A University of Washington study shows iBuyers are making better offers for Black homeowners than they would receive on the open market. However, these proposals may come with some long-term trade-offs.
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Black homeowners have long struggled to obtain the same benefits as white homeowners during the sales process. They grapple with slower home value growth, especially if they live in a ZIP code with a majority of minorities. When it comes time to sell, they disproportionately receive low-ball appraisals and buyer offers — two more obstacles for Black Americans seeking to build long-term wealth.
However, the University of Washington research team says Black homeowners get better seller results in the iBuyer space than on the open market.
What gives?
The Information School team targeted Mecklenburg County, North Carolina, which has 1.1 million residents spread across six cities: Charlotte, Huntersville, Matthews, Cornelius, and Pineville and Mint Mountain. Charlotte accounts for nearly 900,000 of Mecklenburg’s 1.1 million residents, and 35% of the population is black. IBuyers have achieved solid results in Charlotte, reaching 8% market share in 2021.
The team accessed 50,000 public property transfer records in Mecklenburg County from 2018 to 2023, then cross-referenced those records with North Carolina voter rolls that provided racial data. On this basis, the team controlled for 50 factors, including home size and neighborhood crime rates, and found that the offer gap between black and white homeowners narrowed from $36,051 on the open market to $4,436 for iBuyers.
The gap narrowed as iBuyers paid an average of $4,376 more to black homeowners and $27,239 less to white homeowners.
“We have no reason to believe that there is some purposeful intervention going on here,” senior author and associate professor Nick Weber said in a prepared statement. “iBuyers pay black homeowners a little more, but not a lot more. In contrast, iBuyers appear unwilling to pay white homeowners the money they might make selling their homes through a traditional broker.
Although Black homeowners get better offers through iBuyers, the University of Washington team says iBuyers are fueling trends that hurt Black homeowners and homebuyers in the long term. Institutional buyers make up a large share of the iBuyer space, with institutional ownership of white-owned homes increasing from 9% of the open market to 17% of the iBuyer market, and the share of black-owned homes increasing from 33% to 36%.
Institutional buyer activity is associated with higher housing costs and eviction rates, two factors that disproportionately impact Black communities.
“These REITs tend to look for cheap homes that they can buy and convert to rentals so that they can make a profit over decades,” Weber said. “So the change in the conversion rate from people to institutions is troubling because In the United States, one of the primary ways people acquire wealth and transfer it between generations is through homeownership.”
Ph.D. student Isaac Slaughter added, “iBuyers are providing a service. They are making the home selling process faster and simpler. While our analysis in Mecklenburg shows that iBuyers are taking away the challenges Black home sellers often face Some of the disadvantages extend to white home sellers, but we don’t know whether people think these sales are generally harmful or whether they realize the trade-offs involved.
The UW team plans to expand their research to Maricopa County, Arizona, and Orange County, Florida.
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