Why Compass, @properties and tech startups are diving into bridge loans
For brokerages, alternative loans are a way to beat cash offers and iBuyers
Once the gatekeepers to sales listings, real estate agents are increasingly in front of another key aspect of the home-buying process: the financing.
To help clients increase their purchasing power, a number of residential brokerages have launched bridge loan programs that let clients borrow money to pay for a new home before they sell their old one. In addition to boosting sales, the programs are a way for firms to distinguish themselves from the competition — which is increasingly coming in the form of instant home buyers, who make instant cash offers to purchase homes.
“The fact that banks don’t really give you credit for your home equity until you move is tough for a lot of people,” said Tim Heyl, a top agent at Keller Williams who last year launched Homeward, which lends buyers funds to make all-cash offers. At closing, the Austin, Texas-based startup takes possession of the property until the buyer secures a mortgage, or it turns over the keys through a leaseback.
According to Heyl, Homeward is completely separate from his 50-person real estate team, which handles $350 million in annual sales.
Residential agents are uniquely positioned to assist buyers who are in the in-between phase, brokerage heads said.
“Not all banks will do a bridge loan, it’s not your typical mortgage,” said Mike Golden, co-founder of Chicago-based @properties, which partnered with Canadian Imperial Bank of Commerce (CIBC) to offer buyers bridge loans.
Golden said the impetus was buyers who’ve had good deals get away from them. “We’ve seen clients come to us and say, ‘What can you do to help me?’” he said.
Like @properties, Compass recently launched a bridge loan program through a partnership with lenders Better.com and Freedom Mortgage.
Michael Coscetta, the firm’s chief strategy and sales officer, said rates offered by traditional banks and hard-money lenders tend to be “prohibitively high.” In an email, he said a bridge loan program was one of the “most-requested” services from agents and clients in 2019.
Through Compass’ bridge loan program, buyers can also apply to have six months of their loan payments fronted by Notable, an independent lender.
By partnering with lenders, brokerages may also be looking to mitigate the risk of customers defaulting on their loan. “Not every property is going to sell,” said David Goldin, who founded Excelerate, a lending startup that fronts the costs of renovations and staging for sellers.
“If [sellers] don’t have the means to pay the money back, now you have the brokerage firm either suing the client or charging the commission back to the agent,” said Goldin, who previously started Capify, to provide hard money loans to small businesses. “That’s not going to fly too well.”
Investors have also been pouring money into startups that aim to help homeowners finance their purchases. New York City-based Knock, founded by former Trulia executives, has raised $600 million in equity and debt since 2015 to purchase homes on behalf of sellers and then represent customers in the sales of their old home.
Better.com, a direct lender that is one of Compass’ bridge loan partners, raised $160 million in August, bringing its total funds raised to $254 million and a $600 million valuation.
And in San Francisco, Homelight — best known as a matchmaker between sellers and agents — recently raised $109 million to build up its mortgage lending and iBuying businesses. In July, the company purchased Eave, a digital mortgage lender that uses technology to underwrite loans in 24 hours.
“Currently, the way homes transact, there are all these contingencies. The buyer really doesn’t know if they have access to a mortgage until deep in the closing process,” said founder and CEO Drew Uher. “We’re turning every buyer into a cash buyer, if they want to be.”
Competing with iBuyers in real-time
Though most broker-affiliated financing programs focus on sales, agents John Giannone and Jac Credaroli, cousins who work for Douglas Elliman in New York, launched a loan origination platform called Feeasy to provide up to $50,000 to buyers and renters. For a fee, Feeasy connects renters and buyers to a San Francisco-based lending partner, Upgrade, whose loans are originated by Utah industrial bank WebBank.
“It was really a means of us adding value to our deals and adding value to our clients,” Giannone told The Real Deal earlier this year.
According to Heyl, Homeward captures business that may otherwise be lost to iBuyers including Redfin, Zillow, Offerpad, Opendoor and Knock. (This month, a study of iBuyer purchases found the companies typically pay sellers close to market value for their homes.)
“The thing is, the iBuyers offer a great solution to people who want to buy and sell at the same time,” Heyl said.
If iBuying is on one end of the real estate spectrum, and traditional brokerage on the other end, Seattle-based Flyhomes falls somewhere in between. Founded in 2015, the brokerage makes cash offers on properties. To date, it claims to have brokered $1 billion in sales. It recently launched a “Trade Up” program that leverages the seller’s home equity to land bigger mortgages, and provides a guaranteed price for the home (or Flyhomes will buy it).
Flyhomes is backed by $160 million in debt and equity, and a third-party lender guarantees a mortgage for customers who are trading up. The company said “Trading Up” customers who’ve been approved for homes in the $700,000 to $800,000 range can see their power power go up to $1.1 million.
“We are highly focused on human touch points, so in that way we’re a traditional brokerage,” said Sam Kasle, Flyhomes’ head of brokerage, who oversee 80 agents in Boston, Portland, Southern California and San Francisco. “At the same time, we do have deep roots in proptech.”
Kasle said Flyhomes is operating under the notion that the future of real estate is vertical integration, because that’s what customers want. “Nobody goes to the milk store to buy milk,” he said. “You go to the grocery store.”