Home buyers could soon have more competition as billion-dollar iBuyer companies spread
MILWAUKEE (CBS 58)) -- Milwaukee-area home buyers are sharing their frustration as a tough market is leading to high asking prices and expensive bidding wars. And soon, buyers may be facing another competitor: billion dollar companies.
They're called iBuyers, or instant buyers. They're huge companies that make cash offers sight unseen.
Many Milwaukee home buyers will tell you the housing market is already challenging enough, and an expert says that's even before iBuyers come our way.
Mike DelPrete is a real estate tech strategist and Scholar in Residence at the University of Colorado Boulder. He said, "Nowhere is safe. That makes it sound like they're a bad thing, but the idea here is it's national."
DelPrete says iBuyers have been around since 2014, raising billions of dollars from Wall Street to fund their operations. The model works because they buy and resell the house as fast as possible.
DelPrete said, "This is not about new kitchens, new baths, this is not fix and flip. This is new paint, new carpet, get it on the market again, typically within 10 days."
He said iBuyers are a growing problem because while they make it easier for sellers, it's very tough for buyers. "They're competing against companies that have all cash, literally billions of dollars in cash, to go buy houses."
Additionally, a percentage of the home sales are not going to people, they're going straight to big institutional investors who then rent out the houses. In 2021 there were 7,000 rentals, or as DelPrete frames it, 7,000 families that missed out on a chance of home ownership. "Yeah, there is less of an opportunity because of these companies, not just iBuyers but institutional investors, gobbling up lots of homes."
So what to do? DelPrete says there is another class of companies called power-buyers that help buyers turn their offers into all-cash offers so they can compete with iBuyers.
In the meantime, iBuyers aren't breaking the rules, but DelPrete says, "I don't think the rules were designed with multi-billion-dollar organizations spending billions buying up houses. We need to look at the rules again."
Some home owner associations are looking at rule changes to combat iBuyers. Mike recommends potential buyers get educated about the market, saying it's very different than 10 years ago. He says talk to a realtor and do some research.