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Wednesday, February 21, 2024
Feb. 21, 2024

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Heard of We Buy Ugly Houses? Here’s how it works — and why it’s so popular


Barbara Lane didn’t think her modest two-bedroom house in Margate, Fla., was that ugly – at least on the outside.

“It had a great backyard and beautiful trees,” said Lane, 79, a retired great-grandmother who now lives in Boynton Beach, Fla. “It just needed some work.”

After Lane got laid off in 2016, her small pension and savings weren’t enough to keep up with the rising cost of living and cover her monthly bills. She decided to sell her home, pay off the remaining mortgage and downsize by moving to a condo.

But real estate brokers told her the property couldn’t be listed unless she invested $20,000 in repairs to fix the leaky roof, broken air conditioner, caved-in patio ceiling and old windows.

“I was looking for another place to live but my credit wasn’t good and I had no income,” she said. “I got into a panic. I had to do something or I would be homeless.”

Then she came across an ad for We Buy Ugly Houses, the biggest and oldest player in the growing industry of iBuyers, short for instant home buyers.

We Buy Ugly Houses and other companies in the space – including Knock, Opendoor and Offerpad – allow property owners to sell their homes quickly without the hassle of open houses or advertising on the Multiple Listing Service (MLS) by offering to buy homes for cash – though at less than market value. Even the real estate online giant Zillow has entered the home-flipping game. The average profit on a house flip is about $60,000, or 48%, according to RealtyTrac.

According to the iBuyer site Ownerly, the Miami-Fort Lauderdale area clocked in at No. 1 in a list of the top 15 iBuyer markets in 2020, with Houston and Atlanta coming in second and third place. Tampa, Orlando and Jacksonville were the other Florida cities that made the list.

The area’s popularity explains why you see so many signs on the side of the road offering to pay cash for your home. Other common methods of advertising are robo-calls, robo-texts, and even fliers left on your windshield. The companies target homes in neighborhoods where property values are going up. But caution is essential when dealing with buyers who have reached out to you unasked.

A niche market

Among the country’s largest cash-for-houses buyers is We Buy Ugly Houses, a trademarked subsidiary of HomeVestors of America, a privately owned home-buying franchise based in Dallas. The company has 1,150 independently owned and operated franchises in 176 markets around the U.S. Many of them are existing real estate brokerage firms that add a branded cash-for-homes department to their companies.

Unlike most cash-for-houses companies, which look for homes that need minimal repairs, Ugly Houses specializes in severely distressed properties requiring extensive repairs before they can be listed for sale.

In 2020, despite the COVID-19 pandemic, HomeVestors claims the We Buy Ugly Houses franchise sold more than 10,000 homes, generating sales of more than $1.6 billion. David Hicks, CEO of HomeVestors, said the majority of clients fall into three categories: people who have inherited a home, family members of a senior citizen who need cash to put their parent or relative into an assisted living facility, or empty nesters looking to downsize and move to a condo.

Although the number of houses We Buy Ugly Houses sold in 2020 was 14% lower than 2019 due to the pandemic, the average sales price of homes grew by 10% year over year due to increased demand from buyers. The company ranked 36th in Entrepreneur magazine’s Top 500 Franchises in 2021, ahead of well-known brands such as Arby’s, Pizza Hut, Holiday Inn, Jiffy Lube and Denny’s.

Hicks said that the company stands out for two reasons: It specializes in a niche real estate market most brokers don’t care to deal in, and the We Buy Houses brand name immediately registers with customers due to the company’s billboard, TV and digital advertisements, which feature a cartoon caveman.

“We Buy Ugly Houses has 52 different trademarks on it, because our reputation depends on that name,” Hicks said. “If you see a sign on the side of the road, that’s someone trying to look like us. Those are bandit signs. There are a lot of people out there – companies and individuals – trying to do what we do. But our guys do well because they’re not trying to make a killing on one house. They’re buying a lot of houses. And every house we buy is paid for in cash, but we close through title companies, to make sure the sellers get their money.”

But the We Buy Ugly Houses name can backfire, too.

“The biggest problem we face is for people to understand the name,” said Don Cameron, owner of Hi-Land Properties, a Palm Beach County, Fla.-based real estate firm that was named the top We Buy Ugly Houses franchise in 2020, with 145 homes purchased and more than $41 million in total sales. “It can be a negative connotation. The challenge is to get the message to people that we’re talking more about an ugly situation than an ugly house. Most people don’t think of their homes as ugly.”

Still, the company’s success has spawned hundreds of smaller imitators whose names skirt the edges of the trademark, from We Buy Any House Cash to We Buy Homes in Any Condition.

How it works

When you contact We Buy Ugly Houses, you are referred to a franchise in your city. A representative inspects the property and makes you a cash offer on the spot based on the property values of neighboring homes and the condition of the home. The amount depends on the age of the home and the amount of repairs needed to bring the house to market.

Some offers are negotiable. Henry Dunn, 79, shot down the initial offer of $225,000 We Buy Ugly Houses made on his three-bedroom, two-bath home in Lauderhill, Fla., because it was too low.

“I said no thank you, but we stayed on friendly terms,” said Dunn, who bought the home with his wife in 2008 but hadn’t kept up with repairs. “We had a couple of Realtors come to the house to look at it, but they said it needed too much work.”

So Dunn texted the We Buy Ugly Houses rep with a take-it-or-leave-it counteroffer considerably higher than the initial estimate. The agent returned to the home that same day and after five minutes accepted Dunn’s price on the spot.

“We closed on the sale 45 days later,” Dunn said. “If you’re not looking to get top dollar because of the condition of your property, this is the way to go. We got enough to pay off the remaining mortgage and pay cash for a condo.”

Once the sale closes and the owner moves out, contractors come to the home and perform the necessary repairs, anything from a new bathroom to remodeling a kitchen. Then the house is listed for sale on the open market. Because the work at every step of the way is done by in-house employees, the costs of the renovation are lower. No outside brokers are involved – which means no commission. That allows the company to make an even bigger profit.

A boon for first-time home buyers

Hernan Rodriguez, chief operating officer of the Coral Gables, Fla.-based Grupo MRE brokerage firm, said he is currently remodeling four homes sold through We Buy Ugly Houses in Hialeah, Tamiami, Olympia Heights and Miami Lakes. Because the houses are bought on the cheap, the resale prices typically are below $400,000. The remodeled homes add desperately needed housing stock in South Florida, especially for first-time buyers, who typically can’t afford the median sales price of single-family homes that stands at $450,000, according to the Miami Association of Realtors.

“People in my business tend to think it’s a scam or some predator coming after somebody,” said Christopher Zoller, a broker associate with Berkshire Hathaway HomeServices EWM Realty. “But my gut reaction is this is an opportunity to first-time home buyers to get into the market. And everyone benefits: The home seller gets paid, the contractors are getting paid. The Realtor who puts it on the market gets a commission. The end user is getting a decent home below the median price.”

According to Cinthya Lavin, vice president of communications for the Better Business Bureau of South Florida, there were 34 complaints in the last 12 months about real estate investment companies, which she said is comparable to art galleries.

“That’s a pretty small number, especially over the last year, because most industries have had an active number of complaints about services due to COVID,” she said.

But Lavin warned that people should be careful despite the low number of complaints, especially when dealing with companies that advertise through direct mailings or fliers.

“The tip is to pay attention to the ad and make sure there’s more information than just the phone number,” she said. “There have been cases where people received a fluorescent-pink flier on the windshield of their car that only had a number to call.”

Application fees are another big red flag. Never pay an upfront fee, she said. “We advise getting three different estimates before deciding which company to go with.”

Ryan Kuhlman, president of the National Real Estate Investors Association, said a potential problem with large franchises such as We Buy Ugly Houses is that all franchises are not created equal.

“HomeVestors is a broad stroke company,” he said. “They can help some people, but others could get hurt.”

‘A worthwhile venture’

According to Attom Data Solutions, home flipping volumes dipped around the U.S. in 2020, with a total of 241,630 flipped single-family homes and condos – down 13.9% from 2019 and representing 5.9% of all sales in the U.S., down 6.3 percent from 2019.

And although flipped homes in 2020 generated a gross profit of $66,300 on resale – the highest amount since 2005 – return on investment dipped to 40.5%, the lowest since 2011 and a reflection of the ballooning home prices around the country.

“Despite the decreases, the business of flipping, for now, remains a worthwhile financial venture for home flipping entities ranging from individual investors to home flipping companies,” said Todd Teta, chief product officer for Attom.

In the tri-county South Florida area, there were 1,999 homes flipped in 2020, accounting for six percent of total home sales, a drop of 37% from 2015, according to Attom. The median purchase price was $218,000, and the median resale price was $312,000. The gross flipping profit was $93,200, up from $83,500 in 2020.

The Zillow effect

Enticed to offer another service to its users, Zillow, the online listing firm, rolled out its own iBuyer platform, Zillow Offers, in 2018. A year later, Zillow Offers expanded its services to Miami.

The process is similar to most other companies. Users plug in their home address and fill in details about their home (number of bedrooms and baths, date of construction). A market value arrives in their inbox within 48 hours.

If the user agrees with the quoted market value, a Zillow employee comes to inspect the house, looking for things that need to be fixed (carpet stains, leaky faucets) before the home can be listed for sale.

A revised and final offer arrives in 48 hours. Zillow typically purchases homes for roughly one percent (around $3,800) less than the value of the home as determined by the national title and insurance firm First American, according to a 2019 study by tech entrepreneur Mike DelPrete.

The seller has 30 days to consider the offer. If they accept, the sale can close anywhere as soon as seven or as far out at 90 days. The seller also pays Zillow’s five percent brokerage fee. After the sale is completed, Zillow hires a third-party contractor to make the necessary repairs.

“We do the work that a typical seller would do to put their home back on the market,” said Jordyn Lee, Zillow’s communications manager. “We are not tearing down walls. We are not doing crazy renovations. We are doing simple things that any seller would do to list their home, including painting, fixing leaky faucets, making sure all appliances work. We want to make sure that our homes are clean and functional.”

Much like We Buy Ugly Houses, Zillow’s brand name has attracted a range of clients, including dog owners avoiding the chore of relocating their fur babies for open houses, parents struggling to tidy their homes and sellers desiring more time to simultaneously land another home during the sale process.

Zillow Offers’ total revenue in the fourth quarter of 2020 was $304 million, or 39% of the company’s total revenue of $789 million.

“We thought the majority of people would be those wanting a quick sale,” Lee said. “But we’ve learned that one of the most important reasons that people sell to Zillow is this idea of not having to deal with the hassle of selling.”

A lifesaver

Sellers who hire We Buy Ugly Houses are less concerned about the hassle-factor; most are looking for a lifesaver. Lane eventually accepted an offer of $110,000 from the company for her Margate home, which allowed her to pay off the remaining mortgage and buy a remodeled manufactured home with wood floors and a new roof for $60,000 in Boynton Beach last October.

Her previous home is currently under contract to a buyer who paid $209,000.

“They really saved me,” Lane said. “I know they got a good deal on my place, but the pressure is off of me. It worked out wonderfully.”