How Do Home Buying Companies Work?

The popularity of home buying companies has been steadily on the rise over the past few years.

Image by Jens Neumann from Pixabay

This shouldn’t be any surprise as these companies pay home sellers right away, meaning you don’t have to wait to find a suitable buyer. But even as these companies become a lot more common, you might have some reservations about selling your home to them, especially if you’ve heard reports of some fraudulent home buying companies.

To safeguard yourself from becoming a victim of fraud, the best thing to do is learn how these companies operate. Once you do this, it will be easier to know whether to proceed with a deal with one of these companies.

How Do Home Buying Companies Work? 

Before we take you through how home buying companies work, it’s essential first to understand what they are. These are companies that purchase homes directly from homeowners, who then get paid in cash. They’ve become very popular because they provide homeowners a simpler and faster process of selling their homes, unlike with FSBO sale or using a traditional realtor.

Usually, payment for the house is processed within seven days. As a homeowner, you save yourself a lot of stress thanks to this streamlined selling process. However, you’ll have to settle for less money when selling your home since companies that buy houses offer you a discounted rate that’s lower than the market value. After buying your home, these companies go ahead and do the necessary repairs and then sell them for a profit later on the open market.

There are different types of home buying companies, and each of them operates differently. These different types of home buying companies are:

1. Buy-and-Hold Companies

These companies typically search for properties that provide them with adequate potential cash flow or equity so that the stakeholders or owners earn a decent return on their investment. They do this by buying the property to rent them to tenants and generate profit. Buy-and-hold companies are available in different sizes, with larger firms having a considerable overhead plus an in-house team of professionals to carry out different company functions. Some buy-and-hold companies are a lot smaller, so they do the repairs and property management to save money.

The buy-and-hold companies are often found in cities because they specialize in buying multi-family buildings and different kinds of rental properties.

2. House Flippers

These are firms that look for houses in a poor state and offer a low price for them. After that, they remodel or renovate the property to increase its value then resell it for a profit. When doing the repairs, house flippers prioritize doing certain improvements that will increase the property’s value. This includes doing mechanical repairs, changing the house’s layout, and putting in place necessary cosmetic improvements.

House flippers usually search for houses that will enable them to earn a profit margin that ranges between 15–25%, with this dependent on the project’s size. You can find these companies in many mid-sized metro areas and every major city.

3. iBuyers

These companies are backed by venture capital firms that purchase and resell the property on the internet for a small profit since they’re fee-based. Selling your home through these kinds of home buying companies is ideal since they can offer you a deal around 98% of the property’s value. To determine how much they should pay you, they use automated valuation models (AVMs) to calculate the property’s value. Nonetheless, you’ll be expected to pay the service fee, which ranges between 6–7% depending on its location. The service fee covers costs such as handling the marketing, purchase, and sale of the house. It also covers other costs, including repairs, HOA fees, utilities, and taxes. 

iBuyers mostly carry out their operations in big metropolitan regions. Therefore, they may not be available as an option if you live in a rural area or a smaller city.

Should You Trust Home Buying Companies?

It’s no doubt that there are some fradulent home buying companies. However, many of these companies are genuine, so you shouldn’t hesitate to sell your home to them. With that said, you should be ready to accept a lower value to your house’s actual value when selling your home to these companies. This is because they’ll renovate the property to repair any damages and improve its aesthetic appeal. After that, they’ll sell the house for a profit.

First, to safeguard yourself from getting tricked into selling your home by a deceitful dealer, do exhaustive research on the home buying company you are considering. This is vital because there isn’t any regulation overseeing the quick house sale market. To help you from getting scammed, here are some things you need to do;

• Verify the company’s credentials and make sure it is registered with the appropriate entity in your state or countnry
• Be patient and don’t rush signing papers unless you’ve carefully read the agreement.
• Hire an independent legal representative to guide you throughout this entire process.
• Have an independent valuation of your home carried out to determine if you’re getting fair value for your house.

With these safety precautions in place, you’ll be able to protect yourself from being a victim of quick house sale scams.

What are the Advantages of Dealing with Home Buying Companies? 

The rise in popularity of home buying companies has been due to some specific advantages. These include:

• The process of selling a home becomes easier and less stressful.  
• You’re offered cash payment, which saves you the hassle of dealing with inspection, traditional financing issues, and other factors that might cause a delay.
• There’s no need for any repairs that can eat into your profit.
• You’re guaranteed a quick sale of the house.
• They purchase property regardless of its condition.
• You don’t need any marketing skills to sell your house.

Takeaway  

Are you looking to sell your home and are considering dealing with a home buying company? If so, this in-depth guide has provided you with an understanding of how these companies work so that you can proceed with a deal with open eyes. With these insights, you can now see why dealing with a home buying company is an ideal strategy for selling your home at a decent price without any stress.

Lori Roche

Lori Roche regularly publishes high-quality articles on business and finances on her blog. Lori also submits guest posts to other websites and blogs to gain more readers.