Speedy Investors Shutting Out Buyers?

April 14, 2015

With limited housing supplies this spring in many markets, investors are realizing they need to act fast, and some are willing to make an offer within minutes of a listing debuting – even if they are based on the other side of the country.

These investors are making bolder, faster moves by relying on quantitative data and calculations to drive their decisions on whether to buy or not. They're willing to make offers on homes they've never seen too, if their calculations point to a good deal.

In 2007-2008, many large investors would compete for the best housing deals in public auctions, face-to-face, and buy up foreclosures at big discounts. But as the number of foreclosures and short sales drop, Wall Street-backed buyers now are starting to shift their focus to mainstream real estate listings and to compete for a limited supply, they realize they need to act fast.  

"The first phase was distressed homes," Justin Chang, chief executive of Colony American Homes Inc., one of the largest single-family rental companies, told The Wall Street Journal. "The second phase is acquiring homes in a more regular way."

Competition is particularly heating up in Atlanta, where the sixth largest institutional buyers own more home than in any other market, according to RentRage. The investors making offers within minutes: Starwood Waypoint, based in Oakland, Calif., says that it can calculate a first bid on a house within 8 minutes now.

"We encourage our guys to make an offer before they see the house," says Ali Nazar, Starwood Waypoint’s chief experience officer. "I don’t want to wait for anyone else. Our competitors are also fast."

The investors' fast speeds are making it more difficult for individual buyers to compete.

"They’re outbidding all of us," says Brian O’Neal, a real estate sales associate in McDonough, Ga., a southeastern suburb of Atlanta.

Starwood Waypoint is able to act so fast because the team quickly evaluates potential purchases using a data map that ranks the "livability" of local neighborhoods based on information provided by its local employees who frequently visit the area. The firm gauges "livability" on several factors, including by how close the home is to retailers and how noisy the neighborhood is. Employees are then rewarded for how good their predictions hold true: The company provides bonuses to its employees based on how accurate their home bids and rental estimates are.

Source: "Racing to Buy Homes Sight Unseen," The Wall Street Journal (April 13, 2015)