Why do companies buy houses?
As the name implies, these companies purchase homes directly from the owners. The biggest advantage of this process is its swiftness compared to traditional mortgage-backed sales. With companies buying houses directly from the owner the selling process can be completed within days or weeks compared to the average of 51 days in the mortgage-backed sale. This option is ideal for homeowners in need of quick cash, or people going through a divorce, or who have plans to shift locations.
The advantages that we will be discussing in detail in the upcoming sections, you will find the prospect of house buying companies appealing.
How Do Companies That Buy Houses for Cash Make Money?
The perks of this exchange might get you thinking about whether this is a scam. You may wonder how reputed companies that buy houses make a profit. Well, this varies depending on the type of house-buying company. But in general, these companies sell your property to investors or make necessary repairs followed by house flipping.
However, expect offers at or slightly below market value albeit at a fair offer. As there is no need to pay property taxes or higher closing costs like typical sales. Moreover, for houses in terrible condition, cash sales are the best option.
Types of House-Buying Companies
Not all house buying companies are the same. Here we will discuss briefly how different companies work so that you may find the best option for your house.
1. House-Flippers
Companies that buy houses like house-flippers are popping up franchises all over the country including Orlando, Florida. House flippers essentially perform house makeovers and resell houses for a profit. They buy property at a discount and make specific improvements aimed at adding cosmetic value, aesthetics and mechanical repairs with a typical ROI of 10%.
Depending on the market, expect your house to be sold quickly and at a reasonable price.
2. Buy and Hold Companies
Buy-and-hold companies rent out properties with good cash flow or potential equity to renters for profit. While some have well-trained in-house teams with experts to handle various aspects of the process, others are family-run businesses that do necessary repairs themselves to save costs.
Their ideal choice of property is multi-family units and rental property.
3. Trade-in Companies
Home trade-in businesses offer to purchase your current home thus freeing funds to buy a new home without the need of a sale contingency. Some even offer to allow homeowners to rent the new home until their old one is sold. While others may buy houses needing some work to avoid paying top-dollar and resell later.
4. Local investors/Franchise Cash Buyers
National reputable brands with franchises all over the country that purchase houses for cash. They will typically collaborate with local contractors to renovate a property or rent it out.
Then the franchisees pay a regular fee or portion of profits to the parent company as needed. Some home buying companies focus on purchasing houses in particular states or cities.
Another ideal way that companies sell your house is through an auction. Auction sales are ideal for properties with a structural defect or restrictive covenants within the title deeds. Such situations may ward off buyers since the property is harder to sell on the traditional open market. Buyers at auctions are often seasoned investors more likely to take on these associated risks in hopes of big returns.
Finding a Reputable Company
With horror stories from numerous homeowners, finding the right company may feel like searching for a needle in the haystack. However, going about this smartly can save you time and protect you from potential scams. To get help, you may request an offer online or consult a real estate agent as your deal maker.
How to avoid unscrupulous companies?
Keep these in mind to avoid unpleasant experiences.
Upfront charges
Avoid companies that request charges for surveys or instruct solicitors upfront. This is a way of making you pay without risking their funds.
Pushing to sign a sales contract
Quick transactions may be appealing but potentially sketchy. Selling a house is a process that should be handled with care after much contemplation and a clear understanding of the process and price negotiations. Any company pressuring you to sign a contract immediately is a red flag.
Last-minute negotiations
Companies that reduce their offers at the last minute are another red flag. Request a copy of the official valuation report for fair negotiation.
Advantages of House-Buying Companies
Let’s look at the reasons that make house-buying companies so appealing.
Guaranteed Sale
Whether your house is pristine or dilapidated, house-buying companies take it upon themselves to renovate to sell or rent out your property. Thus sale is guaranteed no matter the condition of your house.
Perhaps the biggest perk here is your house does not need to be ready to receive guests all the time.
Fewer Restrictions on Inspections
One of the toughest parts of house sales is often the inspection. This isn’t the case with investors as they are unlikely to stay in that home.
Flexible Move-out Dates
As the company won’t be living in your house, you are in no rush to vacate your home. Some may even offer to rent you the property until you can move to your new house.
Disadvantages of House-Buying Companies
Since we have discussed the upsides of these companies it is only fair to take a look into the darker side of such exchanges.
Less Profit
Home-buying companies usually offer a price that’s slightly below market value in exchange for cash payments and greater flexibility than traditional sales. However, considering the savings on home prep and agent commissions, you are on the receiving end of benefits.
Risk of Scam
As discussed previously, despite measured caution, there’s always a slight risk of being duped into a scam. Look up reliable reviews on Google and beware of the red flags mentioned above.
Less Competition
Sale through a house buying company means you won’t be receiving multiple offers to drive up the price. Additionally, unlike a buyer planning to reside in your home, the company views the property with an objective business lens, thus the diminished chance of upping the price based on sentimental value.
Conclusion
The choice to sell one’s home to a company is a personal one to make, depending on their circumstances.
It depends on what you want from the buying party. A cash buyer is your ideal option if you want to sell your property quickly without renovations. For houses in good condition in need of a quick buyer, the iBuyer should be your go-to choice.
The current housing market should also factor into your decision, depending on the demand and supply of properties. Consult a real estate agent for more advice on this matter.
