly to a 'we buy houses' company.

That said, there are a few scenarios where selling to a 'we buy houses' company may be a viable option.

"Usually the sellers have inherited a home and don't live here. They just want to get it over with because they've got creditors to pay off and attorneys that are charging fees, and they just want to get everything settled," says Chambers. "That's the most common reason."

Problematic tenants, unprofitable rental properties, foreclosure situations, a home in poor condition, and concerns about privacy (i.e., not wanting a lot of people coming in and out of the house) are other common reasons for seeking out a cash offer, the investor says.

However, "if someone just wants to skip out on agent fees, I would not recommend calling an investor, because offers will be lower than just what the agent fees are," says investor Brian Harbour.

In situations where selling to cash buyer makes sense, a legit 'we buy houses' company can typically offer:

• Speed: Currently, it takes an average of 105 days to sell a home in the U.S., and 24% of sellers have to drop their price in order to secure a buyer. Legitimate cash buyers can provide a firm cash offer in 24–48 hours and close in just 1–3 weeks.[2] 
• Certainty: If a property needs a lot of work to make it livable, lenders may not agree to finance a mortgage on it. Therefore, your buying pool may be limited to cash investors and bargain hunters willing to take on a project. Investors can generally close on properties that other buyers would have trouble getting financing for.
• Convenience: Cash buyers purchase homes as is, letting you skip the repairs and move on while avoiding some of the time-consuming steps in a traditional home sale. Many cash buyers offer flexible closing dates and the ability to leave unwanted things behind.

Video: How 'We Buy Houses' companies work

What is the best company to sell your house to?

The best company for you will depend on factors like your home's condition and location, as well as your situation and priorities as a home seller. 

• If your home is in decent condition, but you want to avoid the hassles of the traditional listing process, you could consider selling to an iBuyer. iBuyers are large companies that purchase and resell homes mostly in larger metro areas. You can get an offer in 24–48 hours and close in as little as 1–2 weeks. iBuyers also typically pay more than cash investors looking for fixers at a bargain, but they they're also far more selective with the homes they buy. And, iBuyers like Offerpad and Opendoor have also scaled back significantly on both the number of homes they're purchasing and the amounts they're paying for them.
• If you're under financial pressure, have a home that needs a ton of work, or you just need to get rid of a property fast, a cash investor can provide an easy out. But keep in mind that investors typically pay significantly below your home's market value. How much depends on the market and property type. In competitive markets, investors may pay up to 75–80% of a home's after-repair value (ARV), while in slower markets, they may offer as little as 50–60% of ARV, according to survey data collected by Clever Real Estate from active investors nationwide.[4]
• If you want an easy way to see if a cash offer is legit, you can use an offers marketplace to quickly get competing offers. Marketplaces like Clever Offers help you compare multiple cash offers and other sell-fast alternatives side-by-side. Cash buyers are pre-vetted, making them a safer and more efficient option than fielding cash offers on your own. Most are free to use and there's no obligation to accept the offers they bring you. 
• If you want to avoid repairs without sacrificing your bottom line, you're likely better off selling as is. When selling your house as is, an agent will list and market your home with the caveat that you won't make any repairs. An as-is sale can net you significantly more than selling directly to a 'we buy houses' company, even if your home needs work. And, you can set a deadline for accepting offers to ensure your home sells fast.

📍 Find trusted cash buyers near you

Our research team has evaluated more than 3,700 companies to find the best cash home buyers across the United States. Options range from iBuyers like Opendoor to local 'we buy houses' companies. Select your market to browse top-rated buyers in your area.

'We buy houses' scams to watch out for

Even though there are lots of legitimate cash buyers out there, scams do exist.

As a home seller, there are a few common cash-buying scams that you should be aware of:

• Email phishing: Someone sends an email to you with an all-cash offer and requests more information, like where to wire money. In the end, they end up using the information to access your account information and withdraw funds.
• Up-front fees: The cash buyer requests that you pay a fee or put down a deposit before they proceed with buying your home. In all likelihood, the buyer intends to keep your payment and then cancel the deal. A legit investor will typically be the one to put down a deposit and cover the closing costs.
• Equity skimming: A more elaborate scam in which the investor buys a property from a distressed homeowner, and then promises to let them buy it back when they're able. Instead, the investor refinances the home and takes out all of the equity.
• Foreclosure relief: The supposed buyer contacts a homeowner facing foreclosure and promises to negotiate with the bank to pay off mortgage delinquencies in exchange for an upfront fee. Instead, they take a few months of payments from the struggling homeowner, then break contact without ever speaking to lenders. The homeowner loses their home and the “rescue” fees paid to the investor.

More 'we buy houses' red flags

🚩 A buyer who doesn't visit the property before making an offer

Igor Avratiner of We Buy Houses in Philadelphia advises caution if a buyer offers to purchase a property before actually seeing it and doing a home inspection. It's a deliberately misleading practice he's seen growing in his market:

"Once the agreement is signed, then they send an inspector out," says Avratiner. "And a very high percentage of the time the inspector will find some things and they'll renegotiate with the seller — knowing that half the people will just tell them forget it, but the other half might actually stay on board for the ride." The hope is that the time and energy the seller has already sunk into the deal will compel them to keep moving forward, he explains. 

"All of this due diligence should be done before we sign a deal," he says. "If an investor says they're going to have their inspector or contractor come out to evaluate the property after an agreement is signed, it's a good indication that they're going to try to lower their offer later on.

🚩 Contingencies that let the buyer out of the contract without penalty

Before signing anything, says Avratiner, "you really want to look at the contract, and you want to understand 'what are the contingencies?'" 

Contingencies are clauses in a purchase contract that allow the buyer or seller to back out of a deal under certain conditions. Often, they protect buyers from having to follow through on a home purchase if a serious issue is discovered during an inspection or if they're unable to qualify for a loan due to underwriting or appraisal issues. 

However, in the case of less ethical 'we buy houses' companies, contingencies can be abused.

Avratiner describes a situation wherein had offered a seller $50,000 for a property in pretty rough shape. The seller declined, saying another buyer had offered $90,000. Forty days later, the seller called Avratiner back. At the end of the contract period, the other buyer had threatened to cancel unless the seller accepted $35,000 — less than half the original offer. "He showed me that contract," says Avratiner. "It literally said 'buyer can cancel the agreement at any time for any reason.' That contract wasn't worth anything."

🚩 Unwillingness to put down a significant deposit

According to Avratiner, an investor should typically put down 1-2% of the purchase price on a house when going under contract — the equivalent of $1,000–2,000 on a $100,000 house. Buyers unwilling to risk this much earnest money may not be serious about following through on their offer.

Chambers recounts buying a $400,000 home from a woman whose husband had recently passed a way. A wholesaler had put the house under contract with just $50 in earnest money — and then, Chambers says, never even delivered that. The deal fell apart, leaving her with months lost and nothing to show for it.

🚩 Pressure to sign a contract before you've had it professionally reviewed

"Some investors try to sneak in unfair contract terms like unreasonably long due diligence periods, low earnest money deposits, or clauses that can get them their earnest money back even if they cancel," explains Chambers. 

A real estate attorney or realtor can spot loopholes that leave you unprotected and without compensation should the deal fall through. Buyers who try to get you to sign a contract before you've done this type of due diligence are a strong red flag.

How to tell if a cash buyer is legit

Selling to a cash buyer can be a fast, low-hassle experience — but the industry has its share of bad actors. Here's what to look for before signing anything with a 'we buy houses' company.

• Check out the buyer's reputation. "Sellers should ensure they’re dealing with reputable investors by checking reviews, BBB profiles, and...testimonials," advises Chandler III. A professional website that lists employees you can verify work for the company on LinkedIn are also positive signs.
• Find out if you're dealing with a wholesaler. Some investors who market themselves as direct buyers are actually wholesalers — they'll put your home under contract and then sell that contract to another investor using what's known as an assignment clause. Language like "buyer and/or assigns" in a contract is a telltale sign of this arrangement. Wholesaling isn't inherently problematic, but it adds another party to the transaction and can introduce loopholes that let the original buyer walk away if their investor falls through. Buyers should disclose their intent to wholesale upfront and put safeguards in place so you're protected if their buyer falls through.
• Ask for proof of funds. Proof of funds can come in the form of bank statements, a loan pre-approval, or a letter from a financial institution indicating the amount of funds the buyer has available. "A legitimate investor should readily provide these," advises investor Efrain Lopez of House Love Treatment Buyers.
• Read the contract carefully, especially the contingencies. Escape clauses that allow the investor to cancel at any time, or contingencies that let them renegotiate up until closing can signal a bait-and-switch or a buyer who was never serious to begin with.
• Make sure there's a meaningful earnest money deposit. Serious buyers typically put down 1–2% of the purchase price — sometimes more in competitive markets. That money should be deposited into a third-party escrow account within 1–3 business days of signing, and the contract should specify conditions under which the buyer forfeits their deposit (e.g., if they back out after the inspection period).
• Be cautious if the buyer wants to do due diligence after signing. A buyer who makes a firm offer without seeing the property first, or who schedules an inspection only after the contract is signed, may be setting up to renegotiate the price later. All meaningful due diligence — walkthroughs, inspections, comparable sales analysis — should happen before you sign anything, not after.
• Get more than one offer. Perhaps most importantly, get competing bids before accepting an offer from a cash buyer and look over the contract terms (not just the offer price). Increasing the competition over your home is the best way to boost your sale price and ensure that a buyer is offering you a fair deal. Platforms like Clever Offers can help you compare legitimate offers quickly.

Bottom line: Are 'we buy houses' companies a rip-off?

"We buy houses" companies aren't necessarily a rip-off — but they do make money by buying low and selling high. Understandably, some homeowners have felt ripped off after accepting a cash offer and then finding out their home was worth a lot more. 

Additionally, cash-buying scams do exist, so look out for offers that come out of the blue from individuals or entities whose identity you can't verify.

You should also take note of red flags — such as vague contract terms or inability to provide proof of funds — that may signal unethical practices when dealing with a cash buyer. 

If you'd prefer the speed and simplicity of a cash offer, but want to be sure you're getting a fair deal, we recommend starting with Clever Offers. With Clever Offers, you can compare cash offers from multiple vetted investors or test the waters with a no-obligation 7-day MLS listing — allowing you to sell as is for the highest possible price. Answer a few quick questions and start comparing offers, with no added fees or obligation to move forward.

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