What Should You Think About Home-Buying Companies Willing To Pay Cash for As-Is Properties?

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Mortgage rates are soaring at a time when inflation, a stock market decline and a slowing job market have pressured American bank accounts.

Home prices are retracing after a long period of increased values, capped with a frenzied buying period earlier this year where people were placing offers well above asking price — sight unseen.

During the peak, internet home-buying companies proliferated quickly. The type you used to see only on hand-written street corner signs: Will buy your home in any condition. Cash offers.

But are these home-buying companies worthwhile? That’s what a listener of the Clark Howard Podcast recently asked.

Are Cash Home-Buying Companies Worth Considering?

To those of us used to traditional housing deals, where you list your home through a real estate agent and field offers, it’s hard to know what to make of the home-buying companies.

The topic came up on the Dec. 5 podcast episode.

Richard in California asked: “I want to know if Clark has an opinion on the many home-buying companies advertising on TV who say they will pay cash for as-is properties.”

At one point in time, these companies were only beefing up a frothy home marketplace. Clark got 17 solicitations from these types of companies in his mail in a single month for an investment property he owns.

Sometimes the offers from home-buying companies became competitive. They often offered a set, non-negotiable price minus a fee. In many cases, it turns out, those offers were too generous.

“This became a phenomenon back in the early 2000s before the real estate bust and became again with the big run-up in prices over the last five years. And this became a dare-to-be-rich thing,” Clark says.

“A lot of people want to buy your house. You don’t have to worry about listing it on the market and all that. And [these companies] were able to make money for years just from the continual price appreciation we were seeing in the market. They [gave] generous offers for years. That’s over.”

A New Era for Home-Buying Companies

Zillow, one of the well-capitalized e-buyers, shut down its program. Other big organizations have been laying off employees.

In other words, don’t expect one of these companies to give you an offer that’s equal to the fair market value of your house. You’d have to sell your home to one of these entities below market value.

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It’s still good that they’re providing some level of market liquidity at a time when the number of would-be home-buyers is shrinking dramatically. But unless you’re in a desperate position, it’s probably not a good idea.

“Offers you’re going to get now from people who say, ‘We’ll buy any house,’ they’re going to be at meaningful discounts. So you have to have a specialized circumstance where you need the certainty,” Clark says.

“Are they legitimate offers? Almost always yes. Are they going to be good prices for your home? Not necessarily.”

Final Thoughts

If you’re curious like Richard was, home-buying companies are almost always legitimate. Especially the ones that advertise on TV. But that doesn’t mean you’ll like their offers.

The market for homes right now is drastically different than it was a year ago. So home-buying companies looking to flip your real estate for a profit need to purchase at a significant discount to make money.

They do present an option if you are in a special circumstance where you need the cash immediately.

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