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EPISODE SUMMARY
Jeff and Kenon discuss Clear Capital’s recent acquisition of CubiCasa and Jeff’s new title. Then they dive into Freddie Mac’s long-anticipated research paper, “Racial and Ethnic Valuation Gaps In Home Purchase Appraisals.” Jeff’s Real Estate Joke of the Pod gives us a buyer’s-eye view of today’s real estate market. Interview with Ribbon Co-Founder & CEO Shaival Shah.
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Jeff Allen
Hello and welcome back to ClearCast, the Real Estate FinTech Podcast. This is episode 19. And I am joined, as always, by my colleague, Kenon Chen. Kenon, how are you?
Kenon Chen
Doing good. I like your black t-shirt.
Jeff Allen
Thank you. I like your black t-shirt.
Kenon Chen
Oh, thanks! That’s great!
Jeff Allen
Yeah, we’ve got a very fun and exciting episode. Later on. we have our good friend, Shaival Shah from Ribbon joining us for an interview. There will probably be a joke on the pod in there at some point too, just a quick heads up. Fair warning on that.
Kenon Chen
Surprise, surprise.
Jeff Allen
And we’ve got some fun things to talk about before that.
Kenon Chen
Yeah, speaking of surprises. A little birdie told me that you might have had a title change there, Jeff.
Jeff Allen
Was the little birdy a press release?
Kenon Chen
It was a press release! It’s actually a really big bird. Something really exciting has happened in the past couple of weeks. You want to share share with the audience why you are now called “El Presidente?”
Jeff Allen
I am not called that. Thank you for making me uncomfortable. Yeah, there’s big news. It’s not really about me specifically, it’s about something very exciting for our industry and for info Clear Capital. Clear cCapital just announced that we have acquired a Finnish proptech startup called CubiCasa and CubiCasa is incredibly exciting technology that enables anyone with a smartphone and no training to do a 10-minute walkthrough a property and get a fully detailed, accurate floorplan with gross living area. And it’s a technology we’ve been using as a customer for about a year. And we loved it so much that Duane, our CEO, decided he wanted to buy the company.
Kenon Chen
Super cool! Yeah, I think it’s exciting to — at least from a ClearCast perspective, right — like for us to be in the middle of this whole real estate fintech conversation because because CubiCasa’s customers are very much in the real estate space, right? I mean, real estate photographers use this. You know, things to really support the listing process, marketing of the listing process, bringing that world together with the fintech world, and helping financial services make better decisions. So we are the embodiment of our own podcast, Jeff.
Jeff Allen
It’s correct. That is that is not the driving force behind the acquisition, but it’s certainly a nice benefit.
Kenon Chen
It’s all for the podcast, everything we do.
Jeff Allen
It’s all for the podcast. It’s also, to be clear, somewhat about revolutionizing and modernizing the appraisal process by enabling property data collection to be performed by non-appraisers. To create new capacity for the industry, new approaches to valuation that are faster and better, and less prone to bias. So, we’re excited to help CubiCasa grow as an independent company, serving customers independently, and open for business to any and all customers, and really to help drive the change for the industry towards modernization. It’s going to be fun.
Kenon Chen
Very cool. Awesome.
Jeff Allen
So on the subject of appraisals, and on the subject of appraisal bias, our news story that we want to hit on a bit this podcast is less of a news story and more of a research paper from our friends at Freddie Mac. Just last week, Freddie Mac released what was a very eagerly anticipated research paper. And that that paper is called, “Racial and ethnic valuation gaps in home purchase appraisals.” This has been a very hot and important topic within the lending space for the last year or so, we’ve talked about it on this podcast before Kenon. And this is a pretty interesting new research project from Freddie Mac that gives us some new insights. Following up on lots of the stories that have been out there in the media about potential purchase appraisal bias pertaining to race and ethnicity, Freddie Mac kicked off a study of whether minorities are more likely to receive an appraisal value that’s lower than the contract price during purchase transactions. Can you walk us through this research paper and what it means to us?
Kenon Chen
Yeah, this is a very significant. I think this is a very significant analysis and research that they released, because it’s really the first one that is based on real appraisal data and a lot of appraisal data, they looked at 12 million appraisals that have been been submitted to Freddie Mac. And you know, many of the other studies or, you know, academic studies, using ABMs or using other tools to try to approximate appraisal value, but this is really looking at the appraisal data and not just the value itself, but but comp selection and things like that. And where they came out with their findings was that there was a significant difference between Latino and Black communities then mostly white communities, when it came to the appraisal coming in lower than the than the purchase contract. For Latino communities, the gap was 8% more likely to be lower than white communities. And then for Black communities, 5.2% was was sort of the gap there of appraisals coming in low, in comparison. And, you know, I think it’s interesting, though, that they never really got to: Well, why? Why is that happening? What does that really mean? They they got to, “well, here’s what we see. There’s obviously a disparate impact on mostly black and Latino communities compared to white communities.” But but they don’t exactly identify is because this, right, because appraisers are doing this, or because the system is doing this, or the data is this, you know, that they don’t point to any of that. But there’s a real impact, you know, there’s a real disparate impact on on people of color. So it’s something that is definitely worth further investigation.
Jeff Allen
Yeah. What do you think comes next in this dialog now that this kind of really, you know, clearly defined report is out there for the public to see?
Kenon Chen
I mean, just speaking for myself, personally, I think that it’s really helpful if we stop thinking about who to blame and think more about the impact and the positive change that would that we want to create, so that there’s fairness and equal opportunity across communities for this process. And I think the next step is for folks like Fannie Mae, which has said that they’re going to look at their own data. They have, you know, 50-something million appraisals they’re going to be looking at, and they’ve stated that their goal is to understand root cause. So that there’s actions that can be taken. So I think that’s a great next step. Let’s not rush to you know, draw conclusions, or try to find someone to blame. I mean, it’s still not about saying that there’s a group of people that are acting in a racist way. But there’s something wrong with our system that’s creating disparate impact that is worth looking at the data and trying to understand
Jeff Allen
Well put. And I know that you and John Brenan, our chief appraiser, and others at Clear Capital are certainly staying close to this topic and helping to put together some of our own research and talking points around it. So I’m sure we will come back to this important subject again on future pods
Kenon Chen
Yep.
Jeff Allen
Do you want to hear a joke?
Kenon Chen
I would loved to hear a joke, actually. Oh, wait, did I just say that out loud?
Jeff Allen
You did! You’ve opened the door.
Kenon Chen
I’ve got to work on my filter.
Jeff Allen
Yet again, this is an original pod joke. Here we go. So there’s this real estate agent — are you with me?
Kenon Chen
Yes.
Jeff Allen
He’s got a very difficult property to sell. I mean, like, total disaster of a listing that’s been sitting on the market for months in the midst of a very hot seller’s market.
Kenon Chen
Is it a geodesic dome?
Jeff Allen
It’s not, but I can see why you would think that. But if you’d look at it, you’d see why. It is so outdated. Orange, shag carpeting, 1970s appliances, weird shape, small bedrooms, maybe a little functional obsolescence, little shout out to the appraiser heads up. Just a weird place. It’s a tough one to sell and they haven’t gotten a single offer. So, tough. The bummer part is that the seller is like a crabby old man who thinks this house is worth way more than it actually is. He’s insistent that he won’t drop the price because he knows in his heart that it’s worth what he’s listed it for — orange shag carpeting and all. That sucks, right?
Kenon Chen
Yes, is he trying to get in the door right now?
Jeff Allen
So, a little little pod fun. My 10-year-old son, Gus, is practicing the drums in the basement right now. And so you guys are getting to hear that. But I think it’s a fun part of the fun part of the pod. We can leave it in, right? Does it sound good?
Kenon Chen
It sounds like the guy you’re telling the story about has heard that you’re telling this joke and is coming for you.
Jeff Allen
Ok perfect, so it fits in! So let’s keep going. So the crabby old man with the orange shag carpeting can’t sell his house. But he wants the price that he wants. So the agent is getting super bummed. He’s like, “man, I’m never gonna sell this place. We haven’t even had a showing in months.” Then one day, they finally get a showing. And the agent is like, sweet! And then he actually gets a voicemail from a potential buyer asking him to call him back. Sweet! The agent is stoked. So he calls the guy up. And the buyers like, “I would like to buy this house full asking price.” And the agent is like sweet! This is the best day of all time, we’re finally going to sell this place. This is awesome. But the buyer goes, “I just have one condition. I have a massive collection of antique glass eyeballs that I’ve bought over the years. And I plan to use this house just to display them in a public museum. I have purchased somewhere in the neighborhood of 700 glass eyeballs. And I am really excited to display them throughout this house.” Wow, that is weird.
Kenon Chen
That’s creepy.
Jeff Allen
The agent’s like okay, just to clarify, you said you will be using the house to display the more than 700 glass eyeballs you have purchased and you’d like to display them to the public? The buyer is like, “yeah. And I’m willing to pay full list price.” Wow. So he calls up the seller guy. He’s thinking man, this is gonna be awesome. The glass eyeball thing is weird. But this seller has wanted full asking price the whole time. That’s what he’s getting. I bet the sellers gonna be stoked. He calls the seller and he’s like, “guess what, I got a full price offer!” The seller is like, awesome! Agent goes, “one little thing I need you to tell you about before you formally accept. The buyer has a small collection of — let’s say 700 — antique glass eyeballs that he’s purchased over the years and he plans to use your house to display them. But since this is a full price offer, I assume this isn’t a big deal. And we can proceed.” The sellers like, “no way! I have not selling to this guy.” And that and the agent is like, why what’s the problem? He goes, “I told you, I will never sell my house to an iBuyer.” Do you get it?
Kenon Chen
I should have seen it coming. I really should have… Oh, I get it. I get it. It’s uh — yeah. The punch line, though, was really visible.
Jeff Allen
That took me a minute. Visible! Eyes! Now you just wrote your own original joke of the pod. Incredible work, Kenon.
Kenon Chen
Incredible. Incredible.
Kenon Chen
All right, well, we’re excited to have a special guest with us today: Shaival Shah, who is the CEO and co-founder of Ribbon. And Ribbon is actually company we’ve been definitely keeping our eye on — doing some some super cool things out there in the industry, helping buyers be more competitive in the marketplace. And so Ribbon offers a suite of tools and technologies for real estate agents to use with their clients, to help them manage and write offers in unique new ways. And, it really helps buyers I think, represent the best of who they are, even if they’re not in the same financial position as folks out there, they can present differently, such as all cash. So we’re interested in learning a little bit more about that. Thanks for being on the show.
Shaival Shah
Thanks, guys. I appreciate you inviting me on. I certainly am a follower of you guys. So it’s a joy to be on myself.
Kenon Chen
Awesome. So, you know, let’s jump right in. I mean, you know, I think that one of the things I was interested in is like, as I was looking at your, site, and this idea of like a place to manage offers, that seems to be like much, much more of a fundamental approach, if you will, than some of the marketing splashes you’re making — some of the offers you’re putting out there, which seem to be like more disruptive and like — whoa — you know, but you go to your site, and it’s more about like, hey, this is how you can get efficient with every offer that you do. So curious, maybe just give intro on what Ribbon is up to and how it works and then we’ll find out some more background.
Shaival Shah
Yeah, if you kind of think about Ribbon, what we were ultimately trying to do is trying to help everyday families and homebuyers be more competitive in the real estate market, and in the pursuit of homeownership. And so the broad mission for the company is to make homeownership achievable. And we do this in a couple of different ways. And, you know, if you look at the problems in the market that we were seeing when we started the business was that you have an entire new generation of people who are looking to move into homeownership. And they spent 5, 10, 15 years to get themselves in a position to finally go buy a home. And then they go out to make an offer on a home and they keep losing over, and over, and over again. And people think this is a pandemic-related thing — it’s hyper-competitive. This was happening pre-pandemic, it just wasn’t being talked about a lot. And now, it’s just significantly worse. And so we saw this, and we said, “okay, what can we do to help an everyday family be more competitive when they’re making an offer?” And so we start off by this one really, really simple thing, which is how do we help upgrade a consumer into an all cash offer? And like, why is that important? The reason why is that it always starts on the perspective of a home seller. So we’re really thinking about the ecosystem, it all starts in the home seller — home seller wants certainty. They’ve got a home, that seller of the home is looking to move to another home. So that ability for them to have certainty of the close of their home is really, really important. And there’s a lot of other companies that are trying different things. And we feel really strongly about the consumer-to-consumer connection about a home buyer buying from the home seller directly in partnership with their lender in partnership with their agent. And so what we decided to do was to upgrade every single consumer to an all-cash offer so they be more competitive. And then we added a sweetener, which is we guarantee the closing of the home. So it gives the seller by far the most powerful offer in the market to receive and accept. And the mechanism behind it is if I have an offer that is accepted as a Ribbon-backed offer, I go to closing and if for some reason the lender is unable to finance the mortgage on time, we’ll step in, we’ll buy the home on behalf of the consumer. The seller gets paid their proceeds, the homebuyer moves into the home. And then they can conveniently and peacefully get their mortgage two weeks, a month, two months later. And when they get the mortgage, we just transition the helm and back to them at the same purchase price. And what we’re just trying to do is simplify the entire experience and allow people to get the mortgage before or after — and more importantly, not let the mortgage hold them back from having the offers accepted. Sellers always prefer a cash offer over a mortgage-backed offer. In fact, the most recent stat that we saw was that a cash offer has a four times higher likelihood winning than a mortgage-backed offer. Makes sense! Like, I just made an offer today, it’s gonna be accepted, I have 30 days to close and I have all these contingencies and all this due diligence to do, and it all happens in this super, super tight window. Something always goes wrong. It’s real estate. Right? It could be the paperwork as a homebuyer took longer to get in. My employment verification took longer. The home inspection took longer. The repair negotiations took longer. And so all these things become stressful. And so we have this view, which is how do you create an experience that is as joyful as the the of the actual milestone itself? This is the most important purchase you’re ever going to make. It should be a fun experience, not one where people feel relieved at the end. So we built an entire platform around this.
Jeff Allen
It’s a super interesting model. I think it solves some pretty significant pain points that are out there. Let’s talk a little bit about the appraisal contingency component of this. Obviously, right now, appraisals are a pain point for the industry. That’s pains — Kenon and I say it because we are involved in the valuation space. But we know it’s true.
Kenon Chen
I’m just glad he didn’t bring it up. He didn’t mention that is the biggest pain point, you know.
Jeff Allen
We proactively mentioned it ourselves. So obviously, to make an all cash offer, even though the buyer is not in a position to kind of, financially, typically do that under a traditional model, you guys have this kind of appraisal contingency waiver thing. Can you talk us through the mechanics of that a little bit and how that works?
Shaival Shah
Yeah, totally. It’s, yeah, the appraisal, like the whole valuation appraisal thing is, it’s an enigma in the industry, because it’s so, so subjective. You could have, on any given home, you can have five different appraisers show up to the home and end up with five completely different valuations. And that does not provide any ounce of certainty or comfort for a home seller or home buyer. And so, we’d said, let’s like, rethink the entire appraisal process from scratch. And so what we do is when an agent and a homebuyer come to our platform, it’s a homeownership platform where you can make offers. Well, obviously, one of the key things is: what’s the price of the home? So we have a team, and we have technology, and a lot of data, data science and AI, and a whole valuations team that will underwrite every single home. And so, you may be interested five homes, and we underwrite every single of those five homes. And we may say the home is worth — we believe that the market value of the house is worth — $350,000. So, we back that number. So now, the agent or the buyer can come in, say we would like to bid $345,000 or $350,000, or $330, 000, or whatever the number is up to the $350,000 maximum price. So they make the offer and it’s accepted. They then go to get their mortgage. And let’s say their offer is accepted at $350,000. And the appraiser comes back and says, based on my analysis, I think the house is worth $335,000. And here are some comps and here’s my logic to it. And here’s the official appraisal report that gets submitted to the lender. The lender says the home’s worth $335,000, you’re at contract at $350,000. Today what happens — in the absence of Ribbon — is the homebuyer and the home seller, in the 11th hour, had to go back and renegotiate the contract with their two realtors. Sometimes they agree, sometimes they disagree. In today’s market, home sellers say, “I’m not going to sacrifice $15,000. I’m gonna put the house back on the market.” And has 17 new offers on the home within 24 hours. They’ll have another appraiser just reappraise the home until finally they get the person they want. And so what we do is we say, if we bought the house at $350,000 and it appraised at $335,000, we step in, we pay the difference. So we will then send the seller $15,000, no questions asked. And that way, the buyer actually closes on the home at $335,000 with their lender. So there’s no renegotiation, it simplifies the entire experience, the homebuyer actually gets a home at a lower price than they were originally going to buy it at. And the home seller gets their full $350,000. And so that $15,000 is a loss for us. But really, we see it as a service back to the industry and to the consumer. And it’s really important for us that we just get better, and better, and better every single day in how we value homes. And that we become like the gold standard of home valuations in the market.
Kenon Chen
That seems like that would be super difficult right now in this time of sort of rapid appreciation — to close the gap between seller expectations as to what they’re going to get for their home, and then what that comfort level is on what it’s actually worth. You know, there’s a lot of conversation around overvaluation. Do you see this is as sort of an anomaly right now, or do you think that this type of situation is kind of here to stay?
Shaival Shah
I think, you know, across the country, home prices are up almost 20% year-over-year. It’s like, outrageous what’s happened. And the tricky thing is that appraisers are going to look backwards for the last six months on various different comps in the market. So, if you’re in a market that’s doing this, and looking at price points through that curve, they’re going to always undervalue the home. Meanwhile, the home buyer, the home seller is saying this is what the market is today, we’re looking forward. So it’s disjointed — the forward-looking market versus the historical market. And so what we have seen happen is a couple things: One is, about a year ago, list prices were pretty in line with market. Now what happens is that the sellers are starting to list the homes a little bit higher, and kind of clear market price. And then they’re hoping buyers will come in, you know, at the top and bring cash to close at the closing table. Over the last two weeks, that has started to settle down a little bit. We’re starting to see the list prices come back down just a tad — 1% or 2% lower than what it was two and a half weeks ago — largely driven by the fact that there’s buyer fatigue in the market. Buyers are exhausted, agents are exhausted. And so that starts to slow down demand a little bit, and at the same time, home supply is coming up. And that will start to normalize the price a little bit. But that was the reason why we decided to launch price protection when we did, which was the consumer needed it. Both the buyer and the seller. And, you know, we, as a venture backed tech startup, we believe very deeply in building trust. And one of the ways you build trust is to be there for someone when they need it the most. And then we realize, over the next five or 10 years, that it will all settle out. But we’re building a significant amount of trust, and there’s been a massive demand from our client base for protection.
Jeff Allen
That’s very interesting. So you guys have come a long way, obviously, from from where you started to where you are now. So let’s maybe take a step backwards now that we’ve got a really good sense of the current product and go to your origin story. What was what was kind of the driving impetus for you to start this? Is it meaningful to you meaningful to you in some way personally?
Shaival Shah
That’s a great question. So the concept of home and homeownership — more than real estate — like I never really thought about this from a real estate perspective. I’ve always thought about this from the concept of home and homeownership and has been very dear to me and my entire family for years. And really where it started from is that my parents are immigrants from India, and they moved to the states back in the 60s. And they spent, you know, 10 solid years to just do the basics: Find the job, build enough for downpayment, and spent 10 years to build their credit. And then they went to go buy a home and they were declined because there was all these inequities and biases in the mortgage process and in how mortgages were insured by the FHA. And so this is crazy, but in the late 70s, all the way up to the early 80s, the Federal Housing Administration would not insure a mortgage to minority families. So my family experienced the inequities of housing very, very deeply. And then finally what ended up happening is that we were able — through the generosity of some people who worked with my father — to buy our first home, in cash. They contributed to buy the home in cash for us. And then that triggered a whole series of developments for us. It helped us go from, you know, kind of a lower socioeconomic family into a middle class family. We were able to move into a suburban environment where we had better schools, better education, better health care. You just get better access based on where you live. It’s just an unfortunate reality of the world that we live in. And then my father created a kind of social impact fund to help other families do the exact same thing for years to come. So I kind of grew up with that in my life. So homeownership has always been a big deal for me, but most importantly, around fighting the inequities. And really about leveling the playing field so that if you are really, truly in a position where you have earned the right to be able to buy a home, you should have the ability to buy a home. And you should not be competing against 25 different investors. You shouldn’t have to compete against high networth individuals from Boston and New York City who are buying their 15th home in Nashville, and Charlotte, and San Antonio, and wherever else. And so that was like the origin story. And then in 2017, the thing that just kind of kept pissing me off was that homeownership rates just kept dropping. Like here we are. We’re in an industrialized nation. We have better policies, we have better education, we have more money as a country, and homeownership of all things is dropping. And that was like the last straw so it was back in 2016 or 2017, and that’s when we decided to start Ribbon.
Kenon Chen
I mean, that’s a super compelling story. And, you know, I think most people think about some of those FHA impacts or viruses as being way earlier than that, right. Like in the 30s, as opposed to the 60s and 70s. And you don’t think of it as like, parents — our parents, going through that. So, seeing Ribbon as that, I guess I hadn’t looked at it that way before. So you see ribbon as a way to provide another tool for people to ensure that they are competitive — if I’m understanding this right — not only for the purchase of the home, but also to ensure they have financing options that will work for them as opposed to being in a difficult spot, if you will.
Shaival Shah
Yeah, exactly. It’s, you know, it’s hard to be great at a lot of things. And so, like, we kind of think like, what are we just really, really good at? And we just stay in that swim lane. We’re really, really good at just creating these, like, really unique financial offerings. My professional background is out of finance and lending. And my view was like, there had to be a better way — how can finance be used in a better way, and capital be used in a better way. And so we are really good at creating these like novel, new financial offerings and programs that are really specific to key use cases. And our first use case was, let’s say you’re an existing homeowner and you’re in this classic catch 22 — and it sucks — which is: I have a home that I’m in right now, and I have a home over here that I want to go buy. But I can’t buy that home, because I can’t get two mortgages. And I can’t sell my home today, because where am I gonna live? And so I’m in this, like, catch 22. And so we created this kind of modern bridge experience where we would actually buy your new home, you seamlessly move in, and then you sell your home and then we transfer the home back to you. So like that was like one. Another one was like this whole idea of like, how do you create a really, really inexpensive product for the first time homebuyer who can get their mortgage, but they can’t get their offer accepted. And that was our written boost product. And then a good example was appraisal protection. And so like we’re really, really good at creating these like new, novel financial offerings with this spirit of how does that one specific family be able to move into their new home? And the other thing that we’re really good at is technology. So like, while I’ve been in finance and lending in the past, I’ve spent the majority of career in tech. And so we think about how can technology be used not to disrupt, but to facilitate? So, how do you create an experience that’s better? Still simpler? And how do you invite other people to join? And that’s why, while there’s always been the consumers who are the North Star, we made a very intentional decision to do this to facilitate the ecosystem, not to compete with it. There’s 2 million small business owners which are realtors. There’s 500,000 loan officers. They don’t get paid, unless the consumer wins and closes. Yet they have families, they’re primary breadwinners, they’re entrepreneurs. And what really is another thing that bothers me is that, you know, you go out to Silicon Valley. And here’s the drumbeat, the drumbeat in Silicon Valley is that: “The agent is bad, the agent is bad, the agent is bad, the agent is bad, the agent is bad, the agent is bad. We’re gonna go disrupt the agent.” Well, the agent is not bad. It’s just that all those guys want to take a 6% commission as profit. Let’s just be very real about that. We don’t have a real estate broker problem in this country, we have a capital mortgage problem. The mortgage is broken. The same product that created homeownership for years and years and years, is exactly the same product that’s keeping families from earning that homeownership because they can’t compete. And so we said, we’re not gonna go create a mortgage product. That’s what a lot of companies did, a lot of young tech startups were like, “let’s go create another mortgage product.” No shot you’re gonna beat Quicken Loans or Rocket Mortgage in the mortgage. You’re just not gonna beat them. They have the scale, the size, and the efficiency and considered product. So instead of trying to compete, we said, let’s just go create overlays and initiatives to go partner with lenders and partner with agents and bring this together — bring the entire ecosystem in — and just collectively deliver a better experience for the consumer. And the response has been amazing. You know, we have agents now that represent — what is it — close to 5% of all real estate transaction in the country, on the platform. We have pretty much every major lender in the country that we’re now working with to help them make their mortgage product better by converting them all into cash offers. So it’s like the only product, that’s a win, win, win for everyone. The only one that loses — because someone always has to lose — is the investor. You know, the big institutional investors from Wall Street that have poured almost $100 billion into buying homes in the last six months alone. And that’s who we compete against.
Kenon Chen
Yeah. And that’s that’s grown into what one out of every 10 homes or something, in the last stat I saw? Like, the the increase of the percentage of homes being bought by investors has skyrocketed, right?
Shaival Shah
Yeah, that I think it was just the refresh that number was just published this morning, is now one out of every six homes in the country this year, has been bought by an investor. And in the secondary emerging markets, where all the migration is going to, because we’re going to second massive migration change, they have four homes. These are homes that are not coming back. So people are like, “oh there’s an issue in the real estate market, home prices are accelerating, there’s no homes on the market.” One of the big reasons why is that if one out of every four homes is being bought by an investor, those homes are not coming back and market for 30, 40, 50 years. So it just sucks the supply of homes out of the ecosystem. There’s just fewer homes for consumers to buy. And then home builders are taking forever to build right now, they can do a better job. And so the only person who’s losing right is the consumer. Investors are stockpiled, right? They got high frequency trading machines, literally, in their New York office. They got systems designed, pulling in all the MLS data, they got their models, it hits their little buy box, offer goes out within 30 seconds. And I had a conversation with an agent couple months ago, and she said, “it was amazing. I put my house on the market, I got like 17 offers in first like three hours.” How many of those offers have an LLC attached? All 17. Well, that’s what’s happening. So familes don’t even have time to go see the homes before they’re off the market. It’s crazy.
Jeff Allen
Right? I’ve been getting all sorts of random text messages lately. I’m not currently offering my house for sale. But I have gotten three text messages in the last month of somebody offering to buy my house. And every time it has the same form. And it seems like they’re trying to sound like a human. But they’re probably not. And I’m wondering if it’s some high-frequency trader in New York has targeted me?
Shaival Shah
Yeah, you know, because the problem is that all this data is publicly available. They’re able to kind of find out your home address, and there’s some third-party company that’s selling some other info — cell phone number. And, you know, you probably out there, you know, trying to present yourself on LinkedIn, you added your wrong information there somehow, and somehow someone’s contacting you. And now it’s just just going to get sold over, and over, and over again, until finally you’re like, “I’ll sell you my house, just stop texting me.”
Jeff Allen
It sounds very efficient!
Shaival Shah
And people are, you know, we have a saying here, which is, the problem is that investors love the exact same home that the three of us love. And that’s the problem. But we love them because we see ourselves living there for 10, 15, 20 years, potentially to get married there, potentially to be about children there because it’s the right school district. On the other side of the equation, investors love it because they see 15% or 20% yields in an appreciating asset that’s got 10x leverage on it. And we’re suffering through major inflation in this country. And the number one hedge against inflation is to own U.S. housing. U.S. housing represents a facet of inflation. And so it makes economic sense, I can understand why they’re doing it. It’s just not good for society.
Kenon Chen
So what would you say? I mean, there’s a number of folks that have started the process, you know, perhaps, made an offer which is contingent on financing. And this is their dream home, they’re excited, but they don’t know if it’s going to close fast enough — or at least on the financing side — that the loan will close fast enough that the seller won’t turn around maybe and say, “you know what, I don’t want to wait, I’ve got a bunch of other offers waiting.” You know, is it too late for them? Or can they actually switch their approach with you, even after they’ve kind of started to go down a different path? Is that possible?
Shaival Shah
Yeah, it’s actually very insightful question. Yes, we’ve launched a product called Ribbon Rescue. And it was specifically because of this use case, and this product was created because of one customer. We had a customer — and this is back in 2019 — and they were in that situation. They had a mortgage, their offer was accepted. I forgot if they had 45 or 50 days to close and something came up. The buyer was still mortgage eligible. Like, there was nothing wrong with the buyer’s credit-worthiness, employment, nothing. Something came up in the transaction that was going to delay it. And the seller said, “if it doesn’t close, we’re going to go put it back on the market.” And back in those days, there were still four or five offers on the home. It wasn’t like it was stagnant. And so we literally, almost on the spot, created this thing called Ribbon Rescue. And what Ribbon Rescue is, is a product that if you happen to be utilizing a mortgage to be able to close on your home, and for some reason, the closing is delayed or may fall through for no fault of your own, you can add Ribbon Rescue when you are already under contract. And we will step in and buy the home on your behalf. Move in, take your time. And then once you have more time, close your mortgage on our side. And so yeah, we call that Rescue. We’re literally rescuing — in that situation — home ownership. Because you’re so close, you’re literally days away and something comes up. Thirty-three percent of all home transactions are either delayed or they fall through. That’s a big number. That’s $500 billion a year.
Jeff Allen
So to close this out. Let’s talk a little bit about where Ribbon is going next. What are the things you guys are working on that gets you get you most excited for the future?
Shaival Shah
Yeah, that’s a good question. Um, so where we are right now, and kind of where we’re going, we’re right now, very focused on a home-buying experience that is enabled with modern home financing products, distributed through lenders and agents — buying agents. The next journey for us is we’re gonna get into the home selling experience. That’s one. Two, because we’re open ecosystem, we effectively built a network. And so we’re creating a network effect inside of our experience to make the best winning offers. Because what we realized is that it’s not simply cash, there’s about 10 to 15 different attributes in any given offer. And so we now know, we have, you know, close to $600 to $700 million in offers that go out every single month on our platform. And we have all this data. And we are like, on interesting, when you increase your EMD on this kind of home, your offer of separate actually increase. If you tag in a seller possession, that actually increases your chance of winning by another 10%. So we’re prioritizing that whole thing, we’re enabling every single one of those. And we’re gonna just create this like, literally the ability to just design a winning offer with all these attributes in it. And in the core of it is a bidding engine. So going forward, and next year, we’re creating a home offers bidding engine, where agents can bid in, listing agent can receive all their offers in one seamless place, and everything is going to be structured data, and we’re going to take that data and just return right back to the ecosystem so they can all get better. So that’s like one: listing agent. Two is the bidding engine. And the third big one is national expansion. And so we are expecting to be in about half the country in about 18 months. We have all the markets already lined up. We know exactly which markets are we going to by the end of this by end of September, by the end of Q4 going into Q1 and over the next several years, the goal is to be a national brand and a household name that works with the entire ecosystem — every brokerage and every lender.
Kenon Chen
Awesome, super, super ambitious. But I think this actually solves very real problems for people. Personal problems. You know, the ones that are really close I mean, the idea of losing out on your dream home, and not being able to compete in a market where you want to live and want to work hits super close to home. So we really appreciate the sharing of your story and where you guys are headed. Thanks for being on the on the show.
Shaival Shah
Yeah, guys. That was great. It’s great connecting I appreciate it and love to do this again sometime. All right, that’s a deal. All right. Thanks a lot.
