Ribbon, a New York-based start-up, came on the scene in the right place at the right time -- when homebuyers, especially first-time homebuyers looking for starter homes, are finding themselves in bidding wars of as many as eight (or more) other prospective homebuyers. It's frustrating, to say the least.
What bid winners often have going for them is cash. Ribbon allows homebuyers to be cash buyers, giving them an edge to win a chance to buy a home.
Ribbon recently raised a total of $150 million -- $75 million in working capital and $75 million in a Series C funding round led by Greenspring Associates. Greylock Partners, Bain Capital Ventures, NFX, NYCA Partners, Thomvest, and Jake Seid of Stone Bridge Ventures are repeat investors in this round. New investors to Ribbon are First American Financial, Waterfall Asset Management, TriplePoint Capital, 75 & Sunny Ventures, and angel investors Gary Beasley and Gregor Watson of Roofstock and Guy Gal of Side.
Ribbon was founded in 2017 and has raised $650 million since then. It buys single-family homes, townhomes, and condos that cost between $150,000 and $700,000 -- and only for people who'll use the home as a primary residence and not an investment property. Ribbon currently operates in six states:
- North Carolina
- South Carolina
Ribbon makes money by charging a fee equal to 2% to 3.25% of the home's purchase price. The fee varies by state. So, you're looking at a low fee of $3,000 on a $150,000 home at 2% to a high fee of $22,750 on a $700,000 home at 3.25%. Ribbon CEO Shaival Shah calls this "a small transaction fee." Small is a matter of perspective.
On top of that, this company charges rent on the home until its customer gets financing to buy the home back from Ribbon. Ribbon is not a mortgage lender.
What Ribbon customers get for the fee is access to Ribbon's cash to make an offer on a home. Because the offer looks like any other cash offer to the seller, the Ribbon customer now has a better chance at winning the home -- sellers typically view a cash offer as stronger since there are no financing contingencies to worry about. Ribbon also waives the appraisal contingency.
If the buyer wins the bid, Ribbon buys the house. The buyer then has 180 days to get a loan from any lender they choose. During that time, the buyer rents the home from Ribbon. Once the buyer gets financing, they buy the home from Ribbon. If they don't buy the home within that time, Ribbon sells it.
Ribbon doesn't consider itself a rent-to-own company since it only rents the home for three months max. Rent-to-own companies typically rent the homes they buy for around three years.
Ribbon is using its infusion of cash to launch new financial products; improve its software to connect buyers, sellers, agents, and lenders; and expand into more states. The company currently works with about 20,000 real estate agents and loan officers.
The Millionacres bottom line
In essence, Ribbon is a hard-money lender combined with a rent-to-own company. It's a promising company with a good idea, but it's expensive for buyers. And this expense is one that people will only consider during a seller's market, which we're currently experiencing.