How cash offers work | Ripoff or a scam? | Who it's good for | Alternatives | Experiences from actual homesellers | FAQs
- "We Buy Houses" companies are cash buyers that generally make money by buying low and selling high — this isn't a scam, it's their business model.
- For sellers with distressed properties, an offer from a "We Buy Houses" company might be the only option.
- Cash buying scams do exist, so home sellers should be on the lookout for offers that come out of the blue from individuals/entities whose identity you cannot verify.
Selling to a "We Buy Houses for Cash" company might be a ripoff if your home is worth a lot more money on the open market.
However, because cash buyers can close quickly, selling to one might be a good deal if you're in a situation where you need to sell fast and you can't afford to invest in repairs.
If you request an offer from a "We Buy Houses" company, you should be aware that you'll likely be offered less than fair market value for your home, so it's best to get a realtor's opinion on price before you accept an offer.
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How does We Buy Houses for cash work?
Businesses that advertise "We Buy Houses for Cash" aim to buy cheap properties that are in need of significant repairs so that they can flip them for a profit. One of the most well-known examples of the business model is Homevestors, with their WeBuyUglyHouses trademark.
Here's a quick overview of how cash buyers work:
- Individuals or entities make the homeowner an all-cash offer.
- The offer is generally less than what the homeowner could get on the open market, but these buyers can close quickly.
- In many cases, the cash buyer will cover all or most of the closing costs because they're buying a distressed property.
Some homeowners may feel like working with one of these cash buyers is a ripoff, but depending on your situation, fast cash might be the best option.
Why would you sell to a cash buyer?
- Speed — Cash buyers can close in as little as two weeks. In a traditional sale, it takes 25 days, on average, to sell a house, and another 30-45 days to close.
- Buyers might not be able to get financing — Not only is an extremely distressed property expensive to fix up, it could be difficult to get financing for. If a property is in very poor condition, many lenders won't agree to finance a mortgage on it.
We Buy Houses ripoff vs. scam
A cash buyer might be a ripoff if they're offering you way less than what your house is worth, but that's also how they make money.
Some people who've worked with "We Buy Houses" businesses complain that these companies are a "ripoff" or a "scam." These are pretty bold claims, especially because a ripoff and a scam are two different things.
A ripoff is a bad deal for one party, but it's legal.
A scam, on the other hand, is illegal.
It's important to remember that if a cash buyer makes you an offer that you don't like, you can say no and try listing the house on the open market instead.
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Who are We Buy Houses companies good for?
Selling your house to a cash buyer might only be a ripoff if you have better options on the table that could net your more money. In a competitive market, selling to a cash buyer is more of a last resort than a go-to choice for home sellers.
Here are some scenarios where a "We Buy Houses" company may or may not be a good option:
Sellers who are facing foreclosure and/or have other debt problems.
Sellers whose homes only need minimal prep and repairs before listing.
Sellers with distressed properties that need significant repairs.
Sellers in hot markets where houses easily sell as-is.
Sellers who have inherited a property and don't want to put any money into fixing it up and selling.
Sellers who have a house that's already in good condition — the best value will be on the open market.
"We Buy Houses" scams
Despite the fact that 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, this information is used to steal from you.
- Wholesaling — Someone puts your house under contract, then resells the contract to an actual buyer. This is technically legal, but it can be misleading for the homeseller if the wholesaler doesn't explain who the real buyer is, or if they include a clause in fine print that allows them to walk away if they can't find a buyer.
- Upfront fees — The cash buyer requests that you pay a fee or put down a deposit before they proceed with buying your home. You should never have to pay anything upfront, so don't! In all likelihood, the buyer intends to keep your payment and then cancel the deal.
- Equity skimming — A more elaborate scam in which the investor buys a property from a distressed homeowner, 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 promises to make a deal with the borrower's bank to pay the mortgage for them, then takes a fake fee from the borrower, sometimes for a few months, before disappearing.
What home sellers say about We Buy Houses companies
Reviews of some of the major cash buying companies are mixed. That's probably because the pros and cons of working with a cash buyer really depend on your situation.
A low, all-cash offer might be a ripoff if you know you can get more on the open market, or it might be a life-saver if you need to sell the house quickly and get a little bit of money in your pocket.
One thing to point out about reviews who rant about "We Buy Houses scams" is that they actually mean ripoff, not scam. As we've already pointed out, scams are illegal.
For every negative experience that someone has with a cash buyer, there's an equally positive one, so you can't give too much weight to individual reviews.
Furthermore, there are thousands of individuals and entities that buy houses for cash, so there's bound to be a wide range in the quality of their service.
Positive customer reviews of major "We Buy Houses" companies like Homevestors note how timely and convenient a service like this can be.
Negative customer reviews primarily come from homeowners who complain that a "We Buy Houses" company offered them way less money than they expected for their homes.
Alternatives to selling for cash
If you want an all-cash offer from a buyer who can move quickly, selling to a "We Buy Houses for Cash" company isn't your only option.
- iBuyers — iBuyers only operate in select markets, but they buy houses slightly below fair market value, do minimal repairs, and then sell them for a profit. If your home qualifies and isn't in need of extensive repairs, this might be a good option since most iBuyers can close in as little as two weeks.
- Listing on the open market — If you're in a hot real estate market where homes are selling quickly, regardless of their condition, listing with the help of an agent might be the best way to get the most money for your home.
- Selling "as-is" — With an "as-is" listing, the seller still lists their home on the open market, but they're telling prospective buyers that they won't make any repairs or upgrades before the sale is finalized. An as-is sale might still net you more than a "We Buy Houses" company is willing to pay, and it could even attract the interest of an investor who will agree to close quickly.
Are "we buy houses" signs legitimate?
It's very common for cash buyers to advertise with road signs that say "we'll buy your house." Often, these are legitimate companies or investors who buy distressed properties. However, in some cases, these offers are a scam, so always do your research before agreeing to make a deal with one of these businesses.
Are "cash for houses" companies a ripoff?
A low offer from a company that advertises "cash for houses" might seem like a ripoff to some homeowners, but it really depends on your situation. Cash buyers almost always pay less than fair market value, but it might be worth it to you if you need to sell quickly and your home is in poor condition.
If you have time, listing your home on the open market will almost certainly allow you to sell for a higher price.
Are "we buy houses" companies unethical?
It's legal for "we buy houses" companies to buy distressed properties for a low price, fix them up, and then sell them for a profit. Unfortunately, because distressed homes are often owned by people who are in difficult financial situations, these companies may end up purchasing homes for far less than their actual value if the homeowner is desperate and doesn't fully understand their options.