By Meghan Hall
The vast majority of home buyers and realtors are focused on turn-key ready homes: residences that need no updating or renovation and can procure top-dollar for sellers. However, there is also a subset of the single-family market that is ripe for disruption and often passed over by movers and shakers in the real estate industry. According to Josh Stech, CEO of Sundae, sellers of distressed homes have long been taken advantage of, and predatory tactics are common. Sundae, an emerging residential real estate marketplace, hopes to disrupt the market and give sellers of distressed assets a better edge.
Please tell The Registry a little bit about Sundae’s goal to aid homeowners of distressed assets. From your perspective, why are these sellers—often of dated or damaged properties—often the most vulnerable during the home selling process?
Many homeowners who need to sell a damaged or dated house got in that situation due to factors outside of their control. Unemployment, illness, divorce, and death in the family are a few of the common reasons that force families to put their house up for sale. These sellers are going through difficult times, making them easy targets for predatory buying behavior. They’re stressed, grieving, or dealing with weighty family issues, which makes them susceptible to attractive cash offers that are often too good to be true.
What are some of the tactics that predatory investors are known for using that can hurt sellers throughout this process?
The most common scam is a variation of the “bait and switch” tactic. A cash homebuyer makes a vanity offer to get a homeowner’s attention. The seller accepts, signs the paperwork, and waits for the sale to close. The homebuyer then sends in an inspector, usually an associate who is in on the game, who finds a long list of so-called problems with the house. At the very last minute, the buyer drops the price to account for these supposed defects, and threatens to walk from the deal if the seller doesn’t agree. The predator knows very well that by this time, most sellers in a tight spot are counting on the money and cannot afford to start the process from scratch with another buyer. The trap snaps shut as the buyer bilks the owner out of the true price they deserved for the house.
Why do you think there are not more services dedicated to helping sellers of distressed assets?
Most buyers want homes they can move into immediately, so most services focus on this market segment. The vast majority of homes sell on the MLS, which serves as a clearinghouse for market-ready homes. That’s where brokers and their agents concentrate their time. As a result, distressed homeowners turn to off-market buyers. Most of these buyers are local mom and pop operators that need high profit margins in order to survive. Until now, there simply hasn’t been anyone with a scale economy that could afford to reduce profit margins and give the seller more of the money they deserve. That is where Sundae comes in.
What is the distressed residential real estate market currently like? What fundamentals are driving this property type?
Houses sold to flippers have consistently made up between 5 percent to 10 percent of all homes sold nationwide for the past 20 years. With a large population of Baby Boomers currently in or nearing retirement age, we expect a continued flow of distressed, lived-in homes needing to be sold in the coming years.
How does Sundae work to protect sellers and find the best investor for a property?
We’ve developed a large database of investors attracted to Sundae’s transparency and thorough due diligence on each property. Before gaining access to our marketplace each investor is fully-vetted and screened to prepare them for the needs of our sellers. With those expectations, Sundae is able to honestly bring together the most ready sellers and the most qualified buyers.
Since its creation, how many sellers has Sundae been able to help?
We have helped hundreds of sellers get a better outcome by selling to Sundae, and we are now the second largest homebuyer in the markets we serve in Southern California.
Sundae recently secured $16.55 million in Series A funding. How does Sundae plan to deploy this capital in the future?
Our Series A funding will help us expand to new markets across the U.S. to reach more families who need help selling their dated and damaged homes.
Looking ahead, what are Sundae’s plans for growth, and what is Sundae most excited about?
We are excited by the prospect of innovating the underserved distressed residential real estate market. There is a huge demand for more efficiency and transparency and we have the team and technology in place to provide a customer-friendly solution.