This piece originally appeared in the May 2022 edition of DS News magazine, online now.
Regular homebuyers may be flipping the script on Wall Street-backed institutional investors in one surprising corner of the housing market. Buyers at foreclosure or bank-owned auction are more likely to be owner-occupants than institutional investors, according to a 2022 Auction.com buyer survey.
The survey found that 8% of respondents—all who purchased at least one property at a distressed property auction via the Auction.com platform in the last three years—identified themselves as owner-occupant buyers, while 5% identified themselves as institutional investors.
“We bought our current house through Auction.com,” wrote one respondent, echoing a common theme.
While most auction buyers (84%) identified themselves as individual investors, that the percentage of owner-occupant buyers was higher than institutional investors is somewhat surprising given the obstacles that owner-occupants face when purchasing a distressed property at auction. Cash is required for most purchases. Most properties need major renovation. And about half of properties are occupied by the former homeowners or tenants.
The buyer survey data is supported by actual sales data from Auction.com, which accounts for more than 40% of all foreclosure auction sales nationwide, along with broader market data.
Buyers purchasing just one property on the Auction.com platform in the last two years accounted for 83% of all foreclosure auction buyers, and those buyers accounted for more than half of all purchases on the Auction.com platform in the last two years. Meanwhile, less than 1% of all foreclosure auction buyers purchased more than 10 properties over the last two years.
The median distance between foreclosure auction buyers and the properties they purchased was 14 miles in 2020 and 16 miles in 2021.
The story is nearly identical for buyers of bank-owned (REO) properties. Buyers purchasing just one REO property on the Auction.com platform in the last two years accounted for 85% of REO auction buyers and 64% of all REO auction sales. Less than 1% of all REO auction buyers purchased more than 10 properties during the two-year period. The median distance between REO auction buyers and the properties they purchased was 14 miles in 2020 and 20 miles in 2021.
Bulk Buyer Boom in Retail
The narrative is much different in the broader retail housing market, where purchases by large-volume buyers are booming.
According to public record data from ATTOM Data Solutions, buyers purchasing 10 or more properties in a calendar year—called bulk buyers by ATTOM—purchased more than half a million homes in 2021 (530,025), a new record high as far back as data is available (2000) and more than twice the number purchased in 2020 (205,934) or in the pre-pandemic market of 2019 (258,780). The bulk buyer purchases accounted for 8.4% of all home sales in 2021, the highest share since 2013.
Bulk Buyers Balk at Distress
Consistent with the Auction.com data, the public record data shows bulk buyer purchases at foreclosure auction plummeting in recent years, both in terms of actual numbers and in terms of the share of all sales.
The number of bulk buyer purchases at foreclosure auction decreased to a new record low of 4,179 in 2021. Those bulk buyer purchases accounted for just 11.5% of all foreclosure auction sales during the year, up slightly from 11.1% in 2020 but lower than any year before 2020 and well below the peak of 52.0% in 2009. So far in 2022, only 5.4% of foreclosure auction sales were to bulk buyers while 5.6% of overall home sales were to bulk buyers.
Many of the Wall Street-backed institutional investors got their start buying at foreclosure auction in the wake of the 2008 recession, when large numbers of relatively new properties were being foreclosed. But the more distressed condition of most properties now available at foreclosure auction no longer fits into the buy box for these “hedge-fund” investors, according to Terry Kerr, President of Memphis-based Mid South Home Buyers, which focuses on adding value after purchasing distressed properties.
“The Blackstones and the Vinebrooks aren’t going to look at those properties,” he said. “We’re taking a house and gutting it. All new components. … The hedge funds aren’t doing large improvements.”
Atlanta-based real estate investor Tony Tritt agreed that distressed properties sold at foreclosure auction—conducted at county courthouses in Georgia—are mostly avoided by the institutional investors active in his market.
“The ones we pick up on the courthouse steps are the ones the institutional investors steer clear of,” said Tritt, who renovates and resells most of the distressed properties he sells to owner-occupant buyers. “Our role is not for us to get rich, but to do right. I renovate a house. If I have to lose money on that house, I lose money, but I renovate it right because I have to sell it to somebody, and I have to live with myself.”
Tech Helps Local Buyers Compete
Technology that allows buyers to bid remotely at foreclosure auction or REO auction is also helping smaller-volume, local buyers compete against institutional investors. Historically, institutional investors have had the upper hand at in-person foreclosure auctions. They had the resources to deploy employees or other proxies to attend and bid at the auction.
“With Auction.com, it’s great because I get to do it in the safety of my own home where I’m in my PJs,” said Karen Tyler, a Hampton Roads, Virginia-based real estate agent and investor who purchased her own home through an online REO auction while on a trip to Florida. “[I] pushed the button on the phone to bid, and in the Uber the next morning on the way to the airport—still in Florida, to come home—I win the bid.”
Reselling to Owner-Occupants
Although more owner-occupants like Tyler are buying at foreclosure and bank-owned auction, most distressed property buyers are still local community developers like Kerr and Tritt. And like Tritt, most of those local community developers are reselling to owner-occupants.
“It makes me feel good to provide what I know is a really high-quality product to that buyer,” said Tritt, referring to the first-time homebuyers he often sells to. “My name means everything to me. I see these people at the grocery store and at the ball game. I want them to come up and hug me.”
An analysis of public record county tax assessor data confirms Tritt’s track record of reselling renovated foreclosures to owner-occupant buyers. That analysis shows he has resold 74% of the properties purchased on Auction.com, and 91% of those resales went to owner-occupants.
Tritt’s investing strategy of reselling to owner-occupants is consistent with most other local community developers purchasing distressed properties at auction, according to the Auction.com 2022 buyer survey.
Sixty-one percent of all survey respondents identified reselling to owner-occupants as their primary investing strategy for properties purchased on Auction.com. The percentage was higher (63%) among buyers who identified themselves as individual investors than it was among buyers who identified themselves as institutional investors (55%).
Nearly three-fourths of all Auction.com buyers (72%) said their investing is helping to improve neighborhoods, according to the buyer survey. That’s also consistent with Tritt's sentiments.
“I feel like we’ve played some small role in increasing values in the neighborhoods we’ve been operating in,” he said, noting he was willing to buy in the wake of the 2008 recession, when many were afraid of the real estate market. “We’ve worked hard to bring values up, which impacts on a positive note all those homeowners in that neighborhood. … Real estate is the number one wealth driver for most individuals.”
Local community developers like Tritt are not just talking the talk. They are willing to walk the walk when it comes to quality renovations and reselling to owner-occupants: 75% of Auction.com buyers said they would be willing to document renovations, and 61% said they would agree to resell to owner-occupants following renovations, according to the 2022 buyer survey.
“Those of us who do what we do would love that,” said Tritt of agreeing upfront to resell to owner-occupants. “That would be fun for us.”