Ribbon CEO on prizing cash offers and the future of real estate

Matthew Blake: Welcome to Houses in Motion, part of the “HousingWire Daily” podcast series. I am here with Shaival Shah, the CEO of Ribbon. Welcome to the show.

Shaival Shah: Thank you, man. Appreciate it. It’s nice to be here.

Matthew Blake: So, Shaival, what does Ribbon do?

Shaival Shah: It’s a great question. So, let me tell you… I can share this in terms of like at a high level, and then what we do from the lens of the homebuyer. And so we are a modern home buying platform to enable homeownership. And if you look at this from the lens of the homebuyer, and what we do, if you take an example, like put yourself in the shoes of a homebuyer, you know, homebuyers will simply go out, they will find a real estate agent, they will get pre-approved for mortgage, and they’ll go home shopping. And when they go home shopping, they will see four or five homes. And usually by this time, they’ve been briefed by their agent or their lender, that we’re in a pretty hyper competitive housing market right now. So they’re going out seeing homes very, very quickly. They identify a home of interest. They typically will start to feel like emotionally connected to that home. They start…they have finances into that home. And they’re really, really excited. So at this point, you’re at peak of excitement as a homebuyer. And so, he said, “This great, let’s make an offer on the home.” I’ve worked directly with my real estate agent. And then here’s where it gets really interesting. So, a real estate agent, and the homebuyer will start to figure out what’s the right price on the home. So they’ll look at comparables in the market. They will look at what is the pre-approval amount? And then, ultimately, what’s the willingness to pay by the homebuyer? And they submit, let’s say, for example, a $3000 offer on a home. So that’s the amount that we think is the right price. So they feel very informed about that number. They put an offer 300. And so, as a real estate agent is constructing the contract, they’ll get to a section which says, “Great, how are you gonna pay for this home?” And so, they look at the pre-approval letter, and it says, “Okay, we are gonna require financing.” So, we will close on. So, I’m assuming you get a mortgage. And they’ll say, “We also need to make sure we get an appraisal, because if we’re gonna get a mortgage, we have to get an appraisal. And we may also need to sell our existing home,” because 60% of all homebuyers are existing homeowners. So they may need to sell their existing home in order to buy the new home. And because of all these three things, these are the contingencies in the contract, we’re gonna need 45 to 60 days to close on the home. And so, now and why? Because it takes about 51 days to get a mortgage. So I feel pretty good as a home buyer. I submit the offer. The next day, we get a response back from the listing agent, which is “Thank you for your offer. It was deeply considered. However, we’ve decided to go with another offer.”

Matthew Blake: Yeah.

Shaival Shah: And this is happening all the time, multiple offer situations. People’s offers are constantly declined and people are wondering why? Well, if you put yourself in the shoes of the home seller, right, like the psychology of the home seller, if you’re a home buyer, the psychology is, “Great, I just received your offer. Now I’m gonna compare it against the three or four other offers.” And the other offers, the price might have been very similar, maybe even been a little bit lower. But in some of the other offers, there were buyers who said, “We don’t need to worry about getting financing through a mortgage. We don’t need to worry about an appraisal. And because of those things, we don’t have to worry about whether we have a home to sell or not.” And so, the seller says, “Wonderful.” And because of that we can bid for 15 days to close. And so, the seller is saying, “I’m optimizing for certainty of close, because I most likely have to go buy a new home.” So we always talk to homebuyers, and real estate agents, and lenders to put yourselves in the shoes of the seller when you’re making an offer on a home. The seller will always optimize for certainty. So what’s the difference in those two offers? The offer that’s accepted is typically a cash offer. And who has cash offers? Those typically then being high net worth individuals or institutional investors. So homeowners are constantly competing directly into this market today. What we do is we… It’s a really, really simple process where the agent can just…your agent can automatically add Ribbon to your offer. And that automatically converts your offer into an all-cash offer.

So as a homebuyer, I still need to get a mortgage to purchase the home. But we are stepping in to protect that situation and allow you to be able to make a cash offer and if your mortgage isn’t ready in time, we will step in and buy your home on your behalf for $3,000. And then when your mortgage is ready two months later, you’ll then get your mortgage and we transfer the home back to you for $300,000. And so, not only do we help you make a competitive offer that has about a four to eight times higher likelihood of winning, but we also give you an extra six months to secure financing, so you get the best rate from the best lender, and have the peace of mind at closing with some space, not all within 30 or 45 days. And so, that’s what we really do for homebuyers. So we increase their chance of winning by almost 8X, and we give them the protection that we will buy their home if they need more time. So we give them time and increased chance of winning.

Matthew Blake: Okay. And so, I think that’s a very clear explanation of how you guys help homebuyers. In terms of how Ribbon benefits from the transaction as a business, is there a fee that you’re charging homebuyers?

Shaival Shah: Yeah, so we charge. We have really kind of two or three different products. So some homebuyers about 75% of homebuyers today that we work with will make a cash offer for them, but they will be able to close on their mortgage in time [inaudible 00:05:30.155] 1%. And I’ll talk about who actually pays for that fee and how that’s constructed. Because in most cases, homebuyers are actually making money using our program. So if we need to step in and buy the home to give you more time, then we’ll charge a service fee, plus, we will cover the closing costs, and that usually is around 2%. So about 1% of that is for the service fee and the other half of that is to cover the closing cost when we buy the home on your behalf. And so, that’s typically how it works. That’s the other 20%, 25% of transactions, is where we step in and buy the home on behalf of the consumer. So in general, we make about a 1% service fee.

Matthew Blake: And when the customer, the Ribbon client is able to purchase the home that you’ve already purchased for cash for say $300,000, is like the mortgage of that person, like transferred over to Ribbon or does like the bank that made the loan to the person give Ribbon the money? How does that work?

Shaival Shah: Yeah, so typically, what’ll happen is if we…let’s say we bought you a home, where you are, when you go to secure your financing, let’s say it’s $3,000, you’re effectively purchasing the home back from Ribbon. So your lender will fund that transaction. That’s how Ribbon gets repaid. You take on title and ownership, you put your down payment in with your lender. So it’s exactly the same type of transaction. We just become the seller of record.

Matthew Blake: Interesting. And how long has Ribbon been around for?

Shaival Shah: So we started in 2017. And we were really in a pilot phase through 2018. And really kind of designed the program, built out the distribution models with the real estate agents, and now in 2022, the lender community, and then have expanded markets. So we’re now operating in North Carolina, South Carolina, Tennessee, Georgia, Florida, and Texas. And we’re about to launch with Alabama and Virginia. And so, we’re rapidly expanding states and we should be in about half the country by the end of 2022.

Matthew Blake: And is there anything you can say about how many deals you’ve done so far?

Shaival Shah: Yeah, so we’ve enabled about a billion-dollar transaction this year. And we’re now with the capital raise that we’ve done, we can now do about $10 billion in volume on an annual basis going forward.

Matthew Blake: Why did you choose mostly southern states to get started?

Shaival Shah: You know, that’s a really good question. One, the company headquarters started in New York City. And because of the nature of real estate, and there’s a lot of nuances in the real estate economy, and that’s the combination of the real estate broker economy, the lender economy, and obviously, the home economy. So, we wanna make sure that our first market was in a market that was close to New York, so that we can get there really, really quickly. That was really important. From an operational excellence perspective, we wanna make sure we have [inaudible 00:08:28.438] presence in the markets. But the other reason why was we looked at all the cash offers that were being made across the country. And on the average, across the country, one out of every three homes are bought in form of cash, it’s about $500 billion. So it’s a really, really big sizable piece of the market. And so, we looked at where markets that are trending above 33%. And one of those markets was Charlotte, North Carolina. And at that time, it was the fastest growing market in the country. One of the largest positive migration patterns. People moving into Charlotte from places like New York and Boston and other northeast cities, and a lot of people were coming in with cash, and they were putting pressure on the everyday family in those local communities. And that was from a mission perspective, what we’re really trying to do. We’re trying to level the playing field for everyday families in the local community, so they don’t get displaced. So we went into Charlotte, and that became our first market, and then we just naturally started growing all through the Southeast. And so, you know, by the end of this year we will be largely in all the Southeast, and then we’re gonna go to the Midwest, and then go out to the West Coast.

Matthew Blake: And so, you described how Ribbon works for the homebuyer. How does it work for the real estate agent?

Shaival Shah: Yeah, it’s a really good question. I think one thing to note is that real estate agents are 100% commission. So their success is completely connected to the success of the client, and their client’s ability to secure an offer, and then be able to close on the home. And so, we actually partner with the real estate agent community. So we don’t have any in-house agents. We’re not a brokerage. We partner with real estate agents, so that they can actually introduce the solution to the client, be able to make a more competitive offer on behalf of the client. And so, this helps the agents provide a better service to the client. Two, it helps them increase the likelihood of the offers that they do submit are gonna be accepted. And then three, because we have a guarantee closing, it also guarantees the commissions of the agents. And so, because of this, we help them increase the conversion of all their clients into homeownership, which in turn, allows them to go out to the market and actually bring new business. Everything that we have built was built for real estate agents. So at Ribbon, you cannot sign up as an everyday consumer today, you have to sign up…you can only be invited by your real estate agent or your lender.

Matthew Blake: Interesting.

Shaival Shah: And so, the software layer that we built was purpose-built for the agent community, where we allow them to… We have a whole offers platform where they can easily get their buyers approved in under 24 hours, and directly make their offers on our platform in a digital way that allows them to make faster, simpler, easier offers, because speed is so important in this market. We launched a mobile app for real estate agents. And so, agents can make offers on the go, because, you know, if you really care about the agent, and you care about what they’re going through, they’re always on the road, they’re never home. And so, they will get a call at 2:00 one day from one of their clients and be ready to make an offer on 123 Elm Street. And they need to pull out their phone and be able to act very, very quickly. And so, building software, building an experience that helps the agent helps the consumer.

Matthew Blake: And so, they get the normal buyer’s agent commission that they would have otherwise gotten. And that’s on top of like the fee that the consumer pays to Ribbon.

Shaival Shah: Exactly. So the real estate agents, they collect their traditional fee. And typically, they’re actually collecting fees on more transaction than they normally would, because we’re guaranteeing the closings. One of every three transactions without Ribbon will either fall through or be severely delayed. So we actually help them not only collect their full commission on a closed transaction, but just close more transactions.

Matthew Blake: And so, the use of the real estate agent is pretty interesting to me, because I cover iBuyers a lot. And as we’ll get into Ribbon is not an iBuyer, definite contrast between what you do and what they do. But oftentimes, the iBuyers, Opendoor comes to mind, you know, they work with agents as well, but part of what they do is kind of like, we need to disrupt the traditional transaction, we need to give consumers the ability to sort of directly buy and sell homes themselves. So why is your company’s philosophy to continue to work with a real estate agent?

Shaival Shah: Yeah. It’s a very good question. It is a pretty significant distinction in the models. So, on day one, we defined ourselves as a home buying platform built to support the open ecosystem. And so, since day one, we’ve been operating this way. And there’s a couple of reasons. One is 91% of all real estate transactions today have a real estate agent. That number is actually increased, not decreased. A lot of technology companies, a lot of Silicon Valley, they talk about the disruption of the real estate agent, and the real estate agent has actually gotten stronger and stronger, because that’s what consumers want. And we honor that and respect them, and we saw that. And so, we designed around the agent. So what makes us different is ultimately companies like the Opendoors and the iBuyers, they are a direct to consumer company in their role. So their model is to go acquire the consumer, own that consumer relationship, and then sell that lead to the real estate agent. So when they do partner with a real estate agent, they are effectively competing with that same agent to win the client, and then turn around and try and sell that lead back to the agent. And so, the agent may receive a lead but at a significant lower net commission rate. Our model is to help agents build and design marketing campaigns so they can acquire consumers directly, own that consumer themselves, and then introduce them to Ribbon and keep their entire commission structure. That’s one. Two, we don’t have any in-house agents, while the iBuyers have in-house agents. So they’re actually directly competing for the full 3% commission. Because they believe long-term that there will be a consumer-to-consumer marketplace that they can create and cut the agent out altogether. And so, I always tell agents, look at the site. If a website is built and designed for the consumer, as the main presence, versus sites that are built where the agent is the audience that you’re speaking to, that tells you what the long-term business model is of the company.

Matthew Blake: And so, why is Ribbon decided to partner with agents instead of bringing on your own agents? Or do you plan when you grow as a company to bring on your own agents?

Shaival Shah: Yeah, so we have no plans to bring on our own agents ourselves. You have close to 2 million realtors in the country. These are all small business owners. It is a woman-led industry. And our belief is that…our thought was how do you empower not just the homebuyer, how do you empower the entire industry? So our thought was we also wanna support the small business community, not simply the homebuyer community. And so, it started from that philosophy. That was the why, which is like how do you actually make the entire industry better? Versus trying to displace people for corporate profits. So we started off with that mentality. And we knew that consumers want agents. From a business model perspective, it makes sense because agents bring us clients. So we don’t have to spend money to go market directly to consumers, because we’re partnering with the agents. Operationally, when you have the agent involved, that means the consumer has an advocate, has an advisor that’s taking them to homes, helping identify homes, working through the inspections process, working through the contract. And so, allows us to do what we’re really good at, which is creating modern financial products, and easy ways to make offers. And so, by partnering, it is from a marketing perspective and an operation perspective much more efficient, and it allows us to scale the business significantly faster, which then allows us to help more and more homeowners.

Matthew Blake: And what you’re doing is different from iBuying, but it’s similar in the sense that you’re relying on pricing models, in terms of figuring out when you have a consumer, when you have someone that wants a home, you feel that you’re able with some degree of accuracy to price that home and confident enough to make a cash offer. So how confident are you in these cash offers? And kind of what are you nervous about when you’re making the offer? And what do you feel good about when you’re making the offer in terms of reliability of the price that you’re offering?

Shaival Shah: A couple of things. One, we’ll always outperform an iBuyer on pricing. And the reason why is like pricing models come down to really one thing which is access to information, access to data. And if you look at the difference between our pricing model and an iBuyer price model, take Zillow offers, for example, because they’re trying to value every single home and have always-on pricing model, there are homes that are actually on the MLS and listed for sale and there are homes that are not on the MLS listed for sale. But homes are not listed for sale on the MLS, the information you have is very historical, right, maybe the last time that that home was sold. And then a lot of inferences, a lot of inferences, like a lot of probabilities, but nothing specific. We are only enabling homes that are on the MLS. So we have all the MLS data for that active home, how many days it’s been on the market, all the square footage, everything is up to date, because the agent had to update everything before they put on the MLS. Access to information is much different. We will then value homes based on MLS data and we have four layers of protection. One is we have a technology-based system, an automation system that will say we believe this home is priced at $300,000. We then compare that to all the other pricing engines on the market. And if we realize that the variance is above a certain percentage, it automatically gets flagged for an in-house valuations team that are former appraisers in the market that will then underwrite the home. Let’s call it like an AVM plus an ensemble model with a human oversight of all the home valuations, that’s like one layer. And that right there is significantly more protected because you actually have a human layer, you have a technology layer, and you have access to MLS data.

Matthew Blake: And what’s the human…could you explain what the human layer is? Who’s visiting the home again?

Shaival Shah: Yeah, so we have an in-house team that are on staff, and they’re historically been appraisers of the markets. So if their home gets flagged, they will then do a desktop underwriter home. They will then like look at secondary data sources, they will look at photos differently, they will like dig in harder, and then they’ll price the home. So that’s like one layer. That right there is significant different because an iBuyer is easier just predicting the value of a home without any sort of updated information, or they’re asking a questionnaire of which that’s human input, and it’s not been verified data. And so, our level of data will be significantly better. Then what happens is once we have an offer accepted, we will then get a third-party broker, another agent that’s not party to the transaction to run another valuation of the home and they will go to that home actually, so we have that valuation. Then when the home buyer gets the appraisal, we will often get the appraisal report. So we have all this information on one single home. We only value homes where there is a request for an offer. So not the value of every single home in the market. Then we get the third-party agent valuation and we get the appraisal information.

Matthew Blake: So one issue when Zillow wound down its iBuying program is that they kind of blamed their price forecasting model. Is there any price forecasting involved in what you guys do?

Shaival Shah: So, you know, what we typically try to do is we look at where we believe the appraisal market is gonna price the home. And then we also look at what do we think the market is actually gonna trade. So people are bidding above and beyond the list price to win today. And so, we’re trying to understand both those numbers. When you’re looking at where we think the home will appraise that, there’s no future price forecasting. And that’s just based on historical comps in this particular home, this is what we think that summer price. And then we’ll say, but this market is typically bidding 3%, 4%, or 5% over the market. Sometimes those appraisals will match, sometimes they won’t. So we are putting some forecasting into there to help consumers get more competitive. In order to protect the consumer, we launched appraisal protection. So we were the first company in the country to launch appraisal protection. And so, that means if the offer goes in at $3000 to $10,000, but it could appraise at $3000 or $5,000, we will fund that $5,000 difference. And so, that’s how we protect the consumer, while having a much, much tighter pricing model, also protect the consumer in those outlier events.

Matthew Blake: Follow-up question to that is sort of any kind of existing weaknesses or vulnerabilities to the pricing models of today?

Shaival Shah: Yeah. I think the vulnerability I think in the market is that this homebuying cycle that we’re in is very, very different than other ones. And so, when you’re running models that are looking at historical patterns, and those patterns change, you end up with a lot of variance and pricing, and we underprice, then you lose the offer, you know, you lost the opportunity, or you have a loss on the risk. So I think right now the biggest risk is that the market hasn’t fully caught up from a pricing perspective to the effect of the new normal that we found in 2021. You know, we look at things that are structural problems versus temporary problems. I do think the pricing problem is a temporary problem, because when the market… We don’t expect 25% year over year growth on housing next year. We expect that to kind of come back down to 3% to 5%. And so, as home prices start to stabilize, the pricing models will get tighter and tighter. That’s why I think with something like Zillow, I think they hit a pricing hurdle, but they had a perfect storm of issues, which is, you know, in all sorts of…in fact, they’re a public company. They’re a public company that has to report publicly every single quarter. And so, they have a spotlight on them as they’re trying to figure things out in a way that other private companies are able to go through challenges, under the cover of frankly, being a private company, fix those challenges, and then kind of take it out, they’ve built this as a public company, and operational challenges. And, you know, here’s one thing about the iBuyer model, which I have always thought was a risk to their…like a structural problem of risk to them, is if you buy a home as an iBuyer for $300,000, and then 30 days later, you put on the mark of $330,000 or $315,000, when the next buyer comes in to buy, and they get an appraisal, the appraiser who’s looking at comps is gonna say the perfect comp for this home is actually this home from 30 days ago. So I bought it for $300,000, now you’re selling for $315,000 in 30 days later, tell me what the $12,000 to $15,000 improvements are that you put in the home to justify this? So I think they inherently have more appraisal risk and pricing risk because of that model, because they’re buying low selling high. For us, it actually works the opposite, which is when we buy a home for $300,000, we’re establishing a comp in the market, the buyer is buying it back at $300,000. There’s no markup in the price.

Matthew Blake: And in terms of the cash offers, it’s a very attractive business model it seems in a market like this when there’s such high demand, and we hear all about bidding wars for homes. But can your model and can sort of the idea of cash offers being so important, can that sustain in sort of a housing downturn when there might not be as high demand?

Shaival Shah: Yeah. It’s a very good question. So, and we’ve tested the model, even though we’ve always been operating in a seller market, even pre-pandemic [crosstalk 00:24:43.664]. We have run tests of what a buyer market environment will look like. So let me share this. So, when we were first kind of testing out the viability of the business model, we were buying homes all with the $2 million in place like Charlotte, or in Nashville. When you get above $700,000 in Charlotte, North Carolina, you are no longer in a seller market, you start to move into a buyer market, right? There are just fewer buyers who are buying a $1.5 million home in Charlotte than a $250,000 home in Charlotte. And the model works not only as well but actually outperformed in those environments. And the reason why is that when you shift from a seller market to a buyer market, the need for seller certainty increases dramatically, because there’s only one offer in the home, not seven. So that seller is gonna even optimize even more so for certainty of close. And what they’ll usually do is they’ll say, “Okay, I will not only optimize more for certainty of close, I will actually even offer the home for you that’s a little bit cheaper in exchange for that certainty.” So what will happen is the value proposition to a homebuyer in today’s market is bid to win, in a buyer market is bid to earn a cash discount. So typically, we see 3% to 10% cash discounts in markets that are more buyer-friendly.

Matthew Blake: Let’s look at the big picture for a second of the real estate market, because I think there’s a lot of temptation for smart people or people with money to look at the real estate market and be like, huge total addressable market, things have been kind of the same for a while where real estate agents, you know, mediate the transactions. This is an industry due for change. What do you see as sort of changes that are happening now in developing business models, including yours that will last in 5 to 10 years from now? Like, where do you see real estate going in terms of actual concrete changes that may happen in the way people buy and sell homes, the way people make money off of real estate? And what is sort of ephemeral right now and we may forget about in a few years?

Shaival Shah: Yeah. So it’s a good question. So I think the number one principle, we have a capital markets problem in this country. We do not have a real estate broker problem in this country. I do not believe new tech startups that are trying to compete with the agents is gonna be something that creates lift for the overall industry. I think that’s gonna be shifting the market share. So that’s like a shifting the market share equation. And I think the pressure, what will you’ll see 10 years from now is I do believe you will see of the close to 2 million realtors in the country, a percentage of those agents that will move to become an in-house agent at a company, where they are salaried W-2 for just the financial stability. But I think the agents that you will see move into those types of business models are typically agents that are doing four to six transactions a year, not doing 20, 25, 30 transactions, economic, it doesn’t make sense. But I’m doing 30 transactions a year, it makes more sense about commission structure than to work for a W-2. And so, I think you’ll see a shift between 1099 and W-2. I think from a worker classification, I think that will happen. And that’s gonna be really movement of market share not making the overall pie bigger. So I think that is a trend. I think it’s an interesting trend, but not in something that really creates innovation, or a better consumer experience. I think where there is an opportunity to create a larger pie for everyone is actually more in capital markets-based solutions in the financing side. Because what that will do is it creates accessibility.

Forty percent of all renters in the country today are mortgage eligible have no idea. Education because of prom. So by creating more flexible and alternative home financing programs, you will actually create more accessibility. And that will actually create more housing demand. So the problem today, the crux of the problem is that we operate, it’s the largest market in the world and it’s illiquid. Like imagine trying to go to E-Trade, and say, “I wanna buy a share of Apple. And I’ll find out 51 days from now whether that’s gonna trade or not and the price may or may not be the same.” And so, to create a liquid market, you need to have very strong buyer-seller behavior and you need the ability for transaction happen very, very quickly. And that level of liquidity will create more behavior in the housing market and they’ll be more trading in the housing market and that’s where I think modern homeownership over the next 10 years will have the benefits of owning with the flexibility of renting. As you speed up the transaction, you’ll get more and more transactions. That’s how all boats can float, and everyone can benefit from that. That’s what I think long-term value creation is in the market. At some point, if any one company is truly owning all these homes like iBuyers, the federal or local government will step in and say, “You can’t have that much pricing power in a market.” Is a fundamentally flawed concept from day one. And so, I think is about providing liquidity into the transaction. Money is the center of the transaction.

Matthew Blake: So a lot for me to think about. One thing when I think about liquidity, and this might not quite be what you’re talking about, but I think about like, one of the things that companies are doing now, in terms of providing liquidity to the market is that a lot of the homes that they’re dealing with are homes that might already be kind of liquid, like homes, and maybe like Sunbelt regions that are already kind of similar to each other and are easier to buy and sell. How do you sort of create liquidity in like a suburb of Boston or something?

Shaival Shah: A great question, because actually, if you kind of look back at how the iBuyer started, they started in Phoenix. One of the reasons why Phoenix is a hotbed, but every iBuyer is in Phoenix. Why? Because Phoenix is typically newer homes and attract homes. So you go into a community, and all the homes are structured the same. So it’s easy to price those homes, really easy to price those homes. But when you go to the suburbs of Boston, when you go to places where the home, the ageing of the housing stock is older, and where as a result of being older homes get improvements, and they get additions. And so, every 5 or 10 years, they all look a little bit different and the homes feel more custom. And I think that’s the limitation of the iBuyer models, because it’s really hard to price those. And so, that’s where models that are built off of homes on the MLS is so important. Our view is the iBuyer will have 3% to 5% market share. We just care about the other 95% market share in the country.

Matthew Blake: A lot of mortgage-eligible people. I think that’s a really interesting concept. I was at the realtors convention a couple of weeks ago. And they were talking about like there’s low black homeownership rates, there’s, you know, hundreds of thousands of Black Americans that have high credit scores, salaries that are enough to buy a home, but they’re just not interested or not being educated as you put it about potentially, you know, this being a good investment. I guess, though, the flip side of that, though, is that there’s so much demand in the market right now is that if we kind of increase the pool of like potential homeowners, how does that work with sort of this fact that there’s just not enough homes in America right now?

Shaival Shah: Yeah. There’s two parts of that question. One is how do we make sure that we have a level playing field and we have diversity of homeownership? Is one. And then two, is let’s fast forward and assume that companies like Ribbon are able to get to that point and now you have two times the number of home buyers in the market. It doesn’t change the fact that there’s not enough of home supply on the market. The reason to be for us as a company, and the mission of the company is to make homeownership achievable. And going back to your prior question, most companies look at this as a pot of gold, $30 trillion industry, and it has not been disrupted. We look at this more from a home ownership perspective, because of the background of our team and the founders, has always been around things that are inaccessible to us. And so, we look at homeownership rates by demographic. And it is one of the most disheartening things that you will see is you’ll see that black homeownership rates are probably close to 40% to 60% of what white homeownership rate looks like in the country. You look at Latin community homeownership rates, you look at the LGBTQIA homeownership rates, you look at anything in this country that is underrepresented, and you’re also seeing it being underrepresented in the single most important asset class in the world. So how do we specifically solve this?

You see this come up in two places. You will have someone that will be from an underrepresented minority group that will actually know that they can make a mortgage, make an offer, and they’re often bidding with a VA or an FHA mortgage, which is the lowest accept rate of any offers in the country, because of systemic bias. There’s like structural and systemic bias. And people look at those and they associate it with a certain buyer type and those offers get declined. The VA and FHA are very powerful mortgage products and they should be used more. What we do is we remove that. So you might be an FHA or VA buyer, but now you’re bidding. What the seller is seeing is a cash offer. That’s how we help level people up, so that the offers that they’re making are actually the best offers, and people are not associating their offer with some implied perspective of who they may be behind the scenes. And so, what it does create is an interesting problem which is there’s just not enough homes in the market. So, I think there’s a short term and a long term on this. One, we’re very dependent right now on new construction. And new construction, September was a really strong month for new construction. But overall, we understand the supply shortages, we understand the labor shortages, and the inability for homes to be built fast enough. So that’s one. And there’s a whole community people working on like, how do you help create more home supply? And we like very much advocate support that. Then you have situations where you actually have housing stock. That housing stock is actually going to investors. Over $100 billion of homes in this country have been purchased the last nine months by institutional investors, not including…

Matthew Blake: What was that number again?

Shaival Shah: Over $100 billion.

Matthew Blake: Really?

Shaival Shah: Yeah. Of institute institutional capital. And so, the way we actually create more home supply is making more of the housing supply that’s available in the market more accessible to the consumer. And so, if you were to look…they’re posting right now about 6.3 to 6.4 million homes will be sold this year. How many are being sold to everyday consumers where that will be the primary residence?

Matthew Blake: How many? Do you have an estimate?

Shaival Shah: I think it’s gonna be…I think that number is gonna come out closer to…all of that total number, no one really knows. But I suspect that numbers maybe 75% to 80%.

Matthew Blake: Okay.

Shaival Shah: Maybe lower.

Matthew Blake: How would that compare to prior years?

Shaival Shah: So it’s getting worse because there’s always been local investors in the market. But now, what’s happening is you’ve got big institutional investors from Wall Street with tons and tons of capital. And then you’ve got consumers who buy their second and third homes. Like someone who’s living in New York City, they’ve got a beautiful $4 million apartment in New York City. And they’re also working in a hedge fund, they have all this free cash, and they’re like, you know, I may decide I wanna go visit Nashville once a…I may as well live in [inaudible 00:37:26.323] for those three days. And so you have all this money flowing in and what is creating is a gentrification in the middle class. And you’re seeing this like look at Nashville, Tennessee. Tennessee, if you just drive down the outskirts of Nashville, Tennessee, and you drive from Nashville to Huntsville, you have people that are every single day being displaced that are local community members from Nashville, and they’re moving to Huntsville, Alabama, because of affordability of housing. Our underlying programs not only create more education, more awareness for people to enter the market, but it gives those in the market a higher chance of actually winning the housing stock that’s available. And I believe fundamentally, that the role of an investor is important in housing. But the role of an investor should be funding programs like ourselves as their participation, or when there is no consumer demand to step in to provide the liquidity to a home seller. But the consumer always should have the right of first refusal on a home.

Matthew Blake: I mean, if we’re competing in a market that, as you say, there’s more and more corporate investors, does that mean that in the future Ribbon will have to like go up against other cash offers, when it makes its own cash offer? Like is there gonna be just a higher proliferation of cash offers where somebody might be like, well, a corporate investor will pay 305 in cash while you’re paying 300 in cash?

Shaival Shah: Yeah. So this happens 1500 times a day for us.

Matthew Blake: Okay.

Shaival Shah: Almost every single offer that a Ribbon back buyer is making is going up against another corporate cash offer, or going up against corporate cash offer. And in almost every single situation, because the investors had done really, really good. What they have done, A, there’s many more of them, so they have more coverage of the country. And in order for them to compete, they’re doing different segments. So they’re starting to increase their segmentation of homes that they will actually buy. And they build effective high-frequency trading machines. They’ll suck in the information. They know the types of home that they wanna buy. Once it sees it in their model, they’re automatically triggered off on the home. We had a situation where there was a home that had, I think, it was 24 total offers, every offer was a cash offer.

Matthew Blake: Wow.

Shaival Shah: We had another situation where there’s 117 offers on a home and the overwhelming majority of those offers were cash offers And so, if you’re sitting with a mortgage offer, right now, mortgage-backed offer, home sellers and listing agents, they’re just not even looking at these if they got like six cash offers, because in order for investors to be, they are no longer the bottom dwellers of price, they’re actually coming in at market value or above. So they’re getting very competitive with these offers. And, you know, as a company and as a mission, what worries us is that if we don’t scale fast enough, there’s a high risk that this country turns into a renter nation. And that’s our biggest concern, and it’s a concern of the federal government.

Matthew Blake: Anything else you wanted to talk about?

Shaival Shah: No, I think, you know, by the way, this is great. It was very comprehensive.

Matthew Blake: Great.

Shaival Shah: My only comment is that when people are looking at companies in the space, to really look at two things, what is someone doing in service of the consumer and what we’re doing in the service of the ecosystem? You know, we are elated to be on the right side of history to power the ecosystem, and to not be called a disrupter. But rather to be called a facilitator, like we love to facilitate, and just take our… We provide a small piece into the transaction, and we’re really happy doing that.

Matthew Blake: Well, Shaival Shah, CEO of Ribbon, thank you so much for your time.

Shaival Shah: Thank you, Matt. Appreciate it.