Aug 16, 2021 - Real Estate

Digital real estate platforms make it easier to sell your house — and for Wall Street to buy it.

iBuyer sales to Wall Street investors

Illustration: Brendan Lynch/Axios

When online real estate companies such as Opendoor and Offerpad emerged more than five years ago, they promised to simplify a home-buying process for a society that increasingly does most things on an app.

But they’re not just making the home buying and selling experience easier for the everyday consumer. They’re also making it easier for Wall Street.

What’s happening: More than a quarter of the homes sold on the two iBuyer platforms since 2018 in Mecklenburg County have gone to corporations rather than individuals, according to an Axios analysis of county data.

  • On Opendoor, 26% of properties were sold to investors; on Offerpad, that figure was 28%.
  • In comparison, around 15% of overall properties sold during that time period in Mecklenburg County were purchased by corporations, according to data from the Mecklenburg County Assessor’s Office that shows most property sales.

Data: Mecklenburg County; Chart: Will Chase/Axios

“I just think it shows another facet of how the real estate market is changing and tilting away from individual person-to-person transactions and towards much more institutional, and sometimes opaque deals,” says Ely Portillo, assistant director of outreach and strategic partnerships at UNC Charlotte’s Urban Institute.

Opendoor declined to comment for this story. Offerpad did not provide responses to a series of questions Axios sent.

Why it matters: The inventory of homes for sale in Charlotte and cities across the country is at record lows. But demand has only grown.

How it works: iBuyers (instant buyers) are online platforms that offer cash to sellers, and then resell the home.

  • It’s often an option used by people who don’t want to go through the hassle of fixing up their home and listing it on the market.

Go deeper: A handful of companies made up the vast majority of sales to investors on iBuyer platforms. All are national single-family rental firms.

  • Sales to corporate entities affiliated with Progress Residential, FirstKey Homes, Tricon Residential, Invitation Homes and Amherst Residential comprised 21% of all sales on the iBuyer platforms. Eight percent of all iBuyer sales were to Progress Residential alone.

Data: Mecklenburg County; Chart: Will Chase/Axios

Flashback: In the aftermath of the Great Recession, as hundreds of thousands of families faced foreclosure, the federal government was desperate to find new owners for the vacant properties.

  • So Fannie Mae started a program to sell foreclosed homes in bulk to companies that would convert them into rentals.

Enter, Wall Street. Hedge funds, private equity and other groups invested $36 billion in more than 200,000 homes in the U.S., The Atlantic reports.

An analysis from the UNCC Urban Institute found that Wall Street-backed single-family rental companies now own more than 11,000 houses in Mecklenburg County alone.

The trend started well before iBuyers launched in fast-growing cities like Phoenix, Atlanta and, three to four years ago, Charlotte.

These new platforms have given the large single-family rental companies another avenue for acquiring homes, said David Howard, executive director of the National Rental Home Council — although the majority of their transactions still come through a traditional real estate agent.

  • For example, only 1% of houses in FirstKey Homes’ portfolio were purchased using iBuyers, says company spokesman Michael Torres.
  • iBuyer platforms are one channel Tricon Residential uses to acquire homes, chief operating officer Kevin Baldridge said in a statement, but not a significant one.

In fact, sales on iBuyer platforms still comprise only a sliver of the overall market, at around 2.7% in Charlotte, according to first quarter data from Redfin.

  • And the investors themselves point to the fact that the massive portfolios they have amassed are still only a fraction of the total inventory of homes in the country.
  • The 11,000 or so homes that the single-family rental companies own in Mecklenburg, UNCC found, comprise 4.3% of the single-family home market.

But investors have an outsized impact on starter homes, UNCC’s analysis determined, as the single-family rental companies concentrate on lower-priced properties. And they make up an increasing proportion of buyers in Charlotte, Axios’ Brianna Crane reported recently.

What they’re saying: David Hoffman, a real estate broker and CEO and founder of David Hoffman Realty, tells me that houses listed below $350,000 often receive 10 to 20 offers. At least half of them are from investors, he says, who often win bidding wars because they can afford to pay more in cash.

  • He believes that iBuyers are willing to offer top dollar for homes, even if they don’t always make a profit on the sales, in order to gain market share. That’s why, he thinks, they’re turning around and selling them to investors, who are willing to pay more.

The other side: Howard argues that single-family rental companies do not necessarily have an advantage over everyday buyers. He says the firms are usually only willing to pay a certain amount for a home, because it’s a long-term investment strategy.

  • “It’s often as difficult for a large rental home company to purchase a home as it is for anyone else to purchase a home,” he said.
  • He also says the industry is helping address the nationwide shortage of rental units.

The bottom line: While iBuyer transactions may not be a large slice of the market now, technology like Opendoor and Offerpad is undeniably transforming real estate in the long run.

Portillo said the prospect of a quick sale is alluring to younger generations used to doing everything on their phones. But, he says, it’s unclear how it will change the already-challenged market.

“Any time you have a so-called disruptive change to an industry, there’s going to be unintended and unknown effects down the line.”

Axios visual journalist Will Chase contributed to this story.


Get more local stories in your inbox with Axios Charlotte.


Support local journalism by becoming a member.

Learn more

More Charlotte stories

No stories could be found


Get a free daily digest of the most important news in your backyard with Axios Charlotte.


Support local journalism by becoming a member.

Learn more