A new startup wants to make sure homebuyers never lose out to all-cash offers again. Ribbon, launched in Charlotte, North Carolina, last month, promises to turn any homebuyer into a guaranteed all-cash buyer.
The company pulls financial data and analyzes mortgage products to determine what kind of home financing a buyer would eventually be able to secure.
Then, often before that financing is complete, Ribbon backs a buyer’s offer with its own funding up to that amount. Importantly, Ribbon first conducts a “quick, fair valuation” on a buyer’s target home before extending its funding (it also pre-qualifies some homes and lists them on its website).
As buyers are looking at homes with a real estate agent who has been certified by Ribbon (the company says any agent can be certified in an hour), the company makes guaranteed all-cash offers on the buyer’s behalf. The “Ribbon Offer” is guaranteed, so that unlike many cash investor offers, Ribbon won’t try to renegotiate the terms after the offer is accepted. The buyer is more likely to get their target house, and when their traditional home financing comes through, they take over.
The strategy is a new way of using tools like this to upend the home transaction. Unlike iBuyers Opendoor, OfferPad and Knock, which focus on convenience and speed for the seller, Ribbon is trying to fix home transactions from the perspective of the buyer.
In that sense, it is perhaps more similar to startups like Eave in Colorado, which also aims to simplify mortgage borrowing and make mortgage borrowers as competitive as cash buyers. The guaranteed aspect of a Ribbon offer, the company hopes, will also persuade sellers to get involved with the startup.
“Unfortunately, what’s happened is that big, institutional capital has come in recently, purchasing homes, extracting all-cash discounts and then relisting to the buyers they competed with two weeks earlier,” Ribbon founder Shaival Shah said. “What institutions have done is approach the seller with something enticing — to buy fast in cash. That’s something the traditional homebuyer cannot compete with.”
“Instead of institutionalized capital — if that is an effective mechanism, why should homebuyers not have access to it?” Shah added.
Ribbon started off with five real estate agents working with the platform in Charlotte and has now partnered with the brokerage Engel & Volkers in the city to sign up all its agents there. The company has secured financing from the venture capital firms Greylock, NFX, Bain Capital Ventures and NYCA, though Ribbon declined to specify how much — saying rather that it was enough to “back $2 billion in transactions,” and that it was a mix of equity and debt financing.
“NFX is delighted to support Ribbon in their mission to transform the real estate transaction for consumers and build a trusted technology platform for real estate agents and brokers,” NFX partner and Trulia founder Pete Flint said in a statement. “Consumers deserve better, and Ribbon enables homebuyers to work with the very best agents with deep local knowledge and to close quickly with confidence.”
If a buyer’s financing doesn’t come through immediately or they second guess the deal, Ribbon will hold onto the house, and the buyer can move in as a renter with a one-year lease. Then, Ribbon will resell the home to an investor.
Ribbon’s main business model charges a 1.95 percent fee for these services, paid on top of commission to traditional agents involved in the transaction. Who pays the fee is negotiated between buyers and sellers as part of the transaction. Cynthia Wiley, an agent with Engel & Volkers in Charlotte, said that in her transactions with the platform so far sellers have agreed to pay the entire fee just as they would closing costs.
“I always ask for the seller to pay closing costs, and asking the seller to pay to make this happen — that it enables the client to present you with an all-cash offer — it’s not a hard sell,” Wiley said.
Ribbon has lofty expansion goals: moving into 12 to 15 new markets within the next 12 months.
Shah founded Ribbon after a career in finance and tech, including running strategic development for lending club. Growing up, he said, his family worked in real estate managing properties, which inspired him to launch a real estate startup.
Shah has some harsh criticism for iBuyers, but he says he won’t be competing with them too directly.
“They serve a role in markets, but 90 to 95 percent of the market still operates with an owner-occupied resident buyer and an owner-occupied homeowner who’s selling. That’s the demographic we’re targeting: the everyday buyer and everyday seller,” Shah said. “It’s great what Opendoor’s doing, but our market is going to be different. We’re going after the core of real estate.”