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.
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.]
Types 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.
— 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), We Buy Houses and I Buy Houses.
“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.
“We’re buying directly from homeowners and typically it’s been focused by an event — they are wanting to sell to get closer to kids (for example), … and we buy a lot of inherited houses. A parent’s home that’s now inherited by the kids, but it’s in Atlanta and they live in D.C., and what do you do with that house?” Hicks says.
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.
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. Offerpad, Opendoor, RedfinNow and Zillow Offers are well-known companies that fall under the iBuyer 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.
While iBuyers may get a lot of coverage in the news, they are ultimately a very small portion of the homebuyer market. Redfin, a national real estate brokerage and parent company to its own iBuyer platform, RedfinNow, reported that just 0.3% of the homes sold in the fourth quarter of 2020 were purchased by any of the four major national iBuyer companies (Offerpad, Opendoor, RedfinNow and Zillow Offers).
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.
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.
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 73% of rental properties 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’s 2018 Rental Housing Finance Survey, the results of which were first published in 2020. 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.
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.
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, executive mortgage banker for William Raveis Mortgage on the East Coast.
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.
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.
It’s also important to consider the current housing market. In many parts of the U.S. right now, few properties for sale and high demand from buyers means many houses sell quickly and for above initial asking price. 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