How do Companies that Buy Houses Work, and Are They Legitimate?
If you need to sell your house fast, you’ve probably noticed ads for the companies that buy houses in any condition. Whether they’re ugly houses, damaged houses, hoarder houses, foreclosure houses, or something else. Lots of sellers just like you have tons of questions. And that’s where this blog post comes in to help.
FAQs About House Buying Companies
Below you will find answers for common questions people ask us so that you can learn how house buying companies work and how to determine if selling your home to one of them is a good choice for your specific situation.
- Are “We Buy Houses” companies legit / will I get ripped off?
- How do house buying companies make money?
- How does the process work with these companies?
Companies that buy houses in any condition are real estate investors, flippers and wholesalers. They look for properties that need expensive repairs, are in foreclosure, or have severe damage that make them unlivable.
These companies usually look for properties in areas where newly built or completely remodeled properties sell at a much higher amount than old and run-down properties. Because the costs to rebuild or restore an old house can be quite high, the owners of the house often lack the money to make the needed repairs.
On the other hand, companies that buy ugly houses often have business financing that allows them to purchase these houses and repair them. Because these companies do this for many properties, putting a significant amount of money into renovating a home isn’t as risky for them as it is for an individual homeowner.
Because the we buy houses companies do not plan on living in a house after they buy it, and because they often have their own teams that can do the renovations, these companies can normally turn a profit no matter what the original condition was when they bought the house. This is why it might be a good idea to contact one of these companies if the costs of repairs for your house are so high that you can’t afford to fix it.
Now that you know why these companies might want an ugly house, here are some questions and answers you can ask to help you determine which one to sell too, if it is right to sell to them, and whether or not they are legit.
Are House Buying Companies Legit?
Yes. The majority of companies that buy houses are real estate investors that purchase distressed, infested, burned down, flooded and even murder houses. These buyers take over the debts from the bank and they renovate or rebuild the property hoping to turn a profit from the rehabilitation. But you have to be careful because even though most are legitimate businesses, they’re not all created equal.
Some will be genuine and want to help you out of a bad situation—like recovering some money from the sale of your home, instead of having a bank foreclose where you lose everything. But others will pressure you to think their offer is the only one you’ll get, sort of like the stereotypical used car sales person. Below, we’ll give you the key to identifying these pushy people.
How to Know If You’re Talking to a Scammer
Reputation is Everything. To find out if a home buyer is a scam, rely on their reputation. Reputation is everything and you should never feel like the house buyer is hiding something from you. Ask anyone that promises to buy your house these questions, and make sure they give you the right answers. That way you can have peace of mind that you’re dealing with a professional buyer.
Are you accredited by the Better Business Bureau and what is your rating?
We are accredited by the Better Business Bureau and we have an A+ rating. But don’t take their word for it. Check for yourself at BBB.org.
Be careful though. Scammers out there often impersonate reputable companies. Make sure the business address and phone number matches the real company. Also make sure you see the BBB Accredited Business Badge. Notice how our BBB listing shows the same address and phone number that’s on our website? You can also see the BBB Accredited Business Badge right in line with our name.
Along the same lines, any reputable company should willingly give you the link to their business page on the BBB website. Here is the link to our business profile.
How do I know you have the money to purchase my house and won’t leave me stranded when it’s time to close?
If you look right here, you can see the balance in our bank account. That’s more than enough for us to purchase your house.
Remember, just because someone signs a contract with you doesn’t mean they have enough money to buy your property. Many scammers out there will get you to sign a contract and then run all over town trying to find the money. When they can’t, they’ll often back out of the contract and leave you in a lurch after you’ve already planned your move and paid for movers.
What fees do you charge me during this process?
NONE. Legit house buying companies should cover all commissions, closing costs, and other associated costs with the sale of a property. Remember that these companies make money by improving the real value of the property, mostly by renovating it. If they are asking you to pay a fee, you will want to consult with other companies in town. Or give us a call. Even if we don’t buy houses in your neighborhood, we likely know someone trustworthy that does.
How Do Companies that Buy Houses Make Money?
Most “We Buy Houses” companies make money either by renovating a property so they can sell, or “flip” it at a higher price, or by renting out the property and waiting for prices in the area to increase. A few examples of these situations include:
- Buying houses in up-and-coming neighborhoods. Investors will look for foreclosures and houses which are about to be sold at an auction. This way, they can buy property at a good price and wait for neighborhood prices to increase. Then they can either sell the land or build a new home and increase their profits.
- Another way these companies make money is by buying, renovating, rehabbing, or completely rebuilding the house, and then selling it for a profit. This is often in neighborhoods that are still desirable locations, but are filled with many older or damaged homes.
- The third most common way house buying companies make money is by buying the building or land, renovating it, and renting it for a higher price than their monthly mortgage and expenses.
How Does the Process Work?
- Step One is a meeting with the investor at your property. They will tour the property, take a bunch of pictures, identify any major issues, and come up with a solid estimate for what their renovation costs will be.
- Step Two is where the investor will research comparable properties in your neighborhood to come up with a potential value for they can sell the property for after the renovations are complete. You might here the terms “comps” or “ARV,” which stands for “”After Renovated Value.”
- Step Three is where the investor will make an offer on your property (if they are interested in purchasing it). There are many ways a legit investor can structure an offer, and they should always present you with two or three options based on your situation. That way, you are free to choose what works best for you.
- Step Four is the title and escrow process. This can take anywhere from a few days to possibly a couple weeks if there are multiple liens or mortgages associated with the property.
- Step Five is closing day. You can often do the closing online or at your own house with a notary public, but you might also meet at the office of the title and escrow company. You’ll review and sign the paperwork and if you are due any money from the sale it will get transferred to your bank.
What Kinds of Houses Will the Home Buying Companies Purchase?
House buyers will purchase all kinds of homes:
- Damaged in disasters like floods, fires and tornadoes
- Houses with foundation problems, damaged roofs, and other major issues
- Properties that have infestations including termites, bedbugs, mice, roaches and more
- Horror houses where murders and violent crimes took place
- Hoarder Houses
- Disaster homes where tenants tore the house to pieces and took off in the middle of the night
By using the information above, you’ll be prepared to work with “we buy houses” companies. You’ll know how they work and you’ll be able to figure out whether they are a legit company you can trust… or just another scam.
Make sure you're dealing with a reputable company that keeps their word, so you don't end up in a lose-lose situation.
If somone cannot answer yes to all of these questions, how can you trust them to do what they say?
Work with Express Homebuyers and you'll have both Peace of Mind and Cash In Your Pockets.
- Do they have proof of $$ in the bank that shows they are making an honest offer?
- Do they have an A+ rating by the Better Business Bureau?
- Do they have video testimonials from actual customers that they can show you?
- Will they provide up to a $20,000 cash advance to help with expenses when moving?
- Do they have a physical office and staff to help you through the entire process, or are they just working out of their car?