Government Lending

Sundae raises $16.55 million for distressed real estate marketplace

Business model borrows some of the iBuyer strategy, but won't make an offer without a walk-through

Sundae, a residential real estate marketplace that pairs sellers of distressed property with potential buyers, has raised $16.55 million in Series A funding.

QED Investors led the round, which also included participation from PayPal co-founder Peter Thiel’s Founders Fund, Susa Ventures, as well as a group of unnamed real estate and fintech investors and entrepreneurs. The financing brings San Francisco-based Sundae’s total raised to just over $19.7 million since its August 2018 inception, according to the company.

Notably, Sundae’s co-founders have deep expertise in the real estate and mortgage industries. CEO Josh Stech was founding partner and senior vice president of sales at LendingHome, an online mortgage bank specializing in short-term residential bridge loans. President Andrew Swain was CFO at LendingHome, and prior to that, served as CFO at Airbnb

The pair teamed up to form San Francisco-based Sundae in August 2018, and launched the marketplace in January 2019.

I hopped on the phone with Stech last week, who told me that Sundae aims to help people who need to sell dated or “damaged” properties for a variety of reasons – such as job loss, illness or divorce. In many cases, he said, such vulnerable sellers get taken advantage of by “fix and flippers” seeking to capitalize on their misfortune. 

Since sellers in these situations don’t typically have the funds to fix up their properties before selling, Sundae lists the property for them on its platform. There, it is visible to about 1,000 qualified off-market buyers.

“Unlike on the mortgage side, there’s no regulation in this industry,” Stech told HousingWire. “So it’s become a bit of a black market that has not caught the attention of anybody to do anything about it so far until Sundae. We noticed there really is a discovery problem here. Someone needs to sell a home that needs a lot of work, and there was no intermediary to match them with someone capable of doing that work.”

Sundae essentially aims to aggregate demand from “fix and flippers,” who use the marketplace to bid against each other for distressed properties.

“Although our process drives a better price, price isn’t really what people are solving for,” Stech told HousingWire. “They mostly want a better process. They’re already under stress having to sell in the first place.”

How it works

Interested sellers can go to Sundae’s marketplace and request an offer. Someone from the company then reaches out to gather additional information and learn more about the sellers’ needs. After a “brief home visit” (or virtual walk-through if preferred by the seller in the COVID-19 era), Sundae makes an offer. If the seller accepts and an inspection is completed, the company offers a $10,000 cash advance before closing to help homeowners with moving costs or other expenses. It charges no closing costs or agent fees. 

Sundae offers up the property on its marketplace, giving investors a chance to bid on it. In some cases, an investor might even pay more than what Sundae originally offered.

“If an investor’s price is higher, we’ll go back and give more money to the homeowner,” the company says.

Sundae claims that homeowners can close in as little as 10 days or can take their time and move up to 60 days after accepting its offer. 

Since its launch 18 months ago, the startup says it has grown to become the second largest home buyer in the markets it serves across Southern California. Currently, it serves San Diego County, Riverside County, San Bernardino County, and Los Angeles County. So far, it has helped hundreds of sellers dispose of their properties. 

Sundae makes money by charging buyers in its investor marketplace a fee when it “assigns” them a property. 

The company plans to use its new capital in part to expand to new markets across the U.S. In particular, it wants to expand up the coast through central and northern California before moving east to markets such as Texas, Atlanta and Florida, according to Stech. It also wants to continue investing in building out the technology and naturally, do some hiring. Sundae currently has about 50 employees.

The coronavirus pandemic has been a tailwind for Sundae’s business, Stech said.

“Seller home urgency has increased and unfortunately at the same time, flippers are smelling more blood in the water,” he told HousingWire. “So we view ourselves as more important than ever.”

Frank Rotman, founding partner at QED Investors, believes the distressed residential real estate market is ripe for innovation, “especially now.”

“There is a huge unmet need for solutions that make the selling process more efficient and transparent,” he said in a written statement. “As a team of operators, we’re excited to work with the Sundae team to build out their footprint, support their rapid growth and deliver a sorely-needed customer-centric approach to the market.”

iBuyer or not?

Stech attempts to differentiate the startup from iBuyers, saying that Sundae focuses on buying distressed houses that need significant renovations in “as-is” condition. The average renovation budget for homes on its platform is about $65,000, according to Sundae.

“While iBuyers offer a convenience of selling without an agent, they typically won’t purchase properties that need a lot of love,” the company says. “In fact many of our customers come to us after being rejected by one of the iBuyers because their property requires too much work.”

Another difference is that most iBuyers provide an offer before seeing the house, which means the price almost always changes later on, Sundae claims. 

“But we won’t give an offer until our local market expert has walked through and seen the house,” he says. (Or in some cases in the COVID-19 era, until a video walk-through is completed).

Sundae essentially aims to make the process streamlined for the seller by serving as the main point of contact in selling their home, and for the buyer by doing all the due diligence on a property.

In addition to providing a marketplace to connect sellers of distressed property to the best buyer, Sundae also operates as a property investor and will purchase, renovate and resell properties through its resale brokerage, Sundae Homes. 

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