A year ago, Shaival Shah’s main concern was to meet the demand for his company’s alternative financing products.

“When interest rates were low and supply was low, you saw a lot of multiple offer situations, and our product for first-time buyers, Ribbon Boost, was all the hype in the market,” said Shah, Founder and CEO of “Power Buyer” Ribbon. “We were at the point where we had gone from 0% to 4-5% market share in some of the markets we serve almost overnight. But low interest rates were masking a real underlying crisis, which is affordability and we saw that this summer when interest rates started to change.

From January 2021 to June 2022, Ribbon increased its total transaction volume by “30x”, Shah said. But as mortgage rates have climbed dramatically and the bidding wars have largely died down, the company’s products are no longer as attractive to buyers whose financing costs have skyrocketed over the past year.

Falling demand from homebuyers caused Ribbon to lay off 136 employees at the end of July.

“As a management team, we have tried to delay this decision for as long as possible, but we are not immune to what we have seen elsewhere in the market,” Shah wrote in a statement advising employees. cuts. “Market conditions have exposed areas that need improvement in our product and our team to evolve with the evolution of the consumer. I am ultimately responsible for all of these decisions and this decision, therefore. The next phase of Ribbon will be more agile.We needed to define the team and the systems to deliver this plan with operational excellence for the next few years.

Ribbon, which has raised $905 million in funding since 2017, is not alone in laying off workers and reorganizing its business. Over the past year, hundreds of mortgage companies have downsized or been forced to close, and real estate brokers have also cut ranks lately.

But this housing market presents a particularly vexing problem for the crop of venture capital-backed alternative finance companies that have proliferated in recent years. Fewer buyers are benefiting from their flagship cash offer products in this environment, companies lack brand recognition with the consumers they need to reach, and the cash presented by VCs is, well, limited. Very finished.

Flyhomes, which offers both a cash offer product and a buy-before-sell product in addition to a full-service brokerage, laid off about 200 workers in mid-July. The Austin-based company Return, which reached a valuation of more than $800 million in May 2021, also made cuts, reducing its workforce by 20% in early August. Other well-funded players such as Struck and Orchard also made substantial cuts in the face of market headwinds.

RealTrends Consulting co-founder Steve Murray isn’t surprised that many of these companies have struggled as the market has eased.

“When you have the type of market we had in 2020 and 2021, which was highlighted by the extreme scarcity of inventory and rapidly rising prices, if any entity can step in the middle of that and provide liquidity instants to someone who needs to sell before they can buy or a first time buyer who can’t compete with all the cash offers as they have contingencies on financing – companies that can help with this should do very good in this type of market,” Murray said. “They are filing a market need due to the market imbalance between sellers and buyers. So it goes without saying that if you ease that market pressure by balancing inventory more with actual market demand, the demand for people providing liquidity would go down.

For Murray, companies like Flyhomes, Ribbon and Homeward need to improve their brand recognition and expand their partnerships with other real estate entities to secure their future.

“After a market shift, one or two of the best-run, best-capitalized companies in the space will survive,” Murray said. “What open door made with Zillow, in my opinion, is that they decided to secure their future as one of the survivors. So now if I’m one of the others, like Orchard or Ribbon, I’ll see if I can team up with real estate agent.com or one of the large national real estate organizations or a regional brokerage firm or a large real estate team. They will need marriages of people with these services because there has to be a way for companies to distribute their products and the best way is through brokers and agents.

Tim Heyl, CEO of Homeward, said his company was doing just that – partnering with real estate agents and teams to get closer to the deal.

“What we’ve learned is that there are a lot of forward-looking agents and teams who want to be at the forefront of resolving clients’ home buying issues, whether they need a cash offer to be competitive or they need to sell their current home before they can afford to buy a new one. Agents know that if they can resolve these issues, they take the lead when they go to a consultation with a buyer or a listing appointment,” Heyl said.

Homeward opened its buy-before-sell product to any agent or team in the markets it serves (Heyl said it was their bread-and-butter product). And while any agent can access its cash offer products, the company says agents at brokerages who have partnered with Homeward have access to deeper benefits and the ability to develop new products with the society.

Ribbon, meanwhile, partners with real estate agents to offer its products to their clients, as well as local mortgage lenders in its various markets.

“When a consumer qualifies for a mortgage, they can automatically upgrade to an all-cash offer, strengthening their offer,” Shah said.

Shah also highlighted his partnership with listing agents, largely through a program called Ribbon Reserve. Through the program, Ribbon purchases the home on behalf of the buyer, offering up to 12 months to secure financing. Ribbon rents the house to the buyer and then resells it with a guaranteed 12-month house price lock. This gives existing homeowners buying a new property time to sell their current home before taking out a second mortgage.

Shah, who expects growth to slow from 10x to 3x in 2022, sees the wide variety of partnerships at Ribbon as integral to the company’s future success.

“We are an open platform, and our partners are the ones who introduce us to the market,” Shah said. “Unlike other companies in the industry, any realtor from any company can work with us. With many other companies in the space, some or all of their business competes with the existing ecosystem For example, they may have an in-house mortgage company or real estate agents, which in turn creates friction in the market as they become competitive with those already in the market.

As a full-service brokerage that also offers buy-before-sell and spot-offer products, Flyhomes sees things a little differently. Tushar Garg says the future success of the business, which reached a valuation of $800 million in June 2021, is guaranteed by the wide variety of services offered by Flyhomes, which includes a brokerage, title company and a mortgage lender.

“We put people at the heart of the transaction,” Garg said. “It’s one of the most important transactions in a person’s life and we wanted to make it amazing for them, making every part better. We are not just a brokerage, mortgage company or title company. We are a consumer company that helps customers buy their home in the best possible way. »

Garg says the fact that his company also offers call-for-sale and cash-tender options is just a bonus over his company’s other offerings. Additionally, while any agent can use Flyhomes financing products through its Sailbridge program, by owning their own brokerage, Flyhomes is able to provide these services at no additional cost to customers using a Flyhomes agent, which than other space companies are. unable to do.

“The home buying process is very stressful because everything has to fall into place in a choreographed fashion and some buyers may have to sell before they can buy or they may be waiting for financing,” Garg said. “I’m convinced that eventually every offer will be a cash offer, because it’s like having a credit card for real estate. So many things can go wrong with financing and timing, that it just streamlines the process.

Like Garg, Heyl believes that while times may be tough for Homeward and other alternative housing finance companies, there will always be a market for his company’s products.

“People often need the equity in their home to buy something new,” Heyl said. “Even when the market was slower and people didn’t have to worry about finding somewhere to go if their house sold in a day, they still needed the equity in their current home to make an offer. on a new home.”