Florida homebuyers struggle to compete. Can a real estate startup help?

Ribbon, a company that places cash offers for buyers who need extra financing, is expanding to the state as cash offers boom.
A home is for sale "by appointment only" with Keller Williams Realty at 350 Beltrees Street, on Thursday, Jan. 28, 2021, in Dunedin.
A home is for sale "by appointment only" with Keller Williams Realty at 350 Beltrees Street, on Thursday, Jan. 28, 2021, in Dunedin. [ DOUGLAS R. CLIFFORD | Times ]
Published Aug. 24, 2021|Updated Aug. 24, 2021

Cash is king, especially for homebuyers in Florida.

The number of homes bought without a mortgage has skyrocketed, according to Florida Realtors. From May 2020 to this year, the number of houses bought fully in cash spiked by 150 percent. The booming housing market has put homebuyers who need a loan at a disadvantage.

Ribbon, a real estate startup, wants to give homebuyers a leg up against cash offers. The company is expanding into Florida this month.

“Florida right now, and Tampa, is one of the hottest real estate markets in the country,” said Shaival Shah, Ribbon’s co-founder. “And there are multiple offers from many different home buyers on any given day.”

The company will place an all-cash offer on a house in place of the buyer. If the offer is accepted, Ribbon will purchase the house and then sell it to the buyer at the same price when they finish securing a loan.

If a buyer can’t secure financing by the time the sale closes, Ribbon will rent the house to the buyer for up to 180 days until they can pay for it, Shah said.

“Florida’s is one of our highest demanded markets that we have,” he said, adding that the company has received numerous requests from consumers and real estate agents in Florida since they launched in 2017.

Related: Is Tampa Bay’s real estate market starting to calm down?

Cash buyers made up 37 percent of all homebuyers in Tampa during the first quarter of the year, according to data from real estate brokerage Redfin. These homebuyers, usually investors or wealthy buyers looking for a second home, are more capable of offering above listing price, said Kendall Bonner, owner of RE/MAX Capital Realty in Tampa.

“It’s disappointing and frustrating for both the customer and the agent when you finally find the right home and lose it to a cash investor,” she said. “It’s exhausting. It’s hard to manage expectations of your customers when it’s so fluid this way.”

Bonner will be one of the first agents in Florida to use Ribbon as a tool and hopes the company can give locals struggling to find a home a boost. She said she sees many homeowners are afraid to sell their homes, fearing that if they sell too quickly they might not be able to buy another one in this competitive market. Many lenders require homeowners to sell their current home before buying the next one, she said.

“Sellers have the luxury of saying no to those offers,” Bonner said. “And it’s intimidating for some of those buyers to be able to participate in this current market.”

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Ribbon is able to act as a bridge between the buyer and seller during this transition period. The company doesn’t guarantee the offer will be accepted, but it does guarantee to sellers that the deal will close.

“We are able to take buyers, FHA and VA or conventional mortgages, and then increase your likelihood of acceptance by turning them into a cash offer,” Shah said.

Andrew Bouery, an Atlanta homebuyer in the Army National Guard, was trying to buy a house with 20 other offers and wasn’t able to stand out with his VA loan. His Realtor Edgar Gonzalez of EXP Realty said he was also struggling with his other clients.

“I knew that we would be on the bottom of the stack,” said Gonzalez of the VA loan. “I had to start looking for other alternatives to be competitive. If not, I won’t be able to get these guys a house.”

Gonzalez found Ribbon through an Instagram ad and reached out to try it. It ended up giving Bouery a boost and he found a home. He was able to move in, paid rent to Ribbon while the military sorted out the paperwork for the mortgage and had the extra time to buy the house outright.

Tampa Bay ranked in the top 25 metro areas in the U.S. that saw the largest increase in home sales in 2021 with more than 8 percent growth between January and June, according to Credible, an online loan marketplace. It was one of 10 regions from Florida on the list, with increases largely driven by the inventory shortage of houses during the pandemic.

“At the upper end of the market, the truly wealthy turn out all right. They’ve got cash and they can deploy those resources,” said Daniel Roccato, a professor of finance at the University of San Diego and a personal finance expert at Credible. “At the other end of the market, particularly a first-time buyer, that part of the market has been hit really hard because of the price increases.”

Looking at the big picture, Roccato said, more options for buyers increases competition, which is healthy for the market. But there’s always a cost to consider.

Ribbon charges a 1 to 3.25 percent fee, more than any of the other states the company serves, due to Florida’s higher closing costs.

“Carefully weigh that against the traditional tool of getting a pre-approval letter and getting your down payment together,” Roccato said.