Are ‘We Buy Houses’ Companies a Ripoff?

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  Written by Katy Byrom

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  Edited by Andrew Whytock

Are ‘we buy houses’ companies a Ripoff? | Common ‘we buy houses’ scams | Other red flags | How to avoid getting ripped off | More ways to sell for cash

No matter where you live, you’ve probably seen neon signs tacked on telephone poles that claim, “We buy houses for cash!” House buying companies like We Buy Ugly Houses and WeBuyHouses.com promise an all-cash offer and fast closing.

But is the promise of fast cash too good to be true? 

Depending on your circumstances, selling to a legitimate cash home buyer 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.

Because ‘we buy houses’ companies usually buy distressed properties they can fix and flip for a profit, they’ll pay cash for homes only if they can get them for a bargain. 

Before you sell your home to a cash home buying company, we recommend exploring all of your options, including listing your home with a realtor and getting competing bids.

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. The investors behind these companies make a profit by purchasing homes at bargain prices — in the realm of 70% of fair market value (FMV) — then fixing them up and selling them for more. 

A home that could fetch $150,000 on the open market might only get $90,000 from a company that pays cash for houses. 

However, if your home needs significant repairs before it’s ready to list, selling to an investor for $90,000 might seem like a good deal. Plus, you’ll get the cash right away, which can help you avoid racking up months of additional 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.

‘We buy houses’ scams

Unfortunately, there are some cash home buying scams that prey on home sellers looking for a quick cash offer. 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.

Here are a few of the most common scams that we’ve seen associated with companies claiming to offer cash for houses:

Other signs of a ‘we buy houses’ ripoff

While scams are illegal, some investors use tactics designed to rip you off legally by making an offer that’s low, but still legitimate — or trying to get you to lower your sale price at the last minute. Here are a few red flags to look out for.

They don’t visit the property before making an offer

A major red flag is “if an investor says they’re going to buy a house, but they never come out to see it,” says Philadelphia-based real estate investor Igor Avrantiner, whose We Buy Houses franchise maintains a 5-star customer rating on Google.  

A serious buyer needs to evaluate a property’s condition, estimated repair costs, and potential resale value in person before committing to a purchase. 

Not visiting a property before making an offer raises questions about the investor’s true intent. They may be trying to sell the contract to another buyer for a higher price, with little concern over how much time of yours they’ll waste if they’re not successful.

They try to get you to sign an offer before completing inspections

Avratiner also warns about buyers who say they’re going to have an inspector or contractor come out to evaluate repairs after signing a purchase contract. The buyer may intend to use inspections solely as justification to renegotiate for a lower price. 

Inspections should inform offers rather than follow signed deals — especially since investors go in anticipating that the homes they’re looking at will require some repairs. 

“All of that due diligence should be done up front,” Avratiner says.  

They don’t put down a reasonable deposit

According to Avratiner, the typical deposit (often referred to as earnest money) on a cash home sale is “1-2% of the purchase price, or $1,000–2,000 on a $100,000 home.” However, he’s seen less honest investors offer as little as $50. 

Low or absent deposits allow predatory investors to easily walk away after tying up the property, wasting the seller’s time and blocking legitimate offers. Reasonable deposits indicate genuine motivation.

They don’t have an online presence

The lack of an online presence is another red flag to watch out for. 

An important part of vetting an investor is “researching the company and reading Google, Facebook, Yelp, and BBB reviews online to ensure the company is reputable,” says investor Matthew Pezon. “Look for complaints with the Better Business Bureau or for consistent, negative reviews online.”

Even if an investor is legitimate, the lack of online reviews prevents sellers from researching a company’s reputation, so it may be best to steer clear. 

They misrepresent their intent to purchase the property directly

“Some investors will intentionally hold themselves out to be the end buyer, but they’re actually not,” warns Avrantiner. 

In reality, they have no intent or ability to purchase homes directly. Rather, they get you to sign a contract for what seems like a reasonable price and then attempt to sell the contracts to another buyer — often for tens of thousands of dollars in profit.” This is a process known as wholesaling.

While wholesaling is a legal business practice, a lack of transparency around this type of agreement takes advantage of the seller, who could also look for a buyer willing to pay a higher price. Sellers should confirm if the person making the offer is the actual end buyer.

The closing date is more than 2-3 weeks away

“If the closing date on a contract is 30 days+ out, the buyer is likely a wholesaler,” warns Bennett. 

While legitimate wholesalers have a ready pool of buyers who can close deals, elongated timelines indicate that the buyer may not know what they’re doing.

Inexperienced wholesalers may make offers that sound great to the seller but struggle to find another buyer to purchase it at a higher price. They may even try to put your home on the market while under contract — something that you could just as easily do yourself to try to find a higher offer.

They pressure you to sign before you’ve had your contract professionally reviewed

High-pressure sales tactics — such as telling you that an offer is only good until the end of the day — are another warning sign. A reasonable investor will allow adequate time for you to review the contract with a professional, get competing offers, and make sure you’re comfortable with your decision.

“Be wary of buyers who try to pressure you into overnight decisions,” says Bart Waldon, Managing Partner of Land Boss. “Take time to weigh all options before accepting an offer. 

How to avoid getting ripped off by a ‘we buy houses’ company

Know your home’s value

The best way to guard against getting ripped off by a ‘we buy houses’ company is to know your home’s fair market value going in. Many realtors are willing to offer a professional home valuation for free.

While investors typically won’t pay full price — they’re in the business of flipping homes to make a profit after all — they should offer you worthwhile tradeoffs, such as the ability to close quickly and save money on the realtor fees and closing costs associated with a traditional sale.

If your home is in less-than-perfect condition, you can also consider getting quotes from local contractors for the repairs, so you know whether an investor is offering a fair amount for the work needed.

⚡Get realtor proposals sent straight to your inbox — with no hidden fees or pressure to commit to a listing

Look beyond the offer price

While getting the highest offer possible is important, you should read the contract carefully to make sure there aren’t any unwanted surprises. As Matthew Coan, owner of Cash Savvy Home Buyers, says, “If at any point things become shady or you are given an offer that is too good to be true, most likely it’s not going to turn out well for you.”

In particular, watch out for:

• Contingencies in the contract that let the buyer to cancel at any time or for no reason, especially without forfeiting their earnest money
• A closing date more than 30 days out, a sign that the investor doesn’t have the funds to purchase the house on their own
• Clauses allowing the seller to list the property while you’re under contract, which could signal that they’re shopping around for another buyer
• Inability to show proof of funds or a record of previous purchases

To guard against a deal falling through, make sure the buyer is putting down a significant earnest money deposit (at least 1–2%). A buyer who is putting down a suspiciously low amount — such as only a couple hundred dollars — has little to lose if the deal doesn’t close.

Screen buyers carefully

Most cash buyers are honest, but there are some who are either inexperienced or less than reputable. A shady cash home buyer can cause a deal to fail, especially if they don’t have enough funds to close the deal, which can leave you scrambling to find another buyer.

“Sellers should verify proof of funds, ask for references, and consult with a professional like a real estate attorney to ensure they are getting a fair deal,” says SD House Guys co-founder Alexander Capozzolo, 

In addition, you can ask for past closing statements as proof that the buyer has successfully bought and sold homes. That’ll show that they’re experienced and that any offer they make is less likely to fall through.

Ask buyers how they arrived at their offer price

For extra peace of mind, ask buyers to explain how they arrived at their offer number. If you’ve gotten multiple offers, you can also ask particular buyers to explain why their offers are lower or higher than others.

Coan says “If a seller wants to work with a real estate investor then go with an honest one that will be fully transparent with you. It is not hard, or uncommon for a legitimate real estate investor to break down all of the numbers for you and put on full display where they are getting their offer from.”

If a buyer is unwilling to provide a breakdown of their estimate, that could be a red flag. It may indicate that the buyer is inexperienced or doesn’t want you to see that they’ve either underpriced your home or made you an offer that’s too good to be true.

Have a professional look over the contract

Having a professional such as a real estate attorney or agent review a buyer’s purchase contract can uncover hidden fees or fine print that could make a deal less fair to you.

For example, many cash buyers will waive the inspection contingency that allows traditional buyers to bring in a professional home inspector to verify the property’s condition. If your contract does contain an inspection requirement, that could give the buyer an opportunity to dramatically lower their offer or walk away if you’re unwilling to renegotiate. 

Without getting your contract reviewed by a professional, you’re at a higher risk of your deal falling through or getting less than you anticipated.

Get competing bids

To get the best possible price for your house, get competing bids from multiple cash buyers. Requesting an offer from an investor is free, and you have no obligation to accept it — so there’s no harm in shopping around.

You can request cash offers by calling local investors directly, but this process can be time-consuming. Another option is to work with a real estate agent, who can request offers on your behalf and screen them to make sure the terms are fair. However, realtors typically charge a commission, and the traditional listing process may leave you in a time crunch if you need to sell your house fast.

If you’re looking to save time and money, our team can help you request offers from among hundreds of trusted investors in our network. You can compare offers without pressure while saving time and knowing you’re only dealing with reputable buyers. 

Our cash offers service is free to home sellers, and there’s zero obligation to move forward. ⚡Answer a few questions about your property, and we’ll do all we can to get yo the best possible terms for your home.

More ways to sell your house for cash

If you need to sell quickly — or just want to avoid a traditional home sale — know that “we buy houses” companies aren’t the only option.

Sell to an iBuyer

If your home doesn’t need too much fixing up, you could also consider selling to an iBuyer. Companies like Opendoor and Offerpad operate on a large scale, and their offers are much closer to market value. 

However, they tend to pay slightly less than what you could net on the open market. They also charge service fees of about 5%, plus variable repair costs based on their home inspection.

Still, selling to an iBuyer is an easy way to sell your house as is for a decent price, allowing you to skip repairs and avoid the showings and negotiations that come with a traditional sale.

Work with a realtor

The best way to ensure you get a competitive offer is by listing your house with an experienced real estate agent — particularly one willing to negotiate their commission. 

For example, San Diego-based realtor and house flipper DJ Olhausen was recently contacted by a client needing to sell an inherited home that needed a lot of work to make it livable. 

While the owner had initially reached out to Olhausen seeking a cash offer, he suggested listing it on the MLS for a better price. “Her current and best offer from a flipper was at $515,000, and I was convinced we could get her over $600,000,” Olhausen recalls.

“We took professional photography, held open houses, and I personally reached out to all of my investor friends to try and stir excitement,” says Olhausen. “By the time we were ready to review offers, we had 10 offers — with our top offer being $675,000.”

Consider working with a reputable discount broker to save on realtor fees while still benefiting from the service and experience of a high-quality local agent.

⚡ Explore your options in one easy go. Compare offers from a trusted network of investors. Plus, connect with a top local realtor to see what your house could sell for on the open market. Review offers and agent proposals side by side, with no added fees or obligation to move forward.

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How to Sell Your House Fast: The Best 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.