Zillow, Opendoor and other tech-enabled real estate companies, sometimes referred to as ‘iBuyers‘, are no doubt making the process of selling a home far faster and more pleasant. Opendoor essentially facilitates the entire home sale so sellers don’t have to spend time coordinating with agents or buyers, and Zillow recently launched its Zillow Offers program to do the same.
Ribbon, a new real estate tech startup founded only a year ago by former executives of LendingClub and Twitter, is focusing on helping the buyer. How? By facilitating a transaction that allows them to be highly-attractive cash buyers.
And the company, which is based in Charlotte and New York, has turned quite a few heads. Last week, they announced the close of a $225 million Series A funding round in a combination of debt and equity financing. The equity portion was led by existing investors Bain Capital Ventures, Greylock, NFX and NYCA, though the exact percentages of equity versus debt have not been disclosed.
The premise of the startup is actually pretty simple: the Ribbon founding team noticed that these tech-assisted sellers, as well as large corporate real estate conglomerates, were making more and more home sellers pass on buyers that need to take out a mortgage to buy their new home (which is the vast majority of individual buyers).
Sellers concerns are founded — in the event that the mortgage isn’t secured by the closing date, the deal could fall through. Instead, they were opting to discount their house in favor of a buyer that could pay all-cash, often a corporate entity. Ribbon claims that 35 percent of homes in the U.S. are now purchased with cash, at discounts that can exceed 25 percent
Individual home buyers — the average family — get stuck in the gap. So Ribbon has come up with a risk algorithm that determines whether a buyer is likely to secure a mortgage. If the buyer passes the risk threshold, Ribbon guarantees the transaction, essentially removing the risk for the seller.
If the buyer’s mortgage does fall through, Ribbon fronts the cash to close the transaction and allows the buyer to move in and pay rent. Usually the consumer ends up securing a different mortgage with a bit more time.
To really serve the buyer, the service is free for them to use. Ribbon makes money by charging the seller a 1.95 percent transaction fee, which they believe is generally less than what they would usually have to discount for an all-cash buyer.
They also don’t push the real estate agent out of the transaction, unlike some other tech-driven real estate firms. Brokers are considered partners and benefit from helping their clients close transactions more quickly.
The startup’s first market was Charlotte, which a company representative says is due to market forces: according to Zillow, the Queen City is the fourth most-active real estate market and the third fastest-growing. There’s also a large amount of activity from real estate investors and tech real estate companies, meaning the percentage of all-cash buys is high and sellers are more squeezed.
In the six months since launch, Ribbon has expanded, through broker partnerships, to a few nearby North Carolina cities. But this funding round will allow for rapid expansion: 10 new markets in the next 18 months.
On its careers page, the company has field roles open in Dallas, New York, Nashville, Orlando, Raleigh-Durham, and San Antonio. They currently employ 10 in Charlotte and 40 total across the country, with a company representative predicting a swell to over 100 employees by end of 2019.