DENVER — A Colorado startup is hoping to change the ways home buying works in the Denver metro area and level the playing field for the middle class.
The idea is to provide the cash for the home up front to give the buyer leverage over the competition.
BoardRE will supply the money to buy the home to pre-approved buyers and work with them to determine which houses they can afford.
The company was started by Adam Pollack, Ian Perrex and Nick Friedman. Pollak and Friedman are in their 20s and say that sometimes it takes a younger person who hasn’t been in the industry for years to come up with a new idea that could change the market.
“Sellers prefer the speed and certainty of an all-cash deal," said Friedman, the company’s chief operating officer. "It can happen much quicker, and you can save money on the home as a buyer, and it’s just a much smoother process to buy home all cash.”
He said that when multiple people are bidding on the same house, sellers are more likely to go with someone who is paying in all cash because it is more of a guarantee.
“We are a new way of buying and selling homes,” said Pollack, the company’s chief executive officer. “That is what BoardRE is looking to be — the credit card for real estate. Instead of fronting you the cash for your morning coffee, BoardRE is going to be fronting you the cash for your next home.”
Both Pollack and Friedman believe that the way the housing market is currently set up, the rich have an unfair advantage since they can afford to put up all of the money for the home whereas average Americans don’t have that kind of cash on hand.
“If you can afford a mortgage, you should have an equal shot at winning your dream home,” said Pollack.
They believe the best houses, neighborhoods and school districts shouldn’t only be available to people who can pay up front.
“We really are coming from it as outsiders looking in,” said Friedman. “I wouldn’t say (the real estate market) is necessarily broken, but there are better ways that it could be done.”
So far, BoardRE has closed three transactions and has 10 buyers in the pipeline of looking for a home, according to the company’s own estimates.
How the BoardRE model works
BoardRE doesn’t just give the cash to the homebuyers to buy a house. Instead, similar to a traditional lender, would-be homebuyers must get pre-approved through the company.
“We will tell you how much home you can afford. We’ll work with you on loan options that you have,” Pollack said.
After being approved, the company tells the buyer how much cash they will provide, and then it’s up to the homebuyer to look for their dream home with their real estate agent.
“Once the buyer and the buyer’s agent say that they would like to put a cash offer on a home, they let us know and effectively from there. BoardRE becomes the buyer,” said Pollack.
However, the home buyer and real estate agent still have control of the negotiations, according to Pollock.
“We are a one trick pony. Our job is just to make sure that the cash shows up. We let agents be agents. We let buyers be buyers,” he said.
After that, there is a second closing, and the home is sold to the homebuyers themselves. That loan is then sold to a more traditional secondary lender like Fannie Mae or Freddie Mac, which Pollack said his company shops for the best rate.
“We’re working with similar lenders to what other companies work with. The mortgage process itself is not the reason is not the risky part,” said Friedman. “It just depends on who’s willing to buy them.”
With big change comes big risk
Mac Clouse has taught finance at the University of Denver’s Daniels College of Business for more than 40 years and has seen the ups and downs of the real estate market.
Clouse said that after the housing bubble burst in 2008, the financial market has been creative and changed in numerous ways. He sees BoardRE as another risky change.
“If I were looking to buy a house and this was proposed to me, I would say that I just have lots of questions,” Clouse said.
The advantage, as Clouse sees it, could be fewer fees buyers will have to deal with like special life insurance, inspections and title insurance fees.
However, he says there’s a lot of uncertainty will how the company will work.
“Someone’s got to earn an interest rate on this loan, and so how is that interest rate that you’re going to be charged compared to the interest rate that you might’ve gotten had you done a traditional mortgage,” he said.
He also has questions with how many fees home buyers will inevitably be charged and who the mortgage rates will work, among other things.
The big picture is also a big concern of his.
“Where do they fit into the whole regulation question? We know that the traditional banks and mortgage lenders are highly regulated,” he said. “They’re not a bank. They’re not a mortgage lender.”
Therefore, it’s not clear who regulates this group or what rules it has to abide by.
“Someone should be looking over their shoulder and making sure that they are abiding by the same kinds of rules and regulations like if you were to go into a traditional lender,” said Clouse.
He’s also not convinced that this is an entirely novel idea. Clouse said he’s aware of a few businesses in the past that have tried something similar but did not do well.
“My bottom line is waiting on this one, wait until we have more information,” he said.
A daring idea
Pollack and Friedman say they’ve heard all of the skepticism before and are eager to prove that their business model works.
“At the end of the day if you’ve been doing for something for so long especially in such a regulated industry, it’s very hard to kind of take a step back for a moment and say, ‘If we could do real estate all over again, how would it be done?,’” said Pollack. “That’s where I think the youth comes in. We’re not indoctrinated into the current operating procedure, so we can kind of have that one foot in the door with how things are done today and one foot outside of the door and say, ‘Hey, I know they can be done better’”
He’s hoping that with more sales and more time, BoardRE will prove itself to be a new way to go about home buying.
“All of a sudden, that crazy idea that just never existed before goes from this new, misunderstood thing to this, ‘Wow, that’s something I want to be a part of,’” he said.
For now, BoardRE is using Colorado as its testing grounds, although the creators say they’re already preparing themselves for more markets.