Why Bradenton home buyers are competing with private equity firms for houses
There are lots of bidders in the room these days trying to buy houses, but not all of them are people. Some are private equity firms.
In the Bradenton area, the median price for an existing single-family home rose to $478,000 in February, up 26%, or $98,000, from the median a year ago.
Some of that price surge was spurred by the massive influx of new residents, and the shortage of inventory. And part of the upward pressure is from investment companies seeking to pick up houses to flip or to turn into rentals.
“When the pandemic was looming over the market, the investment companies seized that opportunity,” said Matthew Sharp, an agent with Keller Williams on the Water.
In April 2020, existing single-family home sales in the Bradenton market fell 21%, with only 499 sales reported as the pandemic hit the community. Out of concern about the coronavirus, some owners took their homes off the market so they wouldn’t have to open their doors for showings.
“It was like they could see the writing on the wall,” Sharp said of stepped-up activity by investment companies.
After that initial stumble, the housing market quickly regained its footing and saw a steep and continuing run-up in prices.
“It is eerily reminiscent of when the housing market crashed in 2008, except a lot of the planned communities are amending their bylaws,” Sharp said of more stringent requirements for buyers to live in their house, rather than immediately renting it out.
In February, the Bradenton market recorded 219 all-cash deals out of 559 closed sales of existing single-family houses. There were also 142 all-cash deals of 247 closed condo or townhouse sales, according to the Realtor Association of Sarasota and Manatee.
All-cash deals are tough competition for renters, who will probably need financing to swing a deal to become homeowners.
Bidding wars
Beth Barnett, a veteran real estate sales associate with Coldwell Banker based at Lakewood Ranch, said that bidding wars have become the norm in this market.
“The bad thing is it takes homes away from buyers wanting a home for their own,” Barnett said of equity buyers.
While buyers needing financing are at a distinct disadvantage, buyers with cash in hand can compete on an equal footing with equity firms.
“Most of our offers now are coming from regular buyers,” she said.
Mark Boehmig, a real estate agent with Michael Saunders & Company, agrees that Lakewood Ranch is not seeing as much investor buying.
“They are looking for houses in the $300,000-$400,000 range that they can rent out. In Lakewood Ranch, the average sale is over $600,000. I don’t see a heavy investor presence in that price point. It’s a little more difficult for the flipper now with houses going for a premium,” Boehmig said. “I haven’t had a single client who has lost out to an equity firm.”
Deed restrictions requiring buyers to live in their home for two years before renting it out have helped turn some equity firms away from purchases at Lakewood Ranch, Barnett said.
High-dollar offers
In recent months, the Realtor Association of Sarasota and Manatee has been reporting that 100% of listings have sold at or above the listing price.
Local real estates agents said that sometimes the offer is substantially above the listing price.
For a recent listing, Sharp had 82 showings in three days and received 24 offers. Many of those were cash offers, some from equity firms.
Barnett believes prices will eventually level off, but adds that with such high demand and low inventory she doesn’t look for a return to lower price points of the recent past.
Higher home prices, limited inventory, and the presence of equity firms in the market is a nationwide fact of life.
Earlier this month, the U.S. Senate took up the issue of private equity firms in the housing market.
U.S. Sen. Sherrod Brown, D-Ohio, chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, delivered a statement on “How Institutional Landlords are Changing the Housing Market.” The listening session was with renters living in homes owned by private equity firms and other institutional investors.
“One of the reasons housing prices have gotten so out of control, is that corporate America sensed an opportunity. Private equity firms and corporate landlords and investors saw a shortage, and they saw a captive market. They bought up properties, they raised rents, they cut services, they priced out family homebuyers, and they forced renters out of their homes,” Brown said.
This story was originally published April 4, 2022 at 5:50 AM.
