House buying companies typically pay between 75% and 90% of what your home would fetch on the open market. That range comes from the Office of Fair Trading’s market study of the sector, published in August 2013. It found that sellers who complete a quick sale usually give up between 10% and 25% of market value, and sometimes more.
In short
- Across the complaints the OFT received, offers fell by between 7% and 53% of the first figure, 22% on average.
- Some firms buy with their own money, some broker to investors, and lead generators pass your details on for a fee.
- Under The Property Ombudsman’s code, a change to the offer must be confirmed in writing within 15 working days of the seller accepting.
On a £200,000 house, giving up 10% to 25% means £20,000 to £50,000. The headline offer is not always the price you are paid, because the same study found offers cut after acceptance, often late. The discount only makes sense if you know what you are giving it up for.
Before you accept an offer from a house buying company, get a free desktop valuation: send us the address and you will have an evidence-backed range within 24 hours.
What the discount pays for
A house buying company is paid for speed and certainty. The OFT’s market study describes the usual model. The firm assesses the property’s market value, then makes a first offer already set below it, with 80% of market value given as an example. A company that buys to resell has to make its margin in that gap, after its own legal costs and the cost of holding the property until it sells again.
The study put the sector at between half a per cent and one per cent of UK residential sales by number. That was worth an estimated £0.5 billion to £0.9 billion, with an average quick sale of around £100,000. It identified almost 120 firms and said there were probably many more. It also found that marketing tended to stress the fastest possible completion, such as seven days, when three to four weeks was more typical.
The fair case for the discount is real. Firms promise no viewings and no chain, and many say they charge no fees or will pay some of the seller’s legal costs. For someone facing repossession, selling an inherited house they cannot maintain, or needing a clean break, certainty can be worth more than the discount.
The test is whether the firm actually delivers that certainty, because a quick sale that falls through or is repriced late has cost the seller the discount and the time.
When the offer drops before exchange
The first offer is usually subject to survey and contract, so it is an indication rather than a price. Across the complaints the OFT received, offers fell by between 7% and 53% of the initial figure, with an average cut of 22%. Each of those cuts came off a figure already below market value.
One seller close to retirement accepted £73,000 and was told the same day the offer was now £58,000. Seven in ten of the complaints came from sellers in vulnerable situations.
Put the OFT’s example offer next to the cuts in its complaints and the risk is clear. This is an illustration using the OFT’s own figures, not a quote from any firm.
Market value
£200,000
After an 80% offer and a 22% cut
£124,800
That uses the average cut across the complaints, so it is not a typical outcome for every seller, and some cuts were deeper.
Show the calculations
A first offer of 80%, the OFT’s example, on a £200,000 house is £160,000.
If that offer then fell by 22%, the average cut across the complaints the OFT received, the seller would keep £124,800, about 62% of market value.
A seller who has already committed to a purchase or a move has little room to walk away at that point, which is exactly the pressure the OFT said it was concerned about.
By December 2013, four firms had given the OFT undertakings, including not to reduce the price without a valid reason. The Property Ombudsman’s Code of Practice for Residential Property Buying Companies, effective from 1 June 2019, sets a similar standard for its members.
A change to the offer must be confirmed in writing within 15 working days of the seller accepting. If an issue needs longer to investigate, the firm must say so in writing within the same 15 working days, then give its reasons for any change once it has finished. The price should not be reduced late without a valid reason, explained in writing.
Ombudsman membership: Membership of that scheme is voluntary, so check it rather than assume it.
Buying company, broker or lead seller
Not every company that says it buys houses is the buyer. The OFT found three kinds of firm:
- some buy with their own money;
- some broker the sale to investors on their list;
- lead generators pass your details to other firms for a fee.
It said most firms appeared to be buyers from their websites, and that on closer examination this might not be the case.
The difference changes both the price and the certainty. A broker has to find an investor who will pay at least the offer price and can fund it quickly, so there is more room for the deal to slip or be renegotiated.
The OFT’s view was that brokering is likely to be estate agency work under the Estate Agents Act 1979. It said that brings duties under the Act and related rules, including giving clients certain information, declaring personal interests and joining an approved redress scheme.
The Property Ombudsman’s code bars members from a longer list of misleading practices. Three matter here:
- claiming to be the buyer when they are not;
- claiming to be a cash buyer when using mortgage finance;
- passing the purchase to a third party without the seller’s permission.
Where we sit: BlackBook Investments introduces properties to investor buyers rather than buying them with its own money, so we are on the broker side of this market, and we say so rather than claim to be the buyer. We are a member of The Property Ombudsman.
When a quick sale beats the open market
A quick sale suits a seller whose deadline is worth more than the discount: an arrears date, a probate cost that keeps running, or a property no mortgage lender will touch. Where the problem is price or condition rather than time, the open market usually leaves more in your pocket, and why a house is not selling can sometimes be fixed without a 25% discount.
A let property is a different case. The buyers for a house with tenants in it are, in practice, investors, and an investor prices the rent rather than the street.
In our view, from introducing let properties to investor buyers, that means a tenanted sale is not automatically a discount on what the house would fetch. That is our observation rather than an OFT finding, and the price still depends on the rent and the tenancy. Selling a house with tenants covers who buys and how they price it, and what your rental is worth sets out the sum an investor runs.
Whether you sell to a house buying company or on the open market, compare the money you keep rather than the headline.
- Get independent valuations. Get a view of market value from more than one independent source before any firm values it for you.
- Ask who is buying. Ask whether the company is buying or brokering.
- Ask for proof of funds.
- Get it in writing. Get every offer and every change in writing.
- Use your own solicitor.
What this means if you need to sell fast
Treat any offer from a house buying company as a price for speed, and work out what that speed is costing you in pounds. On the OFT’s 2013 figures, 75% to 90% of market value was the normal range.
A first offer can also fall a long way before exchange, and the OFT found that more likely where the first valuation was over-optimistic. Do not commit to an onward purchase or a moving date until you have a final offer in writing and independent legal advice.
If you want a second opinion before you accept, get a free desktop valuation: send us the address and, if it is let, the rent, and you will have an evidence-backed range within 24 hours, yours whether you sell or not. If you then want to sell, we can introduce the property to matched buyers with verified funds, and nothing is marketed publicly without your say-so.