If you’ve been researching ways to sell your home, you’ve likely come across companies that advertise “We Buy Houses” or claim to be “Cash House Buyers.” While their messages portray a convenient way to sell, you might be wondering what’s actually in it for them? Why are they so eager to buy houses, and how do they make money doing it? Let’s pull back the curtain.
The business of flipping houses for profit
At their core, companies that buy houses are real estate investors looking to flip properties for a profit, much like any other business venture. Their goal is to purchase homes, renovate or redevelop them, then resell at a higher market price.
So what happens after they buy your house? These companies will make any necessary repairs, renovations or upgrades to improve the property’s condition and appeal to future buyers. Once the refurbishing is complete, the house goes back on the market to be resold, ideally at or near its full market value potential.
How much do cash-buying companies pay for houses?
When cash-buying companies make an offer on your home, it’s typically below the full market value you could expect from a traditional buyer. As investors, their business model hinges on purchasing properties at discounted rates, usually around 70%-80% of the home’s market price.
This allows them to have enough profit margin left over to cover higher rate stamp duty, legal costs, agency fees, renovation costs and still achieve a desirable return on investment when they resell. From their perspective, paying closer to market value wouldn’t leave enough room to turn a meaningful profit after the renovations.
There’s one key aspect to take note of here: these houses are usually the type of properties that owners struggle to sell on the traditional market. This might be due to time constraints or the house being in poor condition. For most vendors, it’s in their best interest to sell the property quickly without going through the hassles involved with using the traditional sales market.
How much do they resell houses for?
Once the repairs and upgrades are finished, companies will then list the property for resale, typically closer to the full fair market value they believe they can achieve. Their listing price factors in the purchase price, renovation costs, marketing expenses, as well as a profit margin.
Much like a traditional home seller, they’ll aim to get the highest possible sale price through negotiations with buyers and estate agents representing offers. In a hot market, they may sell above estimated market value if demand is high. In a quiet market, they may make a lower amount, or even potentially a loss.
Are companies that buy houses a rip-off?
While their offers may seem like a lowball initially, there are legitimate reasons companies can’t simply pay full market prices for houses, especially ones that need major work or have aspects that will put off traditional buyers.
Unlike traditional home buyers, they must account for a variety of additional costs and risks, including:
- Stamp Duty taxes on each property purchase (not all traditional buyers pay stamp duty)
- Real estate agent commissions and fees for relisting
- Legal fees for both themselves and the seller during the initial purchase
- Legal fees for the eventual resale
- Cost of surveys, inspections and due diligence
- Losses incurred by sellers backing out before exchange of contracts
- Carrying costs like insurance, utilities, maintenance during holding period
- Costs for repairs, renovations redevelopment
- Their own labour, marketing and overhead expenses
With so many extra costs baked in on top of the purchase price, these companies can’t afford to buy your property for more than 80% of the full market value without jeopardising their ability to profitably operate a business.
Ultimately, the discounted purchase prices allow them to absorb all those additional expenses and still turn a profit.
Why sell to a cash-buying company?
There are many advantages that lead to sellers favouring cash-buying property companies when offloading a property:
- Speed and convenience: Forget listings, showings and the uncertainty of waiting for a traditional buyer. Sales can close in as little as 48 hours with a house buying company.
- No upfront costs: No need for repairs, renovations, staging or any other prep work that costs time and money with traditional sales. House buying companies will buy in any condition and cover all the seller’s expenses.
- No agent commissions: Sellers avoid paying 1-2% in estate agent fees and commissions.
- Certainty of sale: Once under contract, the sale is assured to close with a house buying company, as many like Property Rescue will guarantee the sale.
These companies cater to sellers who prioritise a fast, hassle-free, guaranteed purchase. They offer speed and convenience in exchange for a discounted price. For many sellers, the fast, guaranteed payout is worth giving a discount on the sale price, especially for sellers of properties that are considered undesirable.
Not all cash buyers are created equal
As cash-buying property companies have grown in popularity, so too have dishonest operators looking to mislead sellers. Some unethical cash buyers resort to unscrupulous tactics like:
- Changing their offer amount at the last minute before closing
- Falsely promising an ultra-fast all-cash closing timeline
- Using aggressive and misleading marketing tactics
- Not having the financial ability to actually follow through
To avoid these disreputable firms, sellers should vet any companies by:
- Checking for real customer reviews and testimonials
- Ensuring they are regulated by the Property Ombudsman
- Verifying membership in respected industry organisations like the National Association of Property Buyers (NAPB)
- Enquiring about their source of funds and closure rates
Be wary of any company claiming to pay 90% or even 100% of market value, as this could be a lead generator looking to collect your information and resell it, not a legitimate cash buyer.
Property Rescue: The best choice
Property Rescue has been a leading national cash home buyer for customers across the UK for well over a decade, now having purchased thousands of homes from sellers. As an actively accredited member of the NAPB and the Property Ombudsman, we adhere to the highest standards and best practices for the fast home buying industry.
This commitment to ethics and transparency has earned Property Rescue exceptional customer ratings. Unlike other companies that make empty promises, we have an experienced team and dedicated funding sources for a seamless, guaranteed sale process.
To get started, Property Rescue offers free, no-obligation cash offers, followed by sale completions in a timeframe that suits you. Customer service remains our top priority from first contact to cash payout. With Property Rescue, you can feel confident selling to an established and reputable cash buyer with a glowing reputation.
Summary: cash-buying property companies
So while all companies that buy houses are ultimately focused on creating profits, trusted operators like Property Rescue demonstrate how the model can deliver a valuable solution for sellers prioritising speed, convenience and certainty over the utmost sale price.