Key Highlights
- Institutional buyers are transforming the U.S. housing market, especially in the single-family rental sector.
- These large investors, including investment firms and real estate investment trusts (REITs), offer advantages like quick transactions and cash offers.
- Selling to institutional buyers streamlines the process, eliminating the need for repairs or open houses.
- However, their involvement has also sparked debate about affordability and the impact on traditional homebuyers.
- Understanding the benefits and drawbacks of selling to institutional investors is crucial for sellers navigating this evolving market landscape.
Introduction
In the changing world of real estate, institutional buyers are now important players in home sales. These big investors usually have a lot of money behind them, which creates both chances and concerns for sellers. This blog post will explain the benefits of selling your home to institutional buyers and a better understanding of this growing trend based on real estate data.
Understanding Institutional Buyers
Institutional buyers change the real estate market in ways that individual buyers do not. They have large amounts of money and look for investment opportunities that can affect the market. Let's look at who these buyers are and how they influence the market.
Defining Institutional Buyers in Real Estate
Institutional real estate buyers are not like regular homebuyers. They include big investment firms, real estate investors, and specialized groups such as real estate investment trusts (REITs). They make large home purchases to profit from rental properties and/or increase their value. These buyers are important in real estate because they have the money and influence to shape the market.
When people think of "institutional investors," they often picture big names from Wall Street or pension funds. These groups are part of it, but there are many other types. Remembering that what counts as an institutional investor can change based on the situation and different rules is also key.
The Rise of Institutional Buyers in the US Housing Market
The number of institutional buyers in the US housing market grew significantly last year, mainly because of the COVID-19 pandemic. Since the great recession, relatively low interest rates and rising property values have made market conditions great for real estate investment. Institutional investors, who can offer cash and handle a shaky market well, took this opportunity to buy homes, and their market share increased.
Many large institutional investors, firms, and real estate investment trusts (REITs) started buying homes, which changed home prices and the number of homes available, especially in certain cities. Their entry can help sellers because houses sell faster and at better prices. However, this has also led to worries about affordable housing prices.
Advantages of Selling to Institutional Buyers
Selling your home to an institutional buyer can benefit you more than individual buyers and iBuyers. Compared to regular home sales, these advantages can make selling easier and help you with money matters.
Speed and Efficiency of Transactions
One great thing about selling to institutional buyers is how fast and efficient they are. Individual buyers usually need mortgages, but institutional buyers often pay in cash. This means there are fewer delays from needing loan approvals. As a result, the closing times are much quicker.
This simple process helps the ownership change hands in weeks instead of months. This speed is a big plus for sellers who want a quick and easy sale. Cash offers from institutional buyers provide certainty that is very valuable in the changing real estate market.
Eliminating the Hassle of Traditional Home Selling
Selling a home the traditional way can take time and stress. You often have to list your property, manage showings, and talk with buyers. But, institutional buyers make things easier. This is especially helpful in a seller's market where liquidity matters.
Institutional buyers usually buy homes as-is, which means sellers can skip the tough work of repairing or staging their homes. This saves time, energy, and money and gives sellers a simpler and quicker way to sell their homes.
Institutional Buyers vs iBuyers
Some people are often confused about the difference between iBuyers and institutional investors. Typically, iBuyers want to acquire homes at a reduced price (sometimes ~60 cents on the dollar!). They invest money into the property and make small improvements to resell it quickly. Their business model is usually predicated on acquiring homes for well under market value and selling them for large profits.
Institutional buyers want to acquire homes for close to fair market value (closer to 90 cents on the dollar) and hold onto property for longer periods of time. Homeowners are willing to sell at a 10% reduction to avoid agent fees and a drawn-out sales process. Typically, institutional buyers then rent out these properties to receive steady revenue while the home appreciates over time, making it a longer-term investment plan, which is drastically different from iBuyers.
Financial Benefits for Sellers
The financial benefits of selling to institutional buyers often come with their efficiency. These advantages can be very helpful for sellers.
Competitive Cash Offers from Institutional Buyers
Institutional buyers often present sellers with competitive cash offers, sometimes exceeding market value. They aim to acquire properties quickly and efficiently and are willing to make attractive offers to achieve this. While cash offers might not always be higher, they offer a distinct advantage.
Here's a breakdown of how cash offers compare:
Feature | Cash Offer | Traditional Offer
Speed | Faster closing | Contingent on financing
Certainty | More certain | Potential for financing fall-through
Valuation | Maybe above-market | Typically at or below market
Avoiding Additional Fees and Commissions
In a regular home sale, sellers usually pay fees to real estate agents. This can lower their profits. However, you might avoid these extra costs when you sell to an institutional buyer. Institutional buyers know a lot about real estate transactions. They often handle the sale themselves or use fewer middlemen, which saves sellers money.
A growing number of households want to unlock these savings to increase their net worth, especially those who want to make the most of their sale. Sellers can keep more of their home’s sale price by skipping real estate agent fees. Recently, institutional investors have been purchasing homes in areas like Las Vegas, New York, Atlanta, Phoenix, Houston, Dallas, Jacksonville, Orlando, Tampa Bay, Miami, and more.
Conclusion
Selling your home to institutional buyers can make the process smoother and faster than traditional methods. You can finish transactions quickly and get solid cash offers. This helps you skip extra fees and commissions, saving time and money. Institutional buyers are becoming more important in the real estate market. Knowing their benefits can help you decide better when selling your property. If you're thinking about this option, contact an institutional buyer to learn about the benefits they can provide.
Frequently Asked Questions
What qualifies as an institutional buyer?
Institutional buyers are usually big investors like pension funds, hedge funds, and real estate investment trusts (REITs). They buy properties mainly to earn rent or for long-term investment, making them institutional landlords in the real estate market.
How do I approach an institutional buyer for my property?
To reach out to an institutional buyer, look into investment firms that focus on real estate transactions. You can also check online platforms that link sellers to institutional investors. It’s helpful to ask about their criteria and timelines for property listings.
What are the potential downsides of selling to an institutional buyer?
Selling to an institutional buyer can have some benefits. However, there are some drawbacks, too. These buyers may often offer slightly lower prices than individual buyers, especially in competitive markets.
Would you like to see what institutional buyers would pay you for your home? Post your property on TrueParity (free, no obligations) and we'll have one of our experts show you your options. We'll help you estimate its traditional sales price as well as what institutional buyers would pay. If it fits certain parameters, we'll even bring a real offer right to you!
