Agents Should Probably Learn To Play Nice With Institutional Investors
As the U.S. economy largely recoiled in response to the pandemic last year, institutional investors also eased up on their spending. Home purchases made by institutional investors dropped over the course of three consecutive quarters by as much as 45.5 percent, according to a report by Redfin.
But all that changed as of the first quarter of 2021 when investors began dipping their toes into the market again. During that quarter, home purchases by investors increased 2.7 percent year over year, the first such instance investor home purchases increased since the beginning of the pandemic.
Investors purchased nearly 15 percent of all U.S. homes bought during the first quarter of 2021, according to Redfin’s data. Then, during the second quarter, that share rose even further to 15.9 percent of all homes purchased during that quarter.
In addition, home sale leasebacks, whereby an institutional investor purchases an owner’s home and then rents it back to them, have risen exponentially during the pandemic, giving investors another opportunity to get a foothold in the market.
Given this growing percentage of investors in the marketplace, agents may want to learn how best to work with them so as to both stay relevant and be able to better inform clients about all the options available in the market.
“My group actually runs searches every single day for homes on the market and off the market because there’s such a demand for properties and we can’t feed these iBuyers enough,” Larry White Jr., catalyst & creator of opportunities at Powerhouse Realty Group at eXp Realty, told Inman.
With the market being as tight as it is now, White said that different groups of institutional investors like iBuyers need help from qualified real estate agents in obtaining targeted local market knowledge in order to achieve or maintain market share goals.
“They have a need, they just can’t find enough properties,” White said. “Which is where most of these iBuyers want to work with more real estate [professionals] — they don’t want to cut real estate professionals out.”
Developing relationships with iBuyers and other institutional investors has been beneficial for both him and his clients, White said. Because each of them addresses a particular need in the market (selling quickly, providing cash offers, offering leasebacks, etc.), White suggested that working with these companies was a smart move for agents. It’s worked out so well for his team, that today, a substantial portion of his company’s business is done with iBuyers.
“I would say 35-40 percent of [our deals per month] are working with the iBuyers either on the purchase acquisition side or turning around and selling them for the iBuyers themselves,” White said. “A lot of them … they’re buying [homes] to rehab them because what we’re finding on the market is the homes that are remodeled and move-in ready are selling way faster, way over market value. So these iBuyers are essentially giving people what they are looking for.”
However, not all agents feel as positively as White about working with iBuyers or other institutional investors. Many blame the current housing crunch on investors snapping up homes that are typically most attainable by first-time or lower income buyers because they can make appealing, quick, cash offers.
“More and more institutional investors are involved in the market, and I think the American people are actually paying an emotional toll because of that,” Tamir Poleg, co-founder and CEO of Real Brokerage, told Inman.
“And at the same time, it’s also taking a toll on agents,” he added. “What we are seeing is that, we have agents that are writing 10, 15, 20 offers for a single client and all of those offers get rejected. “Now, it’s not necessarily that the home eventually gets sold to an institutional investor, but, again, it’s part of this overheated market that institutional investors are helping fuel.”
Poleg added that, in his experience, many institutional investors build out their own teams so that they need less help directly from traditional agents. He said that those institutional investors he’s familiar with also typically offer reduced commissions to agents they work with, which means agents need to facilitate more transactions in order to make up for that smaller commission.
“At the end of the day, if you’re lucky enough as an agent to develop that relationship with an institutional investor, you’re being paid much less on every single transaction, but you’re hoping for larger volumes,” Poleg said. “So, from what we’re experiencing at Real, we have really just a handful of agents that do have those connections with institutional investors and help them buy. I think that, unfortunately, at the end of the day, institutional investors are trying to keep as much of the pie as possible, so it’s just like they set up their own operation.”
Transitioning into working with institutional investors from working with traditional homebuyers can also be a bit of a shock for agents, Poleg noted. The traditional homebuying process has a big social and emotional component to it, whereas working with an institutional investor largely eliminates that component from the equation.
“When you as an agent work with an institutional investor, there’s no emotional roller coaster,” Poleg said. “There’s a very fixed focus on price and returns, and it’s kind of a different method of working and not all agents can adapt to that.”
Still, White argued that with institutional investors becoming increasingly present in the market, it behooves agents and their clients to at least become better educated about what they are and how they work, even if they prefer not to represent them in a transaction. White said he believed there were a lot of misconceptions about institutional investors, including that they’re trying to cut the Realtor out of the transaction or just give sellers low-ball offers. At the end of the day, he added, an offer from an institutional investor may just be the most attractive to an agent’s seller, depending on their needs.
“I’ve been working with institutional buyers since 2014 now and bought and sold thousands of homes for them,” White said. “For me, when I’m talking to a traditional homeowner, it’s not my job as a real estate professional to decide what’s better or worse for them, but to provide them with as many options as possible.”