The New Dilemma Facing Home Sellers Isn’t a Financial Question — It’s a Moral One

published Mar 9, 2023
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When Hurricane Ian hit Florida last fall, Beth Booker lost contact with her mom during the height of the storm. She went viral as she took to Twitter to #BringCaroleHome amid massive flooding. Booker’s husband and a friend went out in a boat and eventually rescued her mom, Carole McDanel, from her waterlogged house. The mother and daughter’s emotional reunion was covered by outlets like The Washington Post and Good Morning America. 

It was certainly a feel-good story. But now that the waters have receded, Booker and her mother face a new challenge: Deciding what to do with the Fort Myers bayfront home that flooded during the storm surge. When Hurricane Ian hit, McDanel’s house — which she bought 25 years ago — was paid off in full and valued at $1.5 million. Today, it would sell for between $600,000 and $700,000. Many people on the beach, Booker says, her mom included, received “pennies as a payout” from insurance. Now investors are coming in and scooping up properties left and right.

McDanel is currently living in a backyard casita at Booker’s Naples home, and the two are trying to not bow to investors’ offers, which are coming at them from seemingly every angle — the mail, via phone calls, and through email. 

Armed with stacks of cash and the ability to cross the closing finish line without contingencies, investors have long been the Goliaths of the homebuying industry. They make it difficult for sellers to turn down their offers and make it even more difficult for buyers, especially first-time ones, to compete. 

“It feels predatory that investors are coming in and buying up properties at low prices because people are desperate,” says Booker, who’s worried about what the future looks like for her mom’s quirky community made up of longtime locals and snowbirds. 

Problems Posed by Investors 

In 2021, investors purchased 24 percent of all-single family homes sold across the country, up from 16 percent annually dating back to 2012, according to a Stateline analysis of data provided by the firm CoreLogic. When interest rates started approaching 7 percent in late 2022, though, investor purchases of U.S. homes plummeted by nearly 46 percent year-over-year in the fourth quarter, Redfin data shows. Mortgage rates are once again creeping above 7 percent.

Investors’ all-cash offers make things even tougher for first-time homebuyers submitting competing bids on the same homes, since most buyers typically need financing. (According to Zillow, 41 percent of real estate agents say cash offers are the most effective strategy when bidding.) Plus, if an investor buys a home in your neighborhood with the intention of renting it out, there’s a good chance they’ll charge a higher monthly rent. Eventually, this can affect apartments nearby, effectively pricing out some renters. 

To combat these outcomes, homeowners are starting to take a grassroots approach to boxing out investors from the residential real estate market. Some homeowner associations, or HOAs, are drafting rules prohibiting short-term rentals, which deters investors looking to flip properties and list them on sites like Airbnb. For other homeowners and sellers, it’s a personal vow. 

No matter who’s selling, rejecting investor bids is ultimately a decision to accept less money for a property to benefit the greater good of the community. In some ways, it’s less of a financial question, but a moral one.

Homeowners and HOAs Taking a Stance

Several real estate agents I spoke to say they’ve seen HOAs create rules to dissuade potential investors from buying there. Since investors typically have the intention of renting the property, a lot of HOAs have set limits on the number of homes in a community that can be rented, says Tyler Forte, founder & CEO of Felix Homes, a Nashville-based real estate brokerage. The idea is that “owner-occupants typically take more pride in the upkeep of a home’s exterior,” he says. 

In central Florida, real estate agent Leira Morton says she’s noticed HOAs putting strict restrictions in place, including requiring the board to approve buyers, as well as setting rules on how long you must own before you’re able to rent the property out. In one instance, she says, the condo association would only allow leases for a minimum of one month but a maximum of 10 months — a stipulation that would dissuade many longtime renters from moving in.

There’s also one lesser known reason why your neighbors don’t want you to sell to an investor if you’re in a condo building: It can jeopardize their own future sales. 

“One major reason you may have to avoid an investor buyer is due to the owner-occupied vs. rental ratio in a condominium building,” says Nicole Fabiano-Oertel, a real estate agent in Chicago’s North Shore. “If a building is over a certain percentage of rentals, many lenders, especially Fannie Mae and Freddie Mac, won’t approve a buyer’s loan. Some renters in a building is fine, but when you start getting too many, the banks consider it a risk.”

Of course, another way to dissuade investors is to have your property in tip-top shape when it hits the market, as investors’ niche is often fixer-uppers. That’s exactly what Bob McCranie with Texas Pride Realty Group did when he put his house on the market in April 2021. 

“I made sure every element of my home was in the best shape possible,” he says. “The paint was recent. The flooring was updated. The kitchen was remodeled. The pool equipment was new or recently changed.” There was no way his listing would be undercut by investors, who were sending cut-and-paste postcards offering to purchase for 20 to 40 percent less than market value.

Is It Legal to Avoid Selling to Investors? 

A few years ago, broker and agent Joe LaMastra had an investor buyer client who stopped into an open house in New Mexico. The client mentioned to the listing broker that they were looking for a rental property and liked the house. LaMastra wrote up an offer for them, but it was rejected because the seller didn’t want their home to be turned into a rental. 

Unless you bite at a mailer from an investor or one identifies themselves as one at an open house, you may not know you’re entertaining an offer from someone who plans to flip your home or rent it out. 

But can you legally avoid selling to an investor?

“There are not any legality concerns if a seller doesn’t want to sell to an investor,” says Richard Sullivan, general counsel of Gibson Sotheby’s International Realty in Boston. “Investors are not protected by state or federal Fair Housing Laws, so if a seller refuses to sell to an investor, that is the seller’s right.”

For individual sellers, it can be tough to turn down investors’ offers — especially when they’re the highest bids by a long shot. Still, there are holdouts who are committed to selling to real people who plan to move in. One Twitter user writes that when she goes to sell her home, it won’t be to an investor. “We bought our current home from someone who wouldn’t take investors or cash offers,” says @MaryAnnDakkak. “She was excited we had a VA loan and wanted it to go to a family. We still send her pictures. There are good people out there!”