When you’re ready to sell your home, the traditional method is to prepare the house, list it for sale with a real estate agent and hope buyers will compete for a winning bid — ideally ending in monetary profit for you.
[READ: Guide to Average Home Maintenance Costs.]
But if the traditional route doesn’t appeal to you or circumstances make it difficult, there are alternatives that allow you to still sell your home. In many cases, it involves selling your home to a company.
While they may all seem similar on the surface, there are many different types of companies that are interested in buying your home, often for cash and with a quick turnaround. We’re breaking down the types of companies you may encounter and how they do business, as well as what you should factor in if you’re considering selling your home to a company.
[Read: How to Stage Your Home to Sell.]
Type of Companies That Buy Houses
The companies that will buy your house from you are varied, and they have different methods of purchasing properties, as well as different motivations. Here are six types of companies that could buy your house:
— Franchise cash buyers.
— iBuyers.
— House flippers.
— Buy-and-hold investors.
— Trade-in companies.
— Lenders or brokers freeing up cash to encourage purchases.
Franchise Cash Buyers
There are a handful of national brands you may recognize that purchase homes for cash which operate as franchises. That means the individual you’re working with would be a local franchisee, adding the benefit of local expertise. Some names you may recognize most are We Buy Ugly Houses, HomeVestors of America Inc. (which is also the parent company of We Buy Ugly Houses), WeBuyHouses.com and Joe Homebuyer.
“Our typical focus is buying houses that we either fix up and sell, or we keep as rental properties,” says HomeVestors CEO David Hicks. He notes that, as the We Buy Ugly Houses name illustrates, the focus is on purchasing a home as-is and paying for it based on its current condition, especially if that means it needs some work.
Reviews and reports across a variety of franchise buyers note that offers in this type of situation tend to be low, often 50% to 70% of market value, in exchange for a fast deal and cash payment.
“Our business is very stable and consistent, because we’re buying the older houses that need significant repair,” says Hicks, noting that many homeowners selling to HomeVestors or We Buy Ugly Houses know their house needs significant updates in order to be on par with other homes in the neighborhood, but they don’t have the resources to do it themselves — be that time or money.
Franchisee cash buyers will typically opt to work with local contractors to flip a property or to keep it for rental income. The franchisees will then either pay a regular fee or portion of profits to the larger company, depending on the company, for the brand affiliation and additional help as needed.
iBuyers
In the last few years, companies known as iBuyers have become a more vocally present type of company offering to purchase homes for cash quickly, with a major focus being on the technology used to help valuate a property and complete the transaction. Opendoor and Offerpad are the two most recognizable names currently operating in this category.
These companies, which operate in a growing number of markets across the U.S., purchase homes that need very little work to be ready for the market, with the goal of turning around and selling it quickly for a higher price. The amount paid to the home seller tends to be higher than a cash buyer would pay for houses that need more work, but an iBuyer is involved in more transactions total by operating as a single company located across many markets.
“In an up or down market, people still need to move and we’re focused on providing a seamless home buying and selling experience when it’s right for them,” wrote Kerry Melcher, head of real estate for Opendoor, in an email. “People come to Opendoor from all walks of life, whether they’re downsizing for retirement, moving for a job, or they’ve outgrown their current home — but what they all have in common is the desire for a simpler and more certain real estate experience.”
The changing housing market has proven tough for iBuyers, with both Zillow and Redfin opting to close their iBuyer operations within the last two years. More recently, both Opendoor and Offerpad have reported major earnings losses — $399 million in net revenue losses for Opendoor in the fourth quarter of 2022, and $121.1 million in net revenue losses for Offerpad during the same time period.
While that may not be encouraging for investors, it doesn’t necessarily impact homeowners interested in exploring the alternative methods of selling a house. Both Offerpad and Opendoor have scaled down the size of their operations, while also exploring other options that may resonate with the homebuying-and-selling public.
Opendoor, for example, has programs that partner with homebuilders to streamline the sale process of a new construction home, make it easier to have a real estate agent take part in the sale process, a listing option to receive both an offer and the opportunity to test out the market and a marketplace where people can buy and sell homes directly as an alternative to the traditional real estate model.
“With 99% of real estate transactions still happening offline, we view the traditional real estate transaction process as our competitor,” Melcher says. “The traditional real estate process is time consuming and complex; consumers deserve a modern, e-commerce experience that suits their needs and timelines.”
House Flippers
If you’re familiar with shows on HGTV, you’re probably familiar with the concept of flipping a house: Investors purchase a property that is outdated or run-down, and renovate the property to make it move-in ready, ultimately selling it for (hopefully) more than the cost to purchase and remodel the property. Rocket Mortgage notes many successful house flippers operate on a 70% rule, meaning they will determine their maximum offer price as 70% of the estimated after-renovation value of the home, minus the cost of repairs.
House flippers commonly aim to flip a house within six months or a year to cut down on operating and holding expenses. While cash buyer franchisees may flip houses, there are also many independent local companies that likely have the ability to make a deal happen fast by offering cash to a homeowner.
Many individual homeowners with some contracting experience will flip houses as well, but their cash reserves to make a purchase and renovation without financing is something you’re less likely to come across, unless they have investors backing them up.
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Buy-and-Hold Investors
Another type of investor you’re likely to come across is one who will purchase your property and keep it to rent out to tenants. In many cases, the investor aims to buy a house that requires some work to avoid paying top-dollar, and will renovate before leasing it.
Franchise cash buyers and real estate investment companies may be buy-and-hold investors, but nearly 70% of rental properties consisting of between one and four units across the U.S. are owned by individuals who own between one or a few properties to bring in income, according to the U.S. Census Bureau and U.S. Department of Housing and Urban Development’s 2021 Rental Housing Finance Survey, the results of which were first published in late 2022. Like with house flippers, cash offers are certainly possible, but investors may also finance the deal, which could make the closing time longer than with an individual or company offering cash.
Trade-In Companies
For homeowners looking for a quick sale to free up cash to purchase a new home, but are unwilling or unable to sacrifice much of the home’s value in the accepted price, a trade-in company may be the option you’re looking for. These companies provide the cash to purchase a new home, based on the value of the current house, then sell the existing property on the market, with a percentage of the sale of the home ultimately going to the company.
Knock and Orchard are two trade-in companies occasionally described as iBuyers, but because of the platform focused on helping the homeowner free up cash to purchase a new home, with the first home sold on the open market, we’ve separated them here. Similar to iBuyers, both Knock and Orchard have shrunk the size of their operations in late 2022 and early 2023, but are still advertising their platforms and raising funds from investors.
Lenders or Brokers Freeing Up Cash to Encourage Purchases
In some cases, the companies providing a kind of trade-in option are lenders or real estate brokers that purchase a buyer’s existing home so the buyer has cash to make a more competitive offer on another one.
William Raveis Mortgage is one lender offering such a program, called Raveis Purchase. The lender purchases a borrower’s current home and then oversees its sale. The borrower now has the ability to act as a cash buyer for a new home, which is particularly valuable in a competitive seller’s market.
A type of trade-in service also reduces the stress of having to sell a home on the open market before finding a new place, but then needing to move quickly to have a place to live. “You simply don’t have time to get a deal done,” says Melissa Cohn, regional vice president of William Raveis Mortgage in New York.
While there’s often an additional fee or percentage of the final sale price that goes to the company providing the service, the ultimate goal for many lenders and brokers offering these types of programs is to encourage people to actively buy and sell homes. The broker will benefit from the commission of being a part of two transactions, and the lender will typically provide the homeowner with his or her next mortgage.
[Read: Why You Should (and Shouldn’t) Sell Your Home in 2023]
Should You Sell Your Home to a Company?
The choice to sell your home to a company is a personal one to make, as circumstances vary greatly.
If you’re looking to offload a property quickly without having to do any updates or renovations, a cash buyer — be it a franchise or independent investment company — may be the right choice. If your home is updated but you still like the idea of a guaranteed fast deal, an iBuyer may be the route for you. If you need cash to make yourself more competitive with other buyers to purchase your next home, a trade-in company, or lender or broker offering a trade-in service could be the right move. While a shrinking pool of iBuying companies or company layoffs may make you wary of a specific platform, keep in mind you’re not required to agree to a deal before you’ve seen an offer, and that a deal completed is still cash in your hand.
It’s also important to consider the current housing market. Higher interest rates in the last year have slowed housing market activity in many parts of the U.S., and while demand outpaces supply in many areas, houses are sitting on the market longer than they were in 2021 and early 2022. If you’re on the fence, consider speaking with a real estate agent about your potential success on the market when you also inquire with companies that could buy your house.
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What You Need to Know About Those Companies That Buy Houses originally appeared on usnews.com
Update 04/11/23: This story was previously published at an earlier date and has been updated with new information.
