Rising mortgage rates forced so-called power buyers into weaker positions, stuck with excess inventory after customers backed out of home purchases.
The companies acquire homes on behalf of buyers who can’t afford to make their purchases, then sell the homes to the desired buyers with a fee attached. The Wall Street Journal reported last year’s market slowdown left some of the biggest names in the sector with hundreds of homes they are unable to sell.
The business model worked during the pandemic-crazed housing market, as sellers quickly moved to sell homes, sometimes to all-cash power buyers. As mortgage rates ended 2022 more than double their levels from a year ago, however, the end-goal buyer couldn’t always close the deal on their purchase.
Ribbon Home, which operates in hot housing markets such as Atlanta and Charlotte, is stuck with nearly 400 homes after buyers either backed out of deals or requested more time to obtain financing. The company plans to try selling half on the market and the other half to the planned buyers, some of whom either requested more time to get financing or are renting directly from the company.
Orchard Technologies, which helps customers buy a new home and agrees to buy their old home if the owners can’t sell within four months, has a similar issue. The company has 200 homes in its inventory that it has been unable to sell. Orchard’s CEO told the outlet the company has had to buy homes three times as frequently in the past six months.
The market shift also placed power buyers alongside other technology, brokerage and mortgage firms that executed waves of layoffs in 2022. Homeward conducted multiple rounds of layoffs in the past year. In November, Ribbon gutted its staff, laying off 85 percent of its employees.
Power buyers have responded to changing rates by adjusting their business models in hopes of avoiding big losses when the primary objective falls apart. Ribbon paused its cash-buyer program last year. Another firm in the sector, HomeLight, changed how its main offering worked to lower the amount of homes the company would buy.
Even as rates normalize, the field of power buyers is likely narrowing as venture capital interest in proptech firms sank 21 percent between January and late November 2022 from the previous year, according to data reported by the Journal.
— Holden Walter-Warner