As Power Buyers gain popularity, distinguish between friend and foe

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By 2030, half of all residential real estate transactions could involve non-traditional financing like “Power Buyer” services that help homebuyers compete with investors making cash offers, predicts Era Ventures Managing Partner Clelia Peters.

That means real estate agents and brokers need to educate themselves about not only who’s offering these services in their market, but whether they’re potential partners or competitors, Peters said.

To help agents get up to speed on the different approaches, Peters talked shop Tuesday at Inman Connect New York with Ribbon co-founder and CTO Wei Gan, and Divvy Homes co-founder and CEO Adena Hefets.

“The average down payment today on a house is the equivalent of the average American’s one-year salary,” Hefets said. “Meaning that even if you saved any penny and didn’t pay taxes for a year, you’d still barely be able to make the down payment on a house.”

Divvy Homes helps would-be homebuyers who don’t have money saved up for a down payment by purchasing a home on their behalf. Clients then rent the home, with payments structured so that they can purchase the home once they’ve saved up for a down payment.

Divvy Homes is helping “to access homeownership and separate the utility from using a house from the financing of actually purchasing it,” Hefets said. “So you get access to the house today, and then figure out the financing after the fact.”

Agents can earn full commissions when working with Divvy Homes to get customers who don’t qualify for a mortgage into a home.

Ribbon is coming at the problem from a different angle, partnering with real estate agents and lenders to allow homebuyers to make cash offers of up to $1 milliion with Ribbon’s backing.

While Power Buyers like Orchard and Flyhomes are vertically integrated with in-house agents and lending operations, Ribbon is an “open Power Buyer,” Gan said.

“We partner with agents, you can bring your own lender,” Gan said. “We want to be open and partner with the industry.”

Peters suggested that vertically integrated companies offering to provide end-to-end real estate services should be thought of as a separate category.

“I want to introduce a new term. I think those guys are neo brokers, not power brokers,” Peters said. “Because that’s a new model where you’re integrating financing and, generally, an employed agent model, and they’re competing directly with brokerages in many cases.”

Solutions like Ribbon and Divvy Homes are “custom built to work with agents,” Peters said. Power Buyers Homeward and Knock also partner with agents, but make money by providing the financing — you can’t shop around for your own lender.

Although these services aren’t available in every market, it’s only a matter of time before they become ubiquitous, the panelists agreed.

Hefets said Power Buyers tend to target “appreciation markets” where competition with investors making cash offers can make it hard to win bidding wars. She said

Divvy Homes is an alternative finance provider that initially concentrated on “yield markets” where rents are relatively high compared to the purchase price of a house, Hefets said.

“In this day and age, it feels like everything is an appreciation market because home prices are increasing pretty rapidly,” she said. “So if we go to a market like Atlanta, you will see iBuyers, you will see Power Buyers, you will see alternative home financing, you will see neo brokers.”

Gan said he’s willing to bet that Power Buyers will be active nationwide within two years, with the exception of some New York metros where the prevalance condos and co-ops make it more difficult for Power Buyers to operate.

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Email Matt Carter