When a fixer-upper in a D.C. suburb recently went up for sale, it got 88 offers—76 of them all-cash. It ultimately sold for $185,000 over the asking price—emblematic of the current housing market. Across the country, from Georgia to Wisconsin, many houses are selling within days or even hours after they’re listed, at prices far higher than a year ago. In some cases, the buyers are investors who can pay cash. It keeps getting harder for first-time buyers to compete.
A startup called Ribbon is trying to give ordinary buyers an edge: If the buyers can’t afford to make a cash offer themselves, the company will make the cash offer for them and give the buyer time to get a mortgage. “We started the company with one mission and focus, which was helping everyday families achieve homeownership. . . . When we were looking at the problems in the market, we consistently saw situations where homebuyers who were looking to buy a home were competing in the market with big, institutional buyers,” says CEO and cofounder Shaival Shah. “Wall Street really created these engines to go out and buy single-family homes.”
The company launched in 2018 (backed by NFX, Bain Capital Ventures, Greylock, and NYCA), and the challenge is even bigger now, fueled in part by people who started working remotely during the pandemic and are moving from expensive cities to smaller cities with lower-priced homes. If someone moving from New York to Nashville or San Francisco to Charlotte can offer cash and someone else can’t, the cash offer is likely to win. That’s on top of the institutional investors who were already buying single-family homes to turn into rentals.
Ribbon starts by evaluating a buyer’s existing preapproval letter from a lender, and then it approves the buyer as well. Then it evaluates the maximum value of the home and works with the buyer’s realtor to make a cash offer, contingent on an inspection. If the buyer doesn’t have a mortgage secured by the closing date, Ribbon will buy the house itself and rent it back to the client for as long as 180 days, when the buyer can then buy the house for the original contract price. The startup takes a 1% fee if the buyer closes with financing, or as much as 2.4% if the company closes with cash.
Since the beginning of the year, the company’s business has grown nearly 10 times, Shah says. “What we’re seeing right now is unusually low home supply in the market and unusually high homebuyer demand,” he says. “And the combination of those two has created a pretty big, pretty significant shock to the housing market. . . . Prices are increasing. And homebuyers are competing against dozens and dozens and dozens of other families and have to act really, really quickly. The changing landscape now is that the seller has an incredible amount of leverage in the transaction. They have many, many options to choose from.”
He expects that the current hot market will continue for at least a couple of years, noting that it was moving in that direction even before the pandemic cut interest rates and made many more people interested in buying houses. And it’s an issue everywhere. “This is a national problem. It’s not localized. And it’s probably a problem that is being discussed very, very actively in D.C.: What to do about the housing supply shortage?” The company’s service won’t solve that shortage, and it can’t necessarily help if dozens of people are also offering cash. But it’s one way to give prospective homebuyers with less cash in savings the possibility of making a successful offer.