There’s nothing classier than advertising your shady real estate business on a billboard. But business is all about the numbers, and judging by how many of these billboards have popped up, the we buy homes, or internet buying (ibuying), field must be very lucrative.
My Experience With All Cash, Quick Close Buyers
A few years back, I was helping an experienced agent hold an open house at an overpriced listing. The home was located on a very desirable plot of land. About midway through the open house, the listing agent asked me to take the mail in, and one letter was from one of these we buy houses type of companies. Side note, the seller had given the listing agent permission to open their mail, and forward along the important pieces to their new address.
We were not getting much foot traffic, so we decided to have a little fun. The letter stated that the homeowner could get an all cash, no contingencies, quick close offer on their house. The home could be in any condition and be any style, both stylish or ugly, too. Great! After all, the home had been on the market for months.
The listing agent called the number on the card, on speaker phone of course. After a few clicks, a person, whom I presume was a middle-aged woman, picked up.
Talking With the Call Center
The listing agent, “Hi, I received your letter in the mail. We are happy to sell the home.”
The woman, “Fantastic, where are you located?”
The listing agent, “We are in Massachusetts, right outside of Boston.”
The woman, “Great, we are buying homes there. What type of house is it?”
The listing agent, “A single-family colonial.”
The woman, “Perfect. We may even be able to give you a quote over the phone today.”
Of course, the woman over the phone assumed the listing agent was the owner. After a few minutes of back-and-forth, the woman on the phone asked how much the listing agent thought their home was worth. The listing agent thought about it for a second and then said, “Well, we are listed at 3.2 million, but I think we can make a deal if you come close to that.” The line went dead. We both had a good laugh over that one.
How Do We Buy Houses Companies Make Money?
The concept is pretty simple. They buy your home, do some work, if necessary, and then sell your house: Some may also rent out your home, eventually using it as leverage to finance buying more homes.
The general idea in real estate is that to make money on a property you have to add value in some way. Perhaps one will add value by fixing up the home, or maybe one will add value by simply buying the house for a rock-bottom price: The latter is what I think of when I think of those we buy homes websites.
Who Could Benefit From iBuyers?
I cannot think of someone who could benefit from ibuyers besides those who are financially desperate. For example, if you own three properties, are facing foreclosure on all of them, have no savings and have just lost your job, it is theoretically possible that selling one of your properties very quickly could save you the other two. However, I would caution anyone who thinks they are in such a situation to talk with a competent attorney long before considering calling a billboard.
Then there are those who lived in rural, depressed, low cost of living (LCOL), or even very low cost of living areas (VLCOL). The key word here is depressed, because if there are local buyers around, it generally makes a lot more sense to first approach them with your property.
For example, I have a friend who lives in a very remote area of Iowa. Homes in his region average around $100,000, and at any given time there are only one or two homes for sale in a ten-mile radius of his own.
Theoretically, even a few people listing their homes for sale at the same time could oversupply the market. In which case, it may take months, or even years, for my friend to find a buyer of his home. Consequently, approaching a bigger firm may result in a faster sale for more money than any local buyer, regardless of the latter’s intention for the property (flipping, renting out, living in, etc.), would offer him. Possibly.
Are the We Buy Houses Billboards Legitimate?
Yes, many of them are legitimate businesses. For example, HomeVestors of America has been around for a while. Others are smaller operations, especially those only found online (ibuyers). These companies fall somewhere between straightforward enterprises to outright scams. Examples of more widely known programs include Opendoor, Offerpad, Zillow and just recently, HomeLight. Remember though, just because an operation is legal does not mean it deserves a positive review. Many evaluations of even the most widely-known ibuyer companies mention aggressive sales representatives and hidden fees, among other concerns.
How Should Someone Sell Their Home?
Everyone who is considering selling a piece of real estate should get an opinion of value from a local real estate agent. Many agents will run a comparative market analysis (CMA) free of charge. A real estate agent may know of buyers, some of whom are willing to buy your home as-is and in cash. In fact, in my local market, many builders allow sellers to leave all unwanted possessions in their home at the time of sale. This is because they are intending to raze, or substantially renovate, the home. Some builders work exclusively with a local agent they trust, not with ibuying websites.
In fact, if time permits, it would be wise to get an opinion of value from multiple agents. Some homeowners before putting their home on the market also consider getting an appraisal from a licensed appraiser, and a few even consult with attorneys; the latter being especially important if the land has value to a developer.
Above all, remember that everyone is out there to make money by adding value at some point, or multiple points, in the home buying and flipping process: Good deals are those in which the seller and buyer have both maximized the areas in which they can add value. While the appeal of selling your home quickly and not going through the conventional sales process is certainly there for many, one may be parting with their property for cents on the dollar.
