Are “We Buy Houses” Companies a Ripoff? | Scams | Alternatives
No matter where you live, you’ve probably seen neon signs tacked on telephone poles that claim, “We buy houses for cash!” Companies that advertise “we buy houses” promise an all-cash offer and fast closing.
But is the promise of fast cash too good to be true?
The answer is complicated. Because “we buy houses” companies usually focus on distressed properties, they’ll buy your home only if they can get it for a low price. Then they’ll typically fix the house up and sell it for a profit.
Depending on your circumstances, this could be a relatively hassle-free way to sell an unwanted property in poor condition. But if you want to get the maximum value for your home, an offer from a “we buy houses” company might leave you feeling ripped off.
Before you sell your home to a “we buy houses” company, we recommend working with our friends at Clever Real Estate to explore all of your options.
Key Takeaways
- “We buy houses for cash” companies aren’t necessarily a ripoff — but they do pay less than fair market values for homes.
- If you need to sell a distressed property quickly, working with a “we buy houses” business might be a good option.
- In a competitive real estate market, you might be able to sell your home quickly on the open market and get a better price.
Are “We Buy Houses” Companies a Ripoff?
The truth is that it depends what you mean by ripoff.
If your goal is to get the maximum price for your home, you probably won’t receive it from a “we buy houses” company. These companies earn a profit by purchasing homes at bargain prices — in the realm of 50-70% of fair market value (FMV) — then fixing them up and selling them for more.
For example, a home that could fetch $150,000 on the open market might get a $90,000 cash offer from a “we buy houses” company.
However, if your home needs significant repairs before it’s ready to list on the open market, getting $90,000 might seem like a good deal to you. Plus, you’ll get the cash right away, which can help you avoid racking up months of missed mortgage payments.
You can typically receive a cash offer from a “we buy houses” company and consider it with no strings attached. If you feel like the offer is a ripoff, you can always decline and look into other selling options.
Did you know?
If your house has serious structural problems, it might not qualify for financing when a buyer comes along. Since most buyers need a mortgage to afford a home, this drastically reduces the number of prospective buyers for your home. In this case, selling to a cash buyer might be the only option.
“We Buy Houses” Scams
Unfortunately, there are some scams that prey on home sellers looking for quick all-cash sales. If you’re in a desperate situation, these bad actors might try to prey on your bad luck — so it’s important to always vet any potential buyer before parting with your home or personal information.
Unlike a ripoff (in which case a cash buyer makes an offer that’s low but still legitimate), a scam is actually illegal.
Here are a few of the most common scams that we’ve seen associated with “we buy houses” advertisements:
| Scam | How It Works |
|---|---|
| Phishing emails | A fake buyer emails a cash offer, then requests your private information, such as personal banking details. This can lead to identity theft or other fraudulent activity. |
| Wholesaling | Investors obtain the right to sell a property, then resell the contract to a cash buyer. Technically this is legal — but it can be misleading for the seller, especially if there’s a clause that lets the investor to back out if they can't find a buyer. |
| Upfront fees | The cash buyer requests a deposit or payment for fees upfront. A legitimate cash buyer should never ask you to pay anything before closing day. |
| Equity skimming | An investor promises to help a distressed homeowner by offering to buy the home and sell it back to the homeowner later. Once the title is in the fake investor’s name, they take all the equity out of the home, leaving the homeowner in an even worse situation. |
| Foreclosure relief | A company offers to help a homeowner who's facing foreclosure by making their mortgage payments. The company collects a reduced monthly payment from the homeowner, but ultimately never makes payments on the actual mortgage. |
Alternatives to “We Buy Houses” Companies
| Option | Pros | Cons |
|---|---|---|
| Traditional sale | Get the most possible value for your home by working with an agent who knows how to market it | Requires some money for repairs and staging, plus the risk that it will sit on the market |
| As is listing | No repairs required for listing, and you might still net a good price in a competitive market | Potential buyers may be limited to investors and flippers, and they'll expect a lower price that reflects your home’s condition |
| iBuyers | Get an all-cash offer and close in less than two weeks | Not available in all markets, plus they have strict criteria for qualifying homes |
If you need to sell quickly, know that “we buy houses” companies aren’t the only option — even if your home needs major repairs. If your home doesn’t need too much fixing up, you could also consider selling to an iBuyer. These companies offer cash for houses on a large scale, and their offers are much closer to fair market value (FMV).
Still, the best way to ensure you get a competitive offer is by listing on the open market with a real estate agent. Our friends at Clever can introduce you to top rated real estate agents who know your local market — and you’ll save thousands, thanks to pre-negotiated low listing fees of just $3,000 or 1%!
Related Links
Want to explore more options for selling your home? Read these articles to find out more.
The Top 6 iBuyer Companies to Know: We vetted the top six leading iBuyer companies to help home sellers choose the best fit.
Real Estate Agent vs. Real Estate Broker vs. Realtor –What’s the Difference?:Whether you’re a buyer or a seller, a real estate agent is a valuable partner in your real estate journey. We examined the similarities, differences, and licensing requirements for the types of agents you might meet.
How to Sell Your House Fast: 4 Ways to Unload Property in a Hurry: For home sellers who need to close immediately, we gathered tried-and-true strategies for finding a buyer ASAP.
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