Should I sell my property to a cash house buyer?

Given how time consuming, and stressful selling a property can be, it’s no wonder people look for alternative methods of selling their home. Auctions, raffle sales, and selling a property without an estate agent have all increased in popularity in the past few years. But, one of the more appealing alternative routes is selling to a cash buying company, or a ‘we buy any house’ type organisation. These companies offer the prospect of a quick, guaranteed house sale. These companies make a cash offer on your property - usually at a below market value rate - and if you accept, you're promised a completed house sale, and the cash in your bank account, within 7-28 days.

In the UK there are over 16,000 estate agents to choose from. This amount of choice can be overwhelming, particularly if you need to sell your house quickly. How do you know who can best support your sale? Which agent can help you sell fast and get you the best price? But when selling your house without an agent seems equally - if not more - daunting, turning to a 'for cash' house buyer appears to offer a simple solution.

But, selling to a professional house buyer can be very risky. There's a large danger of being caught up in a scam. It's quite common for home sellers to receive less money than the house is worth, or to endure a much longer sales process than was initially promised.

We took a closer look at cash house buying companies. We wanted to explore what they could offer to home sellers, and what risks you should be aware of before you use them.

Our main piece of advice is to research any home buying company very carefully before deciding to work with them. In some cases they can offer the route to a quick house sale. They can be useful if you've got a 'difficult-to-sell' property. But in most cases they are more risky and complicated than the more traditional routes for home selling, and should be treated as a last resort.

What is a cash house buyer?

Cash house buyers are individuals or companies able to buy a property outright. They have all the money to make the purchase possible on hand. So they don’t need to sell a property or take out a mortgage to acquire the necessary funds.

A genuine cash buyer will be able to provide proof that they have enough money to pay immediately. And, because they have the funds readily available the sales process can be very quick.

Most professional house buyers are property investors. They are looking to buy properties at below market rates to 'improve' them through renovation and extension. They can then sell these on or rent them out for a profit.

There are lots of companies that claim that they can buy your property for cash. Their websites will often promise a quick, 'guaranteed sale' for any type of property. There are a few that really do have the money on hand to do this. But, a genuine cash buying company is unlikely to guarantee that they can buy your house before they have any information about the property.

Are cash house buyers legitimate?

Legitimate cash buyers will be able to complete a house sale in 7-28 days, without using an estate agent, or undertaking lots of viewings. Untrustworthy firms can leave you out of pocket, or locked into a dodgy option agreement. One of the hardest things is knowing how to tell the difference between reputable and disreputable house buying firms.

There's a understandably a lot of suspicion surrounding professional house buyers. There are a large number (if not a majority) that don’t actually have the funds available. And, several of those companies that claim to be property buyers are actually just trying to exploit financially vulnerable homeowners looking to release equity quickly.

These companies aren’t actually ‘cash buyers’. They act as middle men for investors or other property buyers looking for cheap deals from people who need to sell quickly. These 'cash buyers' will usually ask you to sign an ‘option agreement’. This will tie you into using their service for a set period of time (and can be up to 6-12 months depending on the company). The process will then take much longer than the 7-28 days they promise as they try and secure a 3rd party buyer. This is definitely not the quick sale solution these companies promote. Often these arrangements take much longer than selling through a good local agent.

How do cash buying companies work?

Most genuine property buying companies in the UK follow a similar process when assessing whether they can make a cash offer on your property.

First they'll conduct a valuation of your property. This will help them figure out what your house is worth. They’ll be looking at: the details of your house including it's condition and location; what similar homes have recently sold nearby (and how much for); and what is currently on the market (and their asking prices). They might also consider things like your property's development potential. You're likely to be more appealing to a cash property buyer if they can see obvious scope to extend, renovate, or update your house, so that they can sell it later for a profit.

Some cash property buyers will be able to do this completely remotely using mapping software and publicly available property information. These companies are likely to be buying for development projects. Others, who are looking to invest in property to rent out or renovate, will need to come to your house and conduct an in-person inspection and valuation.

Remember, a legitimate cash buyer will never ask you to pay a fee to conduct a valuation or a survey of your property. Nor will they try and tie you into an 'option agreement', which prevents you from selling your house elsewhere for a set period of time.

Once they have valued your house, you’ll receive their offer. This will likely be between 75-80% of your property's full market value. If you choose to accept this purchase price, arrangements will then be made to complete the sale. You should then be able to hand over the keys and receive the funds to your bank account within 7-28 days.

Pros of selling to a professional house buyer

There are certainly benefits to using a cash house buyer. A genuine cash house buying service guarantees a quick chain-free sale, and removes some of the most stressful aspects of home selling. You won't have to have lots of people coming to view your home, or deal with a lengthy conveyancing process. In some cases you may even be able to sell your house within a week. (Though it's more usual for companies to offer the chance to purchase your home within a month.) This could provide much needed peace of mind if your financial position has changed dramatically, or you're required to move at short notice for work or family.

Moreover, property buyer companies are often willing to purchase hard-to-sell properties. If you want to sell a house that isn't mortgageable, or is in a state of disrepair a cash buyer could provide an appealing solution. Selling to one of these cash buying companies removes the hassle and cost of dealing with these issues pre-sale.

One of the main reasons why some home sellers are attracted to cash property buying companies is the lack of selling fees. Because you’re selling your property at a below market rate, it's standard practice for cash house buying companies to cover the costs of any legal fees. The 15-25% discount you are taking on the market value of your property is partially compensation for not having to pay estate agent fees (which are usually 0.75-3.5% of the final sales price) or legal fees (which tend to be about £1,500+).

Cons of selling to a house buying company

Despite these benefits, there are a number of reasons why the majority of sellers should avoid professional cash house buyers.

One of the main negatives of selling to one of these companies is the lack of regulation compared to selling a property on the open market. Unlike high street estate agents, cash buying companies are not regulated. This means there are a number of untrustworthy and illegitimate providers out there, and lots of scams. A small number of property cash buyers will voluntarily join a professional body, these companies are more likely to be trustworthy.

One of the most common tricks used by less reputable property buying companies is called gazundering. Gazundering occurs when the buyer reduces their offer on your property - usually right at the last minute - forcing you to accept a lower sale price, or to pull out of the deal. If you've also been tied into an option agreement, you may not be able to sell your property to someone else until the contractual period has ended. Unfortunately, this is a completely legal practice and is very difficult to prepare for or protect your sale against. This trick is commonly used to exploit vulnerable home sellers who turned to a cash buying company because they needed a quick way to free up the equity in their homes. They are then forced into accepting the lower cash offer, because they have no other option.

Another common scam used by illegitimate cash buyer companies is to make a verbal offer, but then asking you to pay a refundable fee for a surveyor’s valuation before they confirm the offer in writing. Because this fee is only refunded if you accept their offer, the system is easily abused to force sellers to accept a very low price for their house. If a company asks you to pay for a survey, it’s best to walk away.

In every case, professional cash buyers will expect you to sell your house for less than its true market value. Usually these cash buyers will offer between 75-80% of the market value of your house. So, although you won’t have to pay estate agents fees, you’ll generally end up walking away with less money overall.

An estate agent will charge an average fee of 1.5% of the final sale price to sell your house. On top of this, you will likely pay between 0.5-1% of the sale price in legal fees. Therefore if you work with an estate agent you will spend approximately 2.5% in fees. In contrast if you choose to accept a cash buyer's offer you will lose about 25% of your property's value.

The reason cash buying companies are willing to take on these costs is because they are getting such a large discount on the market value of your home that it still remains good value for them. If you're thinking about working with a cash buyer, you should weigh up whether the quick sale is worth walking away with less money.

Read more about what an estate agent can add to the home selling process here.

Questions to ask any cash buyer

• Do you have immediate access to the cash amount you're offering?

It’s important to make sure that buying companies are able to provide proof of funds. This will ensure that the company you are dealing with is actually a genuine cash buyer. Legitimate companies are aware of this concern, and should have no problem providing this information. Proof should be provided either in the form of a bank statement, or a solicitor’s letter.

• Do you buy property for yourself or others?

Asking this can help you get a sense of whether the company is legitimate or whether they are buyers of property for 3rd parties. This is particularly important to check if you are asked to sign an 'option agreement' that ties you in to working with the company for a specific length of time. In most cases, companies requiring that you sign this sort of contract are acting as middlemen and do not have the full amount in cash on hand.

• What is your complaints procedure?

A company’s response to this question will give you an insight into their level of customer service. If the firm doesn’t have a procedure, or they seem unsure, reluctant, or rude when you ask this question, this is a real warning sign.

• Are you a member of any professional bodies (for example, the National Association of Property Buyers or The Property Ombudsman)?

Although the professional cash buyer industry is not officially regulated, some companies choose to join professional bodies to demonstrate their trustworthiness. Companies that are members of these professional bodies have made a voluntary agreement to act in line with their codes of conduct. They will be required to uphold certain standards throughout the house sale process or they will be penalised, or even expelled from the organisation.

In addition to asking these questions, make sure that you receive written confirmation of any cash offers and, if possible, written assurance that they will not lower the offer once you have accepted it. Although this is not completely failsafe, obtaining written confirmation can provide you with extra protection from gazundering. And, if a company is reluctant to offer more than a verbal promise, you will know to look elsewhere.

Remember: A genuine cash buying company should never ask you to pay extra fees for things like property valuations, surveys, or house repairs. If a cash buyer claims they have to charge you one of these extra fees, go elsewhere.

Find reputable companies that buy houses for cash

So, should I sell my house to a cash buyer company?

Sometimes your personal situation means that you need to obtain a quick sale for your property, and you’re willing to accept a lower cash offer for a speedy process. Perhaps you’re selling your house in order to relocate for work, or you’ve inherited a difficult-to-sell property and need to release some equity. There are a number of risks with going down the ‘we buy any house’ company route, but if you are willing to research carefully, they could offer a viable option.

If you have a bit more time, selling your house with a good local estate agent is undoubtedly the safer option. A top performing high street agent will support you through the sale and ultimately leave you with more cash in your pocket. Using GetAgent’s comparison tool you can see which agents near you sell properties fastest, and consistently achieve the best price for property in your area.