Not all potential homebuyers plan to live there after the deal.

These days, institutional buyers have been buying homes as investment properties to rent or flip. They may be corporations, shared equity ventures, rent-to-own programs, real estate owned/short-sale buyers, or instant buyers.

But whatever form they take, they love Texas. In 2021, institutional buyers accounted for 28% of Texas home sales, according to an NAR Research Group report from May, Impact of Institutional Buyers on Home Sales and Single-Family Rentals. That’s the highest percentage in the nation and more than double the 13% national average.

Institutional buyers made up even more of the buyer pool in some of Texas’s larger counties last year. They’re in big metros like Dallas-Fort Worth, Houston, and Austin; suburbs; and even smaller markets.

You, as a real estate professional, can benefit from knowing how to work with these unique buyers. REALTORS® Holly Hightower and Missy Stagers share what you need to know to thrive in this environment.

Most institutional buyers are going to hire you to do repeat business. That’s why you have to have systems in place and make them a priority.”
–Missy Stagers

They are unemotional. For institutional clients, this property is not their dream home; it is a product in a business transaction, Stagers says. “The numbers are everything. The numbers are what make their decisions. Each institutional buyer has different criteria that they’re looking for or how they do their numbers.” Some institutional buyers are looking for a certain number of bedrooms or a particular yield from the property, she adds.

“Some might say, ‘We only want 2,500-square-foot homes. We only want four-bedroom homes. We might have to have a six or higher in schools rating and the house can’t back up to high power lines.’ It can’t have anything that impacts that yield,” Stagers says.

In contrast, residential buyers can be emotionally charged, says Hightower. Yes, they are looking for a good deal, but they have many other considerations, such as the quality of the school district and whether the property is in a desirable location. They care about commuting distance to jobs and whether the home will foster the lifestyle they want. “Homebuyers have a whole lot more preferences than institutional buyers,” says Stagers. “They care about what’s on the floor or what color the house is. Institutional buyers have some standards but not like your regular buyer.”

They want good bones. What’s the condition of the roof? How are the HVAC and plumbing systems? Institutional buyers want to know the nuts and bolts of the property, according to Hightower.

“Most of them are much more open to a project house,” Hightower says. “If it has wallpaper and a popcorn ceiling, they’re more interested in the flow and the size and the location than they are those cosmetic issues, whereas most new homebuyers are not willing to take on cosmetic issues other than paint.”

Be prepared to answer detailed questions about the property. “Look at those seller’s disclosures and make sure you know the condition of the property as the current seller is describing it,” she says.

They aren’t afraid of repairs. Among REALTORS® who responded to an NAR survey, 42% said institutional buyers purchased properties that needed repair. Hightower and Stagers agree, saying that happens frequently.

“Most of the individual homebuyers I’m currently working with are looking for move-in ready,” Hightower says. “My investor clients are looking with a more open mind about what the property could be and the overall expense of getting it to that point.” They ask: Would the home have potential if it was updated?

The transaction does go a lot more smoothly with them because they’re not naive about what the process is. That’s very helpful. Your sanity is not nearly as stressed.”
–Holly Hightower

Institutional buyers often have contractors on staff or hired work crews to make the changes they want.

“Some institutional buyers have a standard of how they want the house,” Stagers explains. “Some don’t want carpet, so they’ll go in and rip out all of the carpet. It doesn’t matter what the carpet looks like or how livable that carpet is; they’re going to rip it all out and put in flooring because they look at the interior of the house in terms of maintenance.”

They want data. Hightower’s investor clients want to know the area’s rental rates and recent property sales data. “That’s so they can compare them for a return on investment. If the margin is too narrow, they’re not going to put an offer on the property. Or if they do, they’ll offer substantially less to make up the difference.”

They are looking for deals. “Institutional buyers typically will look for something that’s been on the market for longer than 30 days,” Hightower says. Many individual homebuyers want to view properties that just hit the market. An institutional buyer may be more interested in a stagnant property with potential in a good location.

They’re looking for professionalism. Just like you, institutional buyers work on real estate transactions for a living. And they know what they want.

“There are times that they are more demanding, at least on the initial side prior to offering,” Hightower says. “They do negotiate a lot harder during our option period after an inspection’s been done. But after that, it goes very smoothly. They’re highly qualified. They’re ready to purchase.”

You have to be organized, Stagers says. “You better jump when they need you to jump. You better know your stuff and be able to keep track of details because they’re counting on you as their boots on the ground. They’re counting on the information you’re giving them. There needs to be a large factor of trust. They will fire you if you can’t perform.”

You cannot get lazy or complacent with institutional buyers, Stagers says. That means staying on top of your business. Stagers would know—she got hired by an institutional buyer when another real estate professional dropped the ball.

That said, working with experienced buyers means they tend to be more understanding about bumps in the road, Hightower says. “They understand when we run across an issue with a property, especially during the inspection portion. They take a more realistic outlook.”

They need a team. Make sure you have a good team in place to help you, Hightower says. “If they do not come with a lender in hand, know the lenders who are able to be creative and work with them so they can do an in-house loan or get lines of credit. Also make sure title companies are ready and can work with them on multiple transactions at one time. And just have your ancillary services: contractors, flooring people, HVAC, and roofers. Or at least have a list of suggestions if they don’t have someone already.” She adds that it looks more professional if you have these resources ready.

They’re looking for relationships. Unless they are very small organizations, institutional buyers are usually not one-off clients, Stagers says. “Most institutional buyers are going to hire you to do repeat business. That’s why you have to have systems in place and make them a priority.”

They can be excellent clients. Hightower and Stagers report having great relationships with institutional clients.

“It does go a lot more smoothly with them because they’re not naive about what the process is. That’s very helpful. Your sanity is not nearly as stressed,” Hightower says.

“We’ve had an amazing relationship with them,” Stagers says. “They’re pretty straightforward. I think the hardest thing is staying on top of what their modeling is because it does change and they forget to let you know sometimes. So regular meetings are important. But they’ve been an amazing client to work with. We like to think they like working with us, too. And that’s why we’re still working with them, going on two years.”