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Power-Buyer Model Troubled; Some Won’t Make It

When buyers needed a bidding edge, new companies offered to operate as a cash-offer middleman. But now some are stuck with hundreds of homes.

NEW YORK – A handful of young companies known as power buyers created a niche business to help homebuyers gain an edge during the hypercompetitive housing boom. While tactics varied, many offered to help buyers “present an all-cash offer,” accomplished by buying homes on behalf of the buyers as an intermediary step.

Now that the market has cooled, however, some of these companies are stuck with hundreds of homes they acquired on behalf of clients.

That unanticipated glut of homes they’re carrying is an example of how housing-oriented companies that thrived when mortgage rates were super low are now struggling to survive in a higher-rate environment.

Some power buyers say they’re optimistic the housing market can stabilize, and recently there have been a few signs that buying may be picking up. Power buyers say that their business will continue to serve homebuyers in competitive markets and help even the playing field with investors, who often purchase homes with cash.

Meanwhile, many are focused on improving products aimed at prospective sellers nervous to list their homes in a slow market.

Some executives don’t expect every power buyer to survive.

During start-up, many new power-buyer companies relied on venture capital to grow during the height of the housing market, but they’re unlikely to raise as much money now. Between January and late November 2022, venture investment in proptech companies decreased 21% compared with the same period the year prior, according to a report from Keefe, Bruyette and Woods Inc.

Source: Wall Street Journal (02/07/23) Parker, Will; Friedman, Nicole

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