“Power buyers” are forced to adapt in a slumping housing market


1200x700_newsroom_9-20
From left to right: Shaival Shah, CEO of Ribbon; Tushar Garg, CEO of Flyhomes; and Tim Heyl, CEO of Homeward.

A year ago, Shaival Shah’s primary concern was keeping up with demand for his company’s alternative financing products.

“When interest rates were low and supply was low, you saw a lot of multi-offer situations, and our first homebuyer product, Ribbon Boost, was all the rage,” said Shah, Founder and CEO of Electricity Buyers. Ribbon. “We were at a point where we went from 0% to then 4-5% market share almost overnight in some of the markets we serve. But low interest rates masked a real underlying crisis, affordability, and we saw that this summer when interest rates started to shift.”

From January 2021 to June 2022, Ribbon increased its total transaction volume by “30x,” Shah said. However, as mortgage rates have risen dramatically and bidding wars have largely disappeared, the company’s products are less appealing to buyers whose financing costs have skyrocketed over the past year.

The market has changed dramatically in recent months: high inflation persists, interest rates are rising dramatically and home sales have fallen from historic highs. Coupled with affordability concerns, fewer buyers are looking for homes.

Tim Heyl, CEO of Homeward

The drop in demand from homebuyers led Ribbon to lay off 136 employees in late July.

As the leadership team, we have attempted to delay this decision for as long as possible, but we are not immune to what we have seen elsewhere in the market,” Shah wrote in a statement notifying employees of the cuts. “Market conditions have revealed areas that need improvement for our product and team to evolve with changing consumers. I am ultimately responsible for all these decisions and consequently for this decision. The next phase of Ribbon will be more agile. We had to define the team and systems to execute this plan with operational excellence over the next few years.”

Ribbon, which has raised $905 million in funding since 2017, is hardly alone in laying off employees and restructuring its business. Hundreds of mortgage lenders have shed or closed their workforce in the last year, and real estate agents have also been downsizing recently.

But this housing market poses a particularly vexing problem for the group of venture-backed alternative finance companies that have grown rapidly in recent years. Fewer buyers are capitalizing on their flagship cash-offer products in this environment, companies lack brand awareness among the consumers they need to reach, and the money VCs are offering is, well, finite. Very finally.

Also Read :  Ottawa real estate: The seven most expensive homes for sale in Ottawa this fall

After a market shift, one or two of the industry’s best-run, best-capitalized companies will survive.

Steve Murray, Founder of RealTrends Consulting

Flyhomes, which offers both a cash offer product and a buy-before-you-sell product in addition to a full-service brokerage business, laid off around 200 employees in mid-July. The Austin based company homeward, which was valued at over $800 million in May 2021, also made cuts, cutting its workforce by 20% in early August. Other well-funded players such as Beat and orchard have also made significant cuts in the face of market headwinds.

RealTrends Advice Co-founder Steve Murray isn’t surprised that many of these companies have struggled as the market has slowed.

“When you have the type of market that we had in 2020 and 2021, which was highlighted by extreme inventory shortages and rapidly rising prices, when a company can step into the middle and provide instant liquidity to someone who needs to sell beforehand or a first-time buyer who can’t compete against all the cash offers because they have funding risks — the companies that can help with that should be very strong in this type of market,” Murray said. “They report a market need because of the market imbalance between sellers and buyers. It therefore goes without saying that if you alleviate this market pressure by better matching inventory with actual market demand, demand for people providing liquidity would decrease.”

For Murray, companies like Flyhomes, Ribbon and Homeward need to increase their brand awareness and expand their partnerships with other real estate companies to secure their future.

“After a market shift, one or two of the best-run, best-capitalized companies in the industry will survive,” Murray said. “What Open door did with ZilovFrom my perspective, she is determined to secure her future as one of the survivors. So if I’m one of the others now, eh orchard or Ribbon, I’ll go see if I can join Immobilienmakler.com or one of the major national real estate organizations or a regional brokerage firm or a large real estate team. They’re going to need marriages of people with these services because there has to be a way for the companies to distribute their products and the best way is through brokers and agents.”

Also Read :  One Small House for Humankind, One Giant Leap for Attainable Housing | Features

Tim Heyl, Homeward’s CEO, said his firm is doing just that — partnering with real estate agents and teams to advance the transaction.

I believe every offer will eventually be a cash offer because it’s like a real estate credit card. There is so much that can go wrong with funding and the timing of things that it just streamlines the process.

Tushar Garg, CEO of Flyhomes

“What we’ve learned is that there are many forward-thinking brokers and teams who want to be on the cutting edge in solving customers’ homebuying problems, whether they need a cash offer to be competitive or not they need to sell their current home first they can afford to buy a new one. Agents know that if they can solve these problems, they’re ahead of the game when they go to a buyer’s consultation or bid appointment,” Heyl said.

Homeward has opened up its buy-before-you-sell product to any agent or team in the markets it serves (Heyl said it’s their bread-and-butter product). And while any agent can access its cash offer products, the company says agents of brokers who have partnered with Homeward have access to deeper benefits and the opportunity to develop new products with the company.

Ribbon, meanwhile, works with real estate agents to offer its products to its clients, as well as local mortgage lenders in its various markets.

“When a consumer qualifies for a mortgage, they can be automatically upgraded to an all-cash offering, strengthening their offering,” Shah said.

Shah also noted his partnership with stockbrokers, primarily through a program called the Ribbon Reserve. Under the program, Ribbon purchases the home on behalf of the buyer and provides up to 12 months to secure financing. Ribbon rents the house to the buyer and then sells it back with a guaranteed house price lock for 12 months. This gives existing homeowners buying a new property the time they need to sell their current home before taking out a second mortgage.

Also Read :  Guest Commentary: Delaware health care: profit over people?

Shah, who forecasts a slowdown in growth from 10x to 3x in 2022, sees Ribbon’s wide variety of partnerships as essential to the company’s future success.

“We are an open platform and our partners are those who introduce us to the market,” Shah said. “Unlike other companies in the industry, any real estate agent from any company can work with us. Many other companies in the industry have all or some of their businesses competing with the existing ecosystem. For example, they may have their own mortgage lender or real estate agent, which in turn creates tension in the market as they become competitive with those already in the market.”

The product mix was 80-90% first-time home buyers, but in the last 6-8 weeks the proportion has shifted to 50% existing homeowners using our buy-before-sell product and 50% first-time buyers our cash offer product. We’ve also seen that the number of transactions has slowed year-on-year in recent weeks, similar to the broader market.

Shaival Shah, CEO of Ribbon

As a full-service broker that also offers buy-before-you-sell and cash offer products, Flyhomes sees things a little differently. According to Tushar Garg, the future success of the company, which was valued at $800 million as of June 2021, is guaranteed by the wide range of services Flyhomes offers, including an in-house brokerage, title firm and mortgage lender.

“We put people at the heart of the transaction,” Garg said. “It’s one of the biggest transactions in a person’s life and we wanted to make it incredible for them and make every part of it better. We are not just a brokerage firm, a mortgage company, or a title firm. We are a consumer company that helps customers buy their homes in the best possible way.”

Garg says the fact that his company also offers buy-before-sale and cash offer options is just a bonus to his company’s other offerings. Although any agent can use Flyhomes’ financing products through their Sailbridge program, by owning their own brokerage firm, Flyhomes is able to provide these services at no additional cost to clients using a Flyhomes agent, which other companies in this space are unable to do.

“The home buying process is very stressful because everything has to come together in a choreographed way and some buyers may have to sell before they can buy or wait for financing,” Garg said. “I’m convinced that at the end of every offer there will be a cash offer because it’s like a real estate credit card. There is so much that can go wrong with funding and the timing of things that it just streamlines the process.”

Like Garg, Heyl believes that while times may be difficult for Homeward and other alternative housing finance companies, there will always be a market for his company’s products.

“People often need the equity in their home to buy something new,” Heyl said. “Even when the market was slower and people didn’t have to worry about finding somewhere to go if their house sold in a day, they still needed the equity in their current home to make an offer for to be able to hand over a new house.”



Source link