ߣÏÈÉú

“We buy homes for cash.” You’ve likely seen numerous ads like this. With often only a contact number listed, it’s not surprising a new survey by Clever Real Estate found that 61% of recent sellers consider these businesses scams.

Those shady signs aside, 38% of people surveyed said cash buyer companies are the worst way to sell a home, and more than a quarter regret selling their homes this way. These sellers believe they’ll get below market value for their home, which is often true. Cash buyers tend to pay 65% to 70% of a house’s after-repair value. That means if your home’s after-repair value is $400,000, a cash buyer might only offer $260,000–$280,000.

However, there are some situations where a cash buyer can be a good option, such as if you need to sell quickly or don’t have the money to make necessary repairs. Knowing the difference between different types of cash buyer companies — and the red flags to watch out for — can help home sellers make a more informed decision.

---

---

Types of cash buyer companies

A closer look at the industry reveals two distinct types of companies that often fall under the “cash buyer” umbrella but have important differences.

House flippers are the most common. These buyers pay cash for your home, renovate it, and then sell it for a profit. Flippers may be independent or part of a larger franchise, such as We Buy Ugly Houses or WeBuyHouses.com.

---

---

iBuyers have also grown popular in recent years. These companies operate nationally, use technology to evaluate properties, and make near-instant offers on many homes. They typically look for homes that need little work so they can sell them quickly for a higher price. Two of the most well-known are Opendoor and Offerpad.

Why do people view them as scams?

Below-market value offers and a few bad actors may be to blame for cash buyer companies’ negative reputation. Dr. R. Kelley Pace, director of the Real Estate Research Institute at Louisiana State University, said he often receives calls from cash buyers who clearly aren’t familiar with the property.

“They’re fishing for the small proportion of owners who have a pressing need for cash and are willing to sacrifice a material amount of equity for an immediate payoff,” he said. “I wouldn’t necessarily call it a scam, but they profit off sellers who usually have problems of one sort or another.”

Some cash buyers search public records for signs of financial hardship, such as a foreclosure or death notice. They may also target homeowners in distressed neighborhoods or properties.

While such practices seem predatory, there are few regulations in place for these companies. Some cities, like Philadelphia and Atlanta, have taken steps to protect homeowners, but cash buyers aren’t held to the same standards as traditional real estate companies.

Still, basic contract law applies. Tim Gordon, owner of Gordon Buys Homes in San Diego, uses the California Association of Realtors boilerplate contract in his transactions with sellers to ensure fairness for both parties. He recommends that sellers have an attorney review any purchase or sale agreement from a cash buyer.

“It’s very important that you’re aware of the contract you’re signing,” Gordon said. “If you’re using a contract that was designed by one of the two parties, that contract is probably going to favor the person who designed it.”

Cash buyers vs. traditional home sales

Cash deals are common in many markets, with Redfin reporting they make up about 30% of home purchases. While cash buyers typically offer below-market value on a house, you can usually close in as little as one week. By contrast, a traditional real estate deal closes in an average of 43 days.

In addition, most cash buyers have no additional fees and will cover closing costs, which are typically 8% to 10% of the home’s sale price. For a $400,000 home, this saves sellers between $32,000 and $40,000. Sellers will also save money with cash buyers by eliminating the listing agent’s fee, which is about 2.74%. However, some discount real estate brokers will lower their commission to 1% or 1.5%, which can cut the agent fee almost in half.

For sellers who want to reduce costs but receive their home’s market value, a traditional sale is often a better option. About half of all sellers say getting the highest sale price is their top priority.

Cash buyer red flags

Sellers should do their research before accepting any cash offers. Reputable cash buyer companies should have an online presence that includes information about their experience, employees, and client reviews, both positive and negative.

These companies should also issue a non-contingent offer, meaning they can’t back out and deposit a sizeable amount of earnest money. Gordon said his standard is 1% to 3% of the home’s value.

“That’s how you know they have serious intent,” he said. “If somebody’s offering $500 to start a contract to buy your house, that’s a big red flag.”

Most legitimate cash buyers can perform a walk-through of your home and extend an offer within days. This enables sellers to get multiple offers, which Gordon recommends. Sellers can also check their home’s estimated value on a site like Zillow to determine whether the offer is fair.

Also, consider where the offer originated. Did a cash buyer seek you out, or are they simply responding to your listing? Buyers who initiate the sale may be looking for people needing immediate cash, Pace said. By contrast, listing your home — whether through an agent or a flat fee MLS listing service — can help attract cash buyer companies you can trust.

Avoid scammers for a smooth sale

While you won’t get the market value for your home from a cash buyer, you can often sell quickly and without making costly repairs. With a reputable company, a cash sale can be a much more streamlined and straightforward transaction, giving sellers the money they need for their next purchase.

“It’s beautifully simple when you have a serious and upfront buyer, and everyone’s in agreement on the pricing terms,” Gordon said. “The transaction can be amazingly smooth.”

To avoid getting scammed, ensure the company has an online presence and is transparent about its process. Seek multiple offers and have an attorney or real estate agent review the contract. As for those “We buy homes for cash” ads? Make sure you’re the one who initiates the deal.