By Noah Buhyar, Patrick Clark and Jordan Holman | bloomberg
Zillow Group Inc. last year aggressively expanded home-flipping operations designed to make the $2 trillion U.S. real estate market better for consumers, until poor bets on home prices prompted the company to pull the plug. .
As it ceases operations, Zillow’s efforts to sell its inventory of thousands of homes uncovered a little-known truth about the business called iBuying. Tech industry efforts to simplify the home selling process rely on flipping properties for some of the biggest names in global finance.
A Bloomberg News analysis of more than 100,000 property records shows that Zillow and the two other largest iBuyers, Opendoor Technologies Inc. and Offerpad Solutions Inc., KKR & Co., Cerberus Capital Management, Blackstone Inc. Selling thousands of homes to landlords backed by ., and other large institutions. In many cases, those properties never get listed, further squeezing average buyers out of competing housing markets.
Two in 10 homes flipped by iBuyers last year closed with investors and other entities, and that rate is double in some Sun Belt metro areas, where companies are most active. What’s more, in some of those markets, flips are happening at a higher rate in communities of color.
The transactions raise questions about the role of iBuyers in the housing market hungry for affordable properties for both rent and purchase. From the Biden administration to conservative television host Tucker Carlson, a diverse range of American political voices have blamed institutional landlords for ousting regular families. Populist outrage over the role of investors in housing has also spread from Shenzhen to Seoul and from Stockholm to Berlin.
“It just doesn’t feel right,” said Mike Delpreet, a scholar at the University of Colorado Boulder who studies iBuyers. “These companies say, ‘We’re going to help mom and pop and inject liquidity into the market.’ They don’t say, ‘We’ll suck the houses out of the ordinary market and sell them to Wall Street.'”
Home flipping is an age-old business, and investors who buy and fix homes cheaply can play a significant role in the market by improving old properties. iBuyers brought a tech-driven spin to the idea. Instead of hunting for heavily discounted homes, they use algorithms to buy near market value, trying to capture a small profit on a large number of transactions.
The business model has resonated with customers during the pandemic, allowing property owners to sell without hosting an open house or waiting for a buyer’s mortgage to be approved. The three largest iBuyers acquired more than 27,000 homes in the third quarter of 2021, nearly double the number of homes they bought in the previous three-month period. At the end of September, the companies had more than $10 billion in fixed assets.
Getting a home is only one part of iBuyers’ business; They are also required to offload whatever they buy. Big landlords tend to transact faster and buy more frequently, which helps tech companies save money and gain scale. After raising more than $30 billion to acquire and develop rental homes since the start of the pandemic, they are flush with cash. And they focus on the same modestly priced, Sun Belt suburbs where iBuyers are most active.
As Zillow neared its November 2 decision to exit the business due to mounting losses, it marketed thousands of homes to institutional landlords, beginning a process that helped the company close the business.
Zillow spokesman Viet Shelton said the company’s remaining inventory represents a small portion of US homes sold annually, and that the company intends to sell homes to a variety of buyers, including households, small investors, institutional landlords and nonprofits. is of “The benefits of these diverse sales channels are common among all iBuyer companies in the space, with the notable exception that Zillow is selling these homes as we exit iBuying, while other iBuyers will continue these sales practices in perpetuity, ” They said.
A representative for Offerpad said most of the homes it sells are bought by individuals, and that the geography of investor purchases reflects how property funds reach the market. “We have a diverse mix of customers who benefit from the ease and simplicity of our services,” the representative said. “Where investors choose to do business is a function of their strategy.”
Opendoor declined to comment.
While selling off property funds has clear benefits for iBuyers and their customers, it is yet another way that some parts of the country are being denied affordable priced homes.
Redfin Corp. According to U.S. research, investors accounted for more than 18% of all US home sales in the third quarter, the highest share since at least 2000. Atlanta was one of the most popular markets, with investors selling 32% of homes. during that time.
Bloomberg analyzed fluctuations in census tracts where the median home value was between the 40th and 60th percentiles – neighborhoods where property should be affordable for regular households. In these parts of Atlanta, iBuyers were 60% more likely to flip homes for investors and other entities in predominantly non-white areas, where white people are in the majority. In metro Phoenix, where iBuyers flipped more than 4,500 homes last year, the rate was 41% higher. In Greater Charlotte, iBuyers were three times more likely to flip to non-white areas.
McDonough, Georgia, is a hot spot within a hot spot. About 30 miles southeast of downtown Atlanta, it is a city of about 29,000 with two-thirds of residents being black. The population has increased over the past two decades, amid a boom in suburban building. The majority of the city sits in one of the zip codes where iBuyers are most active nationally, selling more than 100 homes last year, according to an analysis of Bloomberg property records that were compiled by Atom Data Solutions. Were were About 70% of those homes went to investors, many without being listed.
Back in 2001, Nicole Prince was able to buy a modest, three-bedroom home while earning $12 an hour. She lived in the house for a few years, moved to something bigger nearby and kept it as a rental. Last year, the Prince, which is black, decided to sell and turned to iBuyers. Offerpad agreed to pay $191,000—much more than he thought: “I was like, ‘What?’ You couldn’t say no.”
The sale closed in mid-September. According to data from Atom, about three weeks later, the home was purchased by Tricon Residential, a homeowner that buys and manages single-family rental homes, for more than the $5,000 paid by Offerpad. Is. It still baffles him that it didn’t go to a young person or a family of color — someone who was just starting out two decades ago.
“I guess I didn’t pay it up front,” she said.
While there is growing concern about investors turning more and more homes into rentals, Wall Street’s complaints about the rise of landlords often leave out the complexity of the issue. For one thing, the majority of rental homes in the country are owned by small investors. For another, America is also facing a shortage of rental housing that has driven up prices and strained family finances.
When a homeowner buys a home from an iBuyer, they often add one unit of rental housing to a market that is in dire need, said David Howard, executive director of the National Rental Home Council, a trade group. Also, institutional players are offering homes in desirable neighborhoods to homes without cash for downpayment, he said.
“Race and ethnicity never dictate decisions about whether to buy or sell a home,” Howard said in an email. “Overriding motivation exists in neighborhoods and communities where the demand for quality and affordable-priced rental housing is strongest.”
KKR declined to comment. A representative for Cerberus portfolio company FirstKey Homes said it bought just 1% of its assets through iBuyers. “None of our portfolio companies have purchased a single off-market home from iBuyer,” said Kathleen McCarthy, global co-head of Blackstone Real Estate. Blackstone has a small stake in Tricon.
The confluence of iBuyers and Wall Street-backed landlords is on display in McDonough’s Creekwood Station neighborhood, where Prince sold his home to Offerpad. Amy Turner moved to the subdivision two decades ago, when the homes were new and most residents owned their property. She said, these days, almost three-fourth of the houses are on rent.
“I probably couldn’t even tell you the five landlords on this street,” he said while walking his dog on a recent afternoon.
According to Atom Data, an entity affiliated with Tricon bought the home next to Turner in February, paying OfferPad $140,000. Tricon also paid $140,000 to buy a house two streets from Opendoor. And Zillow flipped another house in the neighborhood in July for Progress Residential, a company run by New York-based investment firm Pretium Partners. A Tricon representative said most of the assets the company will acquire from iBuyers are listed on the open market. The company’s chief operating officer, Kevin Baldridge, said in a statement that single-family rentals allow families to “live in neighborhoods they might not otherwise be able to buy.” The company “receives up to 10,000 leasing inquiries every week across the country for only 200 to 300 available homes,” he said. Pretium declined to comment.
The rising number of rentals in the neighborhood was a good thing for Tyrone and Sheres Sapp, who were scrambling to find a place to live with their two children after Tyrone accepted a job transfer from New York to Atlanta.
Not exposed to several other rental options, Tricon accepted his application to lease the home next to Turner. The rent of $1,500 a month was higher than some small landlords like Prince. But for a couple who were living with two kids in a two-bedroom apartment in New York, the cost of the whole house didn’t seem so bad.
“In New York, sometimes it’s a basement apartment,” Sherres said.
The challenge comes when the tenants want to buy the house so that they can start building the property.
Institutional landlords already have all kinds of advantages over average buyers, said Desiree Field, assistant professor of geography and global metropolitan studies at the University of California, Berkeley, who studies single-family rental companies. By giving them access to off-market listings, iBuyers are only strengthening their hand, she said.
“It’s troubling,” Fields said. “It’s just going to make it that much harder for people who might otherwise be in a position to get a starter home.”
- The deed records were pulled from a national database of iBuyer transactions compiled by Atom Data Solutions on 23 December. Bloomberg News then matched records where the seller’s name matched with an entity used by Offerpad, Opendoor or Zillow. Buyers whose names were not an individual or a family or living trust were classified as an investor or other entity.
- Bloomberg used location data provided by Atom to determine each household’s census tract, which was then used to pull the demographic and housing characteristics of the surrounding area from the 2019 American Community Survey (five-year estimates) went. The flip rate was calculated by dividing the number of sales to investors in majority-white and non-white tracts by the number of single-family homes in those areas.
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