Not only are homebuyers battling each other when looking for houses in today’s supercharged housing market, but there’s also the influence of the so-called iBuyer movement from companies like Zillow, Redfin, Opendoor and Offerpad — tech-powered real estate companies that purchase and sell homes directly to and from the consumer — and companies that buy up houses to convert to rentals. A new startup just raised a pile of cash to help buyers get a leg up against these competitors.
New York-based Ribbon has raised $225 million in debt and equity to fuel national expansion. Ribbon CEO Shaival Shah likens the company to a “credit card swipe for the real estate transaction.” It turns a buyer who would normally have to rely on financing into an all-cash buyer in the eyes of the seller by essentially guaranteeing the transaction.
The iBuyer movement and rental conversions, Shah says, puts pressure on buyers and sellers alike. Buyers have to compete with companies throwing cash around, making offers on tons of houses. Sellers don’t get the certainty they’d normally associate with a cash offer because many of these “corporate buyers” make offers, Shah says, without seeing the houses and later back off.
The funding round includes Bain Capital Ventures, Redfin-backer Greylock, NFX and NYCA, all returning investors. One of NFX’s managing partners is Trulia co-founder Pete Flint, who sold his company to Zillow for $2.5 billion in 2015, giving Ribbon a veteran of online real estate in its corner.
Shah says he talks to Flint every day. Flint didn’t say what kind of advice he’s giving, but he noted that he acts as a sounding board for Shah. He’s been involved for a long time and he’s had a say in everything from the product mission to the name.
Flint now finds himself in an interesting position. Zillow, the company that bought Trulia, is now a part of the iBuyer world with its new Zillow Offers program, making it exactly the type of buyer Ribbon wants to help its users defeat.
Flint downplayed the situation, saying Zillow had not yet started the Zillow Offers program when NFX first invested in Ribbon. He also said he doesn’t see Zillow as a direct competitor because there are so many companies in the market, none of whom have amassed a huge market share.
Real estate has been a point of interest for NFX, which last year raised a $150 million fund for early-stage startups. Flint says that while the way we look for a house has transformed thanks to online listings, how we buy and sell remains virtually the same as it did decades ago. But NFX is investing in companies like Ribbon that want to change that.
“I’ve been looking at this industry for many years and the thesis I’ve had is that the period from 2005 to 2015 I call the information revolution and then the period of 2015 and onward is going to be a transaction revolution,” Flint said.
Ribbon works with buyers who either have pre-approved financing, or those who the company predicts will be able to get financing. If the transaction falls through after an agreement is made or takes more time to process, Ribbon will buy the house from the seller.
Sometimes, buyers can’t get financing by the guaranteed closing date, or decide they don’t want to go through with the purchase. In those cases, Ribbon can rent the house out to the buyer temporarily while they pursue financing, or sell it off to a landlord if the buyer decides instead it wants to rent.
After first launching in Charlotte, N.C. earlier this year, Ribbon plans to expand to at least 10 new markets in the next 18 months. Shah wouldn’t say where, but in general, they are markets where the iBuyers and big housing companies are active. These tend to be markets with lower prices that are more buyer-friendly.
Shah explained that high cost markets like Seattle and San Francisco are also competitive, but it’s more human vs human, rather than buyer vs. iBuyer, which is the dynamic Ribbon wants to focus on.
“When we see markets where there is heavy iBuyer or investor activity, we want to swoop in to those markets to be the representative of the consumers who are now facing a lot of challenges in having their offers accepted,” Shah said. “So we kind of flow in right behind a lot of these providers.”
Ribbon today has 18 employees who came from companies like LendingClub, Airbnb, Spotify, Twitter, Blue Apron, Invitation Homes and American Homes for Rent and an additional 47 openings on its jobs site. It is looking for general managers in places like Orlando, Tampa, Nashville, Dallas and San Antonio, indicating these markets might be the next priority in the company’s expansion.
Brokers responsible for nearly $2 billion in annual transactions are on the platform in Charlotte alone. A new iPhone app, with the promise of an Android version in the future, has helped Ribbon spread quickly among brokers.
In addition to the new funding and mobile app, Ribbon also announced a personalized same-day home valuation tool that also includes understanding of a buyer’s ability to win on an offer. Ribbon puts its money where its valuations are, committing to buy the home for the value it spits out.
Ribbon makes money by tacking on a 1.95 percent fee to the purchase price, which is paid by the seller.
Venture capital investment in the real estate arena is expected to top $3 billion this year, dwarfing totals from prior years. The Pacific Northwest, which has some of the most expensive housing markets in the nation, has become a hotbed for real estate startups.
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Shah echoed Redfin CEO Glenn Kelman, who said at the GeekWire Summit earlier this month that U.S. real estate is due for change. Shah envisions a move to a retail-like solution, with more technology, less haggling and a more straightforward process.
“We’re going to get closer to creating more of an e-commerce for real estate, where there’s a certain price, and once you hit the accept button you automatically win the offer and then you take it to closing, which is very different than today,” Shah said.