Buying a home today can be stressful and fraught with complicated issues, such as contingencies requiring the buyer to sell their current home before qualifying for the home they want to buy. Buy before you sell (BBYS) products may be the answer. Jeremy Foster, founder and chairman of Calque offers an explanation of this process and how it differs from the traditional homebuying process.
HousingWire: How does the “buy before you sell” model differ from the typical homebuying process?
Jeremy Foster: The traditional home purchase process for homeowners is broken. A majority of homeowners must sell their current home before they can qualify for a mortgage on their next home due to federal lending requirements around debt-to-income and down payments. As a result, homeowners either must sell their current home and suffer through double moves and short-term rentals to access the equity they’ve accrued, or they have to make contingent offers that require the sale of their current house to close. When, and if, contingent offers are accepted, they can result in paying as much as 11% more for the home relative to a cash offer. Consequently, 37% of homeowners say they want to move but are staying in their current home.
‘Buy before you sell’ (BBYS) products like The Trade-In Mortgage powered by Calque eliminate the stressors caused by financing contingencies. BBYS products make the home purchase process more convenient because homebuyers may buy and move into their new house before they sell their current home.
Also, BBYS products make homeowners competitive bidders because they can submit non-contingent offers that can compete with cash offers, which made up one-third of winning offers in Q4 2023. BBYS products enable homeowners to tap their current home equity to purchase the new home, meaning they can make larger down payments and reduce the cost of their loans.
HW: How has the proptech space evolved in the last 5-10 years?
JF: There are three major waves of evolution in the BBYS space. The original model was pioneered by the iBuyers and is historically the most expensive model for consumers. These companies buy a consumer’s current house with cash so the consumer can use the equity they’ve accrued right away. The original home is usually purchased at a discount.
The second stage was pioneered by real estate agents that saw how hard the consumer experience was first-hand, so they created the PowerBuyer model to address those issues with less cost relative to iBuyers. With PowerBuyer ‘buy before you sell’ solutions, the PowerBuyer typically purchases the next home, leases it to the consumer, then sells it back to them after their first home sells. This model is still expensive for homeowners because they are paying duplicate closing costs and leaseback fees.
The third iteration was pioneered by Calque and is the most cost-effective model of the three. We work with lenders to fix the problem at its root (i.e., debt-to-income requirements) instead of requiring substantive changes to the real estate process. Calque provides homeowners with a Purchase Price Guarantee (i.e., a binding backup offer on their existing home) which allows consumers to replace Calque with another buyer that either offers more or will close more quickly.
Regardless of whether Calque buys the home, having the backup offer in place enables Calque’s lending partners to eliminate the home sale contingency and originate a mortgage on the next home (and a second lien, if needed) that allows the borrower to move in before they sell their current home. It also arms the borrower’s real estate agent with a more powerful offer to win their client’s next property.
Calque’s collaborative BBYS solution doesn’t disintermediate agents or lenders. Instead, Calque removes the compliance, risk, and pricing barriers that have historically prevented established lenders from entering this space. As a result, lenders can offer their own branded BBYS solution that is more affordable than most BBYS products and simplifies the homebuying process for homeowners, agents, and loan officers from start to finish..
HW: What strategic and regulatory concerns should lenders who want to offer ‘buy before you sell’ be considering?
JF: Each BBYS vendor takes a different approach to making the model work, and not all solutions are created equal. In addition to product-level considerations like price, we recommend that lenders vet all potential BBYS providers across three main categories: compliance and data security, brand and business alignment, and implementation and support.
First, lenders should ask what steps a BBYS vendor has taken to ensure their offering aligns with compliance requirements. Ensure your provider meets the Fannie Mae and Freddie Mac seller’s guidelines and is RESPA compliant. Calque was built to serve lenders, so we stacked our executive team with industry experts who have more than 100 combined years of banking and mortgage experience to ensure we built a fully compliant offering.
Next, ask potential BBYS vendors how they collect, retain, and safeguard your clients’ data. Calque is SOC2 compliant and only collects data required to make a backup offer on your client’s current home. We don’t collect information required to originate a mortgage so that information (and your lead) stays within your ecosystem.
Lenders want to consider who owns the client relationship and which brand is front and center in the transaction. When you pick a BBYS vendor, you’re giving them access to your loan officers, agents, and borrowers; make sure you’re working with a partner that won’t compete with you for purchase business once the mortgage industry is more favorable.
Finally, we all know that an easy implementation, minimal disruption to current processes, and support are needed for successful product launch and adoption. Ask potential BBYS vendors what changes will need to be made to existing processes to offer their solution. Because Calque requires so few changes to your processes, we can onboard a lender in as little as two weeks and agents incur less than five minutes of extra work per transaction.
At Calque, we provide a full suite of services to kickstart a partnership and support ongoing transactions, including marketing collateral creation and distribution, front-line customer support, and proactive outreach to your loan officers and their agents at every step of the transaction.
HW: How does Calque help facilitate industry partnerships?
JF: We’ve carefully designed our processes, so our incentives are always aligned with yours. We remove compliance and risk barriers so established lenders can compete with large proptech platforms that are capturing market share with their own branded BBYS solutions.
We don’t charge agents fees or require them to get certified so your loan officers can offer this product to all their agents. That also means local agents can keep working with loan officers they know and trust. Calque pioneered a new business model focused on strengthening local partnerships and founded on the principle that we win when our partners win.