Home-Buying Companies Stuck With Hundreds of Houses as Demand Slows
As mortgage rates surged, some customers backed out of purchases or needed more time for financing
3 min
Ribbon Home Inc. had a fast-growing business during the housing boom. The New York City-based startup purchased homes with cash on behalf of buyers. Then it sold the homes to the buyers at the same price, plus a fee, once the buyers got a mortgage.
This approach made their clients’ offers more appealing, since sellers often prefer all-cash transactions that can close quickly and are considered more reliable. Ribbon has been active in hot markets such as Atlanta and Charlotte.
But last year as mortgage rates surged, some Ribbon customers backed out of their purchases or needed more time to get financing. That left the company owning nearly 400 homes, according to property records analysed by research firm Attom Data Solutions and confirmed by the company.
Ribbon is one of a handful of young companies known as power buyers. These firms created a niche business around helping home buyers gain an edge during the hyper competitive housing boom. Now that the market has cooled, some of these companies are stuck with hundreds of homes they acquired on behalf of clients.
Orchard Technologies Inc., another power buyer that has been active in places such as Denver and Dallas, helps customers buy a new home and move before selling their previous home. If clients can’t sell their homes after four months, Orchard agrees to buy them.
The company now owns about 200 homes its customers were unable to sell, said its Chief Executive Court Cunningham. Mr. Cunningham said Orchard has had to buy homes from customers three times as frequently over the past six months.
The unanticipated glut of homes these firms are carrying is an example of how housing-oriented companies that thrived when mortgage rates were super low are struggling to survive in a higher rate environment.
Online home-flipping companies also experienced turbulence as rates surged. Opendoor Technologies Inc. last year slashed prices on thousands of homes it purchased near the height of the market. The company reported huge losses and laid off 18% of its workforce.
Ribbon has let go of about 170 employees, or 85% of its staff, but it still needs to unload its surplus of houses. About half of those homes Ribbon will try to sell on the open market because their customers didn’t follow through on their purchases. People backed out because they didn’t want to sell their current homes in a down market, had credit issues or had a life event that changed their plans, said Shaival Shah, Ribbon’s chief executive.
The other half the company hopes to sell to the original customers. Most of those customers are renting from Ribbon, and some have asked for more time to obtain financing, Mr. Shah said.
Some power buyers say they are optimistic the housing market can stabilise, and recently there have been a few signs that buying may be picking up.
Power buyers say that their business will continue to serve home buyers in competitive markets and help even the playing field with investors, who often purchase homes with cash. Meanwhile, many are focused on improving products aimed at prospective sellers who are nervous to list their homes in a slow market.
“There was sort of a power shift, from the power sitting with the seller knowing that their home is going to sell within a day, to the power sitting with the buyer,” said Tim Heyl, founder of the Austin-based power buyer Homeward Inc.
Ribbon, which halted its cash-buyer program last year, said it is developing new products before it restarts. HomeLight Inc., another power buyer, recently changed up one of its main offerings so that it wouldn’t buy as many homes moving forward, said Drew Uher, the company’s chief executive.
Mr. Cunningham, of Orchard, said his company has reduced losses from homes it acquired by charging customers fees on both the sale of their previous homes and the purchase of their new homes. He said seller demand for backup offers from Orchard is rising given ongoing uncertainty about home sales.
Some executives said they don’t expect every power buyer to survive. Many relied on venture capital to grow during the height of the housing market, but they are unlikely to raise as much money now. Between January and late November 2022, venture investment in proptech companies decreased 21% compared with the same period the year prior, according to a report from Keefe, Bruyette and Woods Inc.
“People were doing all sorts of things to outbid or be the most competitive offer,” said Diane Vanna, a real-estate agent at Baird & Warner in Chicago, who in 2021 represented a buyer who won a bidding war against 36 other offers. “Now it’s really levelled off.”
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The penthouse unit at 80 Columbus Circle in Manhattan spans 8,000 square feet and once set a price record for the city.
2 minEight is definitely someone’s lucky number—especially when a few zeros are tacked on at the end.
The top-floor unit of the 80-storey 80 Columbus Circle in Manhattan is coming to market for the first time in more than 20 years and asking a nice round $80 million.
The full-floor unit spans over 8,000 square feet and is part of the Mandarin Oriental Residences above the hotel in the Deutsche Bank Center. It has eight rooms with eight ensuite baths, each with its own walk-in shower.
It last sold in 2005 for a hair under $30 million to cosmetics executive Sandie Tillotson, a founding member and senior vice president at the Utah-based Nu Skin Enterprises. She agreed to purchase the unit in 2001 while the complex was under development as the Time Warner Center.
Today, the six-bedroom apartment features spacious living areas and views from every room, including a close-up view of Central Park and panoramic 360-degree vistas stretching to the Mario M. Cuomo Bridge, according to listing agent Eva J. Mohr of Sotheby’s International Realty.
“There are windows all the way around,” Mohr said. “The views are spectacular and there are no obstacles in front of the windows.
The apartment comes with a library and cinema, a primary bedroom with its own lounge, an oversized kitchen, a corner breakfast area with two glass walls and a utility room with caterer-level equipment and two sinks—one for prepping flowers and the other for bathing pets.
The 80th-floor unit has never been resold and was rarely used by the seller, according to information provided by the listing agency. The corresponding top-level unit in the complex’s second tower just sold. That unit once belonged to Related Companies boss Stephen Ross and sold for $50.7 million in an off-market deal last week.
“The one that went for $55 (sic) million was completely redone with marble and it was beautiful, but you don’t have the views,” Mohr said.
When Tillotson bought the property, the $30 million contract was a record price for a condominium, according to the New York Times. In 2005, the apartment was delivered as “8,200 square feet of raw space” and Tillotson brought her own team to do the interiors, the Times reported.
Tillotson’s Nu Skin is a seller of anti-ageing and wellness products that was founded in the 1980s and is active in more than 50 international markets, particularly in China. The publicly traded company has also recently expanded into India. Nu Skin has several thousand permanent employees at its Provo, Utah, headquarters as well as tens of thousands of salespeople worldwide.
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