Selling a house takes time, even in the hottest market— the average time for the traditional home sale from listing to closing is 70 days. Going through the traditional home sale process with an agent and buyer usually results in the highest overall net profit.
But what if you can’t wait 70 days?
If time is of the essence, you might want to think about using a “We Buy Houses for Cash” company. These companies will buy virtually any property, and they’ll do it fast— many sellers can walk away with cash in hand in as little as 7-10 days.
Of course, that kind of speed and convenience comes at a price.
In this guide to “We Buy Houses for Cash” companies, we’ll detail the differences between types of cash buyers, the process cash buyers actually use to purchase your home, and the pros and cons of going the cash buyer route.
- What Are “We Buy Houses for Cash” Companies?
- How Do Cash Buyers Work?
- When Should You Consider a Cash Buyer?
- Pros and Cons of Using a Cash Buyer
- Is It a Good Idea to Sell to a Cash Buyer?
- Related Articles
What Are “We Buy Houses for Cash” Companies?
“We Buy Houses for Cash” is simply a brand of cash buyer. Cash buyers are individual investors or smaller independently operated franchises of a larger parent company, who pay cash for “not ready for market” properties. This category can include dilapidated, rundown or even abandoned homes; it can also include pretty average properties that just need a few repairs. Whatever your property’s condition, the cash buyer purchases it “as is.”
These buyers usually work a moderately-sized territory, looking for undervalued properties. You’ve probably seen cash buyer signs on telephone poles or highway medians, proclaiming that “We Buy Houses for Cash,” with a contact number below.
Cash buyers work fast; once a cash buyer is contacted by a seller, they often check out the property within a day, and extend a cash offer on the spot or within 24 hours. If the seller accepts the cash offer, the deal can be closed in as little as a week, since there’s no financing to be arranged.
So what’s the catch? Well, cash buyers generally make below-market offers— often far below-market. According to some experts, the average cash buyer offer is only 65% of market value.
Let’s say you’re selling a property worth the U.S. median value of $260,000. Maybe the house has a few minor issues, or maybe you inherited it and simply want to unload it as fast as possible.
If you go to a cash buyer, their average offer is going to be around $169,000.
That means you’re giving up nearly $100,000 to shave a few weeks off the sale timeline.
If you truly don’t care about getting fair market value, or if there are serious problems with the home— something on the order of a bad roof and a cracked foundation— maybe that sounds like an acceptable deal to you. But that’s a lot of money to leave on the table.
Sellers who want the quickest possible sale do have another option, though.
An iBuyer is essentially a 21st century version of a cash buyer; many iBuyers have national reach, and are backed by startup money. They use data analytics to accurately value homes, and tend to gravitate towards newer properties that only need minor work, so not all properties will meet their standards.
The sellers that do meet those standards, though, are probably in line for a much better experience than if they’d gone with a small cash buyer, or a “We Buy Houses for Cash” company. The typical iBuyer works on a much larger scale than a cash buyer, meaning that they can get by on smaller profit margins. That’s good news for sellers, as an iBuyer’s offers will be much closer to market value.
The takeaway? If you’re determined to sell to a cash buyer, it’s a good idea to try an iBuyer first. Behind the curtain, small cash buyers and “We Buy Houses for Cash” companies may be just a single investor who’s trying to pay as little as possible for each property, so they can turn around and flip it for a quick profit. That can lead to some lowball offers and unscrupulous practices. In contrast, cash-rich iBuyers generally operate a larger, more efficient marketplace and are only trying to make a small profit on each property.
How Do Cash Buyers Work?
When you sell to a conventional buyer, that buyer typically has to go through a lender to get financing. To be sure they’re making a wise investment, the lender will look into the buyer’s financials and require the buyer purchase a home inspection to confirm the home’s value. That’s why a conventional sale takes so long— these institutional wheels turn slowly.
Cash buyers, on the other hand, don’t need financing, since they have cash on hand. Working with a cash buyer shaves weeks or months off a sale timeline.
So how does it work? A typical cash buyer sale unfolds like this:
- The seller contacts the cash buyer, often submitting detailed information about and photos of their home.
- The cash buyer sends a representative to the property within 24 hours to do an in-person assessment. In many cases, a cash offer is made at the end of this visit. If not, the offer is usually extended within 24-48 hours. This offer is likely a non-negotiable, “take it or leave” type of offer.
- If you accept this offer, you’ll be able to choose the closing date. This could happen in as little as a week or two, since the cash buyer doesn’t need an approval from a lender.
When Should You Consider a Cash Buyer?
Cash buyers offer real value to a very specific group of sellers. Let’s look at some of the situations where a cash buyer might make sense for you.
If You’re Under External Time Pressures
Let’s say you just got a new job out of state, and you have to start on the first of the month. You can’t rush a conventional sale, so a cash buyer might be your only choice.
Your Home Is In Poor Condition
Maybe it’s been a decade or two since you refreshed your home’s finishes and interiors, or maybe it’s in poor condition after being neglected or unoccupied for an extended period of time.
While investing a few thousand dollars in new appliances, or even new paint colors, can pay big dividends once you put your home on the market, not everyone wants to lay out that kind of cash up front. Selling to a cash buyer is the obvious solution if you don’t want to bother with repairs.
You’re Facing Foreclosure
If your home is going to be foreclosed on, a quick sale to a cash buyer is an easy way to walk away with some money in hand, and your credit rating intact. Note that you’ll still owe the bank money for the total mortgage, so if what you sell the home is less than what you owe on your mortgage, you’ll need to pay for the difference.
You Inherited an Unwanted Property
Many people find themselves the owner of an unwanted property after a death in the family. Sometimes this property is in another state, and they have no interest in visiting or keeping it. Selling to a cash buyer is a quick way to unload it without any hassles.
Pros and Cons of Using a Cash Buyer
Selling to a cash buyer has certain advantages, but it also comes with downsides. You’ll have to weigh the pros and cons to decide if a cash buyer is for you. Let’s look at some of the main pros and cons.
The biggest advantage of selling to a cash buyer? The sheer speed of the deal. While the average conventional sale takes over two months, a cash buyer sale can be complete in as little as two weeks.
In a conventional sale, sellers can expect to pay about 10% of their sale proceeds to closing costs. This includes a 6% real estate commission— split between the seller’s listing agent and the buyer’s agent— as well as other miscellaneous closing costs. That’s a lot of money to pay out.
With a cash buyer, you won’t have to pay any of those fees and closing costs. Keep in mind, though, that while you won’t pay any fees, you’re also making less money overall. So you have to weigh those savings against your losses.
No Repairs or Showings
Getting a home ready for the market takes time and money; finishes have to be updated, paint has to be refreshed, and home staging essentially turns your home into a showroom. Then come the open houses, when dozens of strangers walk through your home, looking into your closets and poking into every corner. That’s a lot of time, money, and stress.
If you sell to a cash buyer, you won’t have to perform any repairs, or endure showings.
No Financing Contingencies
In a conventional sale, if the purchase agreement contains a financing contingency, and the buyer fails to get financing, the entire deal can fall through. This isn’t all that rare, either; the latest data from the National Association of Realtors suggest that this happens in nearly one out of every ten deals.
This will never happen with a cash buyer, simply because they’re not securing a loan.
The biggest drawback of selling to a cash buyer is the low— sometimes insultingly low— prices they offer. The cash buyer’s business model is to buy as low as possible, and then sell for as high as possible, and they know that, if you’re coming to them, you’re what’s known as a “motivated seller,” i.e. someone who’s eager to take a deal, even if it’s substandard.
How low is a typical cash buyer offer? While we mentioned above that the average cash buyer offer is about 65% of fair market value, it isn’t rare for these offers to go as low as 50% of fair market value. You could be leaving five or even six figures in cash on the table in return for the speed and convenience of a cash buyer sale.
Sometimes Predatory or Unethical
Some cash buyers use pressure tactics to push vulnerable people into disadvantageous sales. These buyers target the elderly, the bereaved, and the recently divorced, and sometimes use shady persuasion tactics. Remember that you can always walk away from a deal, and that any buyer who asks you for money, for any reason, is likely a scammer.
Is It a Good Idea to Sell to a Cash Buyer?
There’s no “one size fits all” answer to this question; it’s going to depend on your specific circumstances. Even more than that, it’s going to depend on your priorities.
If you want the fastest possible sale, a cash buyer can offer that. If you need to get out of town, or unload an unwanted property, a cash buyer deserves a long look. If you’re facing foreclosure and just want out, a cash buyer is your best bet. Just keep in mind that you’re leaving a lot of money on the table in exchange for that convenience.
Of course, there are situations where you should definitely not sell to a cash buyer. First and foremost, if you’re hoping to get the highest possible sale price for your property, a cash buyer will never offer that. You need to conduct a conventional sale, and let the market do its thing. If you owe more on your mortgage than your home is worth, a cash buyer won’t be a good option for you; you should aim for a conventional short sale.
The reality is that most sellers want a combination of those factors. They want the highest possible sale price, but they also want the whole process to be over in a couple weeks. It may not be easy for you to decide if a cash buyer is for you; if that’s the case, you may want to consult with a real estate agent to get some outside expertise.
Our partner Clever Real Estate connects sellers with elite, pre-vetted local real estate agents who have proven track records. They can break your options down for you in detail and, if you decide to go through with a conventional sale, sell your home for a flat fee of $3,000, or 1% if your home sells for more than $350,000. They might even be able to shave a couple weeks off the sale timeline while they’re getting you the best price possible.
“We Buy Ugly Houses”: the Good, the Bad, and the Ugly: You’ve seen their “We Buy Ugly Houses” signs on highway medians and utility poles; our definitive guide to the company tells you everything there is to know about this ubiquitous national cash buyer.
Opendoor, Reviewed and Explained: Opendoor is one of the leading iBuyers in the U.S.; they’ll buy your home for cash or, if you qualify, let you trade your home for a new one. However, their fees can be somewhat high for the industry, and they operate in a limited number of markets. This comprehensive guide to Opendoor covers all that and more.
Offerpad: Pros, Cons, and Competitors: This national iBuyer offers lightning-fast deals, but their fee table isn’t like anyone else in the industry. Read on for our complete rundown of the positives and negatives of Offerpad’s business models, and a list of possible alternatives.
How to Sell Your Home Fast: 4 Ways to Unload Property in a Hurry: Selling to a cash buyer isn’t the only way to unload a property fast. This guide reveals four of the best ways to accelerate the conventional sale timeline, while still getting the best price possible for your home.