It’s no secret that the quick house sale industry has a reputation problem. Stories of sellers being ripped off by dishonest scammers are all too common and the industry was put under the microscope of the office of fair trading back in 2013 which led to a damning report concluding, amongst other things, that many companies were using practices that ‘may not comply with the law’.
However the report also did state;
“Quick house sales can be beneficial to home sellers who want a quick, guaranteed and hassle-free sale. Our study has shown this to be a dynamic and innovative sector where some businesses have modified their business models to try to offer a better service to home sellers.”
So the big question is are there honest house buying companies out there and do they deliver good value to customers? We have crunched the numbers to find out, read on to see our findings.
Our Investigation
Part 1 – The honesty of house buying companies
The first part of our investigation was focussed on the ‘honesty’ of cash house buying companies. In this case we took honesty to mean how great was the difference between what they were offering versus how much they actually ended up purchasing the property for compared to the market value of that property.
To do this we used publicly available data from, Companies House to locate properties purchased by the companies, HM Land Registry to find the bought and sold prices and our own internal data from mystery shops for the initial offer. We used data from the last 24 months to get a recent snapshot and only used the data from companies that had made enough purchases to constitute a fair average. It is worth noting that this method does mean that only house buying companies that use a loan facility to purchase the properties can be included but this covers the majority of the major house buyers in the sector. It is also worth bearing in mind that the ‘offer’ we received was only the initial offer and not the final offer which could have been revised.
Wow, that was dull, now to the good part, the results.
How honest are cash house buying companies?
On average the initial offer we received from the companies came to 83% of their valuation of the property. We didn’t get any offer from a genuine cash buyer of below 80% with the highest being 90%. The most commonly occurring offer was 80%. So how does this stack up with what they end up paying for properties?
The average purchase price of properties that were bought by house buying companies and then went on to be sold on the open market comes out at 80.18%, this is a fairly astonishing testament to the valuation process of these professional house buying companies especially given the market volatility experienced in recent times, perhaps estate agents should take note as the long terms average for houses selling at the initial asking price is a very modest 23% according to data from rightmove.
“The average price paid by the house buying companies in our study came to 80.18%”
Although the average comes out favourably for the industry there are outliers at the individual company level.
The lowest average purchase price for example was 74.91% a 5% difference from the initial offer and the lowest individual purchase that we came across was at a shocking 58.64% of market value! It’s impossible to know the circumstances around this sale but it seems more than likely that the seller got a bad deal.
Expert Insight
“Whilst it is good to see the industry cleaning up it’s act with more companies making transparent offers and sticking to their word it is still important for anyone considering using a house buying service to continue to do their due diligence and remember the golden rule of never signing a contract with a house buying company”
Kelvin Elliott, Cash Sales Expert
It’s also evident that sometimes companies do get it wrong in the sellers’ favour, with the highest individual purchase we saw coming in at 119.62% of the eventual sale price, meaning that the company lost thousands of pounds on the transaction, too many missteps like that and a company can easily go out of business.
Part 2 – Are cash buying companies thieves?
So we can interpret our data to say that on average cash buying companies are actually fairly honest, paying very close to what they are initially offering and on average paying a touch over 80% but where does this magical figure of 80% come from and is it a fair price to pay or are they ripping people off?
How fair is an offer of 80% from a house buying company?
Getting an offer of 80% for your property can be a bitter pill to swallow for some people, you often see bad reviews from people that have enquired with a house buyer and have been ‘disgusted’ by the ‘offensive’ offer. These people are generally not the people that should be making an inquiry with a cash house buyer in the first place. A house buying service isn’t right for the majority of people, the market size is estimated to be between 0.5 – 1% of the housing market but for that 1% of people the service has significant value.
Being able to sell your house in as little as 14 days, or to get rid of a problem property by selling ‘as is’ without having to resolve cosmetic, structural or potential legal issues can be truly helpful, enabling people to get on with their lives free from a burdensome property. In this case paying 20% can be a small price to pay.
When you take into consideration all of the costs that are associated with the purchase and resale of a property you can easily see why companies need to pay around 80% to stay profitable;
So that works out to just under 9% gross margin. When you take into account other business costs, tax and fluctuations in the housing market a professional house buying company will be lucky to make a profit of around 1.5% – 3.5% per year.
Don’t get your tiny violins out just yet that can still be a significant amount of cash but at the same time this business model does come with high risks, the housing market can take a nosedive at any point, think Liz Truss’s mini budget, which can leave companies holding on to properties for longer than planned and taking heavy losses.
To get an idea of what an offer from a house buying company would look like for you use our ‘cash offer calculator’ by clicking the button above.
Final Thoughts
So there we have it, the cash house buying industry does have honest companies playing with a straight bat paying a fair price to make modest profits. That being said this in no way means that you just close your eyes and pick a company at random and expect that you will get an honest service at a fair price, even in the companies that we analysed there are plenty that we wouldn’t recommend dealing with based on their business practices alone. Averages of course don’t tell the whole picture and there are many smaller players in the market that didn’t have enough purchases to be included in our study.
Before making any decision on which house buying company to use it is essential to do your due diligence so you don’t fall foul of the bad eggs. There are good companies out there, you just have to find them.
Alistair Nash is a co-founder at Cash House Buyer Guru and a seasoned property market analyst. With a strong background in data analysis and real estate, Alistair brings a unique perspective to simplifying complex real estate problems. His insights are focused on providing clear, actionable advice for homeowners looking to navigate the cash sale process effectively.
“Nothing is so fatiguing as the eternal hanging on of an uncompleted house sale”
