Tech startup Ribbon, which has described itself as a credit card-like tool for making cash offers on houses, announced Thursday that it will now offer its services for free to homebuyers.
The Charlotte, North Carolina-based company also revealed that it raised a massive amount of new funding and that it is rolling out several new features including an app geared toward agents. It also announced that it would expand into 10 new markets by the end of 2019.
Ribbon launched earlier this year and backs offers on homes with cash. So, if a buyer’s financing comes through without a hitch, the company doesn’t pay anything, but if problems delay or derail a sale, Ribbon steps in and purchases the home itself. The company then sells the home back to the buyer for the same price when financing becomes available.
Ribbon founder and CEO Shaival Shah compared this approach to a credit card, which ensures that consumers get goods and retailers get cash immediately. The company’s pitch is that a guaranteed and potentially rapid close makes buyers more competitive and can sometimes entice sellers to offer discounts.
“With a credit card company they’re just creating flow, they’re creating liquidity in the market,” Shah told Inman. “We’re the credit card swipe for real estate.”
Ribbon charges about 2 percent for this service, but as of today, that fee will be paid by homesellers, not buyers.
Shah said that in the past the fee was the responsibility of homebuyers (though other parties including agents, sellers and even lenders could and sometimes did foot the bill).
However, the company decided to shift the fee to the sellers after receiving feedback from members of the real estate industry, and after discovering that sellers liked the certainty Ribbon offered and were willing to foot the bill. Shah said that in many cases, sellers were actually introducing buyers to Ribbon and asking them to work with the company.
The change in fee structure comes at the same time the company announced it had raised $225 million in new funding. Ribbon will be able to back between $2 billion and $3 billion in transactions with that money, Shah said.
Ribbon is able to do that much volume because only about 50 percent of the offers they back actually end up needing the company to step in and buy the home. And in those cases, Ribbon regains access to those funds once the buyers’ financing comes through and they take over the house.
Ribbon rents the houses it ends up purchasing back to buyers until they secure mortgages. Rental prices are set by studying comparable properties in the area, and Shah said rental periods can last anywhere from days to weeks.
The company typically tries to work on sales under $800,000, though it has occasionally backed larger deals, Shah added. Ribbon has also partnered with some large brokerages, including RE/MAX Executive.
The company also announced today that it plans to expand into 10 new markets by the end of 2019. It currently operates in five cities spread across the Carolinas. In a statement, Ribbon said it focuses on “markets where homebuyers are having the hardest time securing their new homes and face stiff local competition from investors and corporate buyers.”
Shah said there is significant demand for Ribbon’s services. About 30 percent of all home sales are delayed or canceled, he explained, for reasons that can range from credit problems to typos in various closing documents. Ribbon’s service is consequently meant to eliminate the uncertainty that inherently arises when people want to purchase homes with mortgages.
“You increase the likelihood of getting your offer accepted,” Shah said.
Ribbon will also facilitate expedited escrow periods, which can be as short as seven days — something Shah also described as a competitive advantage for his company’s clients.
In addition to the new fee structure and funding, Ribbon also announced Thursday that it is offering a home valuation service and unveiling an app for agents. The valuation service is meant to provide “buyers with an upfront understanding of the true value of a home.”
The app, which is set to debut in Apple’s App Store Thursday, is designed to provide agents with local expertise and a mobile transaction system.
“In the app the Realtor can now manage all their clients, both their buyers and their sellers,” Shah said. “It’s a transaction tool.”