Mattress Mack wants to help new buyers beat investment firms

Listings are sparse and competition is fierce, especially in her $350,000-$400,000 price range and in popular Inner Loop areas where she wants to buy. She heard stories of first-time home buyers outbidding properties time and time again, often losing out to buyers making cash offers.

To boost his chances in the bidding wars, Collazo is considering a new program that would allow him to forgo a financing contingency in his contract and make an all-cash offer — a proposition that would make his offer more attractive to sellers. The program, called House X Lab, is launching first in Houston and will soon expand to other markets in 11 states.

The program was formed by a unique partnership between New York-based fintech company Ribbon, Austin-based real estate brokerage House X World and Georgian mortgage company HomeStar. They also work with Houston businessman and philanthropist Jim “Mattress Mack” McIngvale.

First-time buyers excluded

Similar initiatives are underway across the country as first-time home buyers lose ground to high prices, rising mortgage rates and well-heeled buyers and investors who can pay cash. According to the National Association of Realtors. Historically, first-time buyers accounted for up to 40% of the market.

Generally, cash offers are more attractive to home sellers because they don’t have to worry about financing failing before closing. But cash offers are generally out of reach for first-time home buyers, putting them at a disadvantage in bidding wars.

“First-time home buyers are getting beat up because they will find a home they can afford and they will make an offer and there are already five or more offers for the same home,” said Lawrence Dean, senior vice president. in Houston for Zonda, a housing data company.

Innovative models

Programs aimed at helping first-time home buyers compete with cash offers essentially act as insurance, allowing a buyer to waive a financing contingency in the contract. Buyers are expected to secure a mortgage, but the programs will provide cash if financing fails or is delayed before closing. Buyers generally must be pre-approved for the loan to qualify for all-cash programs.

Doug Duncan, chief economist at Fannie Mae, said House X Lab is one of many innovative new models designed to give shoppers a head start. Ribbon, for example, offers a guarantee to turn a conventional offer into a cash offer for a 1% fee. Ribbon will also buy a house that a buyer is looking for and later resell it to them at a fixed price for a fee of around 2-2.75%.

Any buyer can use Ribbon’s services, but first-time home buyers have a particular need, said startup co-founder Shaival Shah. The inability of new buyers to break into the real estate market can have long-term consequences for their wealth generation, he noted.

“Homeownership is a multi-level journey,” Shah said. “If that starting house isn’t available, then there’s no way you can move on to that second house or that house you’re going to retire in because you never had the capacity. to appreciate that. [first] residence.”

Shah’s company has raised $900 million from investment firms Greylock Partners, based in Silicon Valley and Burlington, Massachusetts. Bain Capital of Boston and Greenspring Associates of Owings Mills, Md. Ribbon operates in Texas, North Carolina, South Carolina, Tennessee, Georgia, Alabama, Virginia, Florida, Indiana, Oklahoma and in Missouri.

Houston Association of Realtors president Jennifer Wauhob said she hasn’t worked with Ribbon, but has had success with other companies using similar models, such as Austin Homeward. Other companies such as New York’s Orchard, Boston’s Own Up, and Seattle’s Flyhomes offer different models to help buyers make cash offers.

“It only strengthens their offer,” said Wauhob, who is also an agent at Better Homes and Gardens Real Estate Gary Greene. “When you get 10-15 offers and I put them all together for my salespeople, the less contingencies the better obviously.”

How House X Lab Works

Under the House X Lab program, buyers must be approved for a loan by mortgage lender HomeStar. The mortgage company uses part of its commission to cover Ribbon’s costs. Buyers also receive a gift certificate from Gallery Furniture equal to 1.5% of the home’s value, or about $5,250 on a $350,000 home. House X World real estate brokers use a portion of their commissions to cover the cost of the gift certificate.

“I’m passionate about people living the American dream. Anytime we can help people settle into a new home, it’s great for our business,” McIngvale said in an interview. McIngvale, noted that new homeowners typically spend between 5 and 10 percent of their home’s value on new furniture in the first 18 months after ownership. Therefore, participation in House X Lab allows Gallery Furniture to capture some of this activity.

In markets without a Gallery Furniture outlet, the homebuyer could choose to shop online or use the money for down payment assistance or purchase points to lower their mortgage rates, depending on House X World.

According to the companies, the House X World and HomeStar commissions would generally be covered by the sellers during the transaction.

To participate in House X Lab, homebuyers must use HomeStar as a lender and realtor within the House X World network of brokerages. House X World is a web-based network of residential real estate brokers founded in 2020 by Texas real estate broker William Farrell, Houston investment banker Kristen Williams, Houston broker Gary Kob, Seattle Microsoft program manager Ivan Judson and l Houston entrepreneur David Goswick. The network operates in more than 20 states.

House X World is Goswick’s latest stab at a new venture after a long career in advertising for high profile property clients. Two of his first real estate ventures failed. The housing crisis of 2008 wiped out one of his former businesses which had planned a mixed-use project in Pearland and led him to file for personal bankruptcy protection in 2011 because he had personally guaranteed the business loans. Then at a separate home-building company, Houze Advanced Building, a dispute over debt with one of his former business partners led to litigation in 2015 that ultimately led to his resignation.

Houze is not actively doing business now, said Gary Kob, co-founder of House X World who was an investor in Houze. Goswick, who owns a stake in House X World but is not a broker, has no fiduciary brokerage role and is focused on marketing.

Kob, a seasoned commercial land broker with over 50 years of industry experience, said he wanted to get involved with House X because he saw its model as innovative. Kob said brokers charge about 1.5% commission – half of what buyer’s agents typically charge – but said House X agents can still make a decent living from a high sales volume.

Early impact

Buyers working with House X Lab would still have appraisal and inspection contingencies, but removing the financing contingency helps overcome a major hurdle.

Making a cash offer isn’t a guarantee that every offer will be accepted, but HomeStar division president Wendell Couch said he’s already seen an impact among his customers using HomeStar’s cash offer program. Ribbon. He estimates that this increased their chances of having their offers accepted by about 20-30% compared to an offer with a traditional FHA loan.

“It puts another tool in the belt for homebuyers,” Couch said.

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