What's Better: Buying a House with Cash vs Mortgage?
Kelly K. | Nov 23, 2021
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By Adam Pollack on Jun 24, 2021
Today is an exciting day for Accept.inc as we move closer to our mission of putting an all-cash offer on every home. I wanted to share a bit more about me and why we started Accept.inc.
I grew up in a stable middle class family in Long Island, NY. My father was in the mortgage industry and real estate was a daily conversation. I was lucky enough to spend my summers in Fire Island, NY building Wagon Express, a hauling company that I started with my identical twin brother, Benjamin. It wasn’t fancy, but I got to work the docks with my best friend, delivering bags and beer for weekend travelers eager to enjoy a few days of paradise in their summer rentals. That said, having seen first-hand the impacts the real estate crisis had on my family, I swore I’d never go into real estate. Instead, I thought I would concentrate on getting into a good college and pursue a traditional, stable career path.
Around the end of high school, something shifted in me. I became more interested in public service and the pursuit of something more meaningful. That shift started with small decisions, like dropping the standard math and econ classes at Harvard and choosing to study Social Theory and Argentine Tango (I totally bombed the “lab portion” of this dance class). I met Nick Friedman, one of my co-founders, freshman year (he was dormmates with my twin brother), and it didn’t take long to realize that we both wanted similar things out of our careers and lives. We ended up spending a few summers developing venture ideas that we thought were brilliant, but in hindsight were complete duds. They are still on a whiteboard in the basement of my parents' house!
For whatever reason, we kept at it and in 2016 became fixated on the idea that while technology had changed the way many things were bought and sold, including homes, few ventures had changed the way homes were transacted. We asked ourselves, “What is the best, smoothest transaction in real estate and how do we provide that experience to everyone?”
You don’t need to be the son of a mortgage attorney to know that a cash offer that can close in 3 days is a whole lot better than waiting 1.5 months to know if a home sale is going to go through with a mortgage. The problem is, the majority of buyers don’t have hundreds of thousands of dollars sitting in their bank accounts to make a cash offer.
So then came a big decision: I left school with Nick in mid-2016 to build the cash offer for everyone who can qualify for a home. Shortly thereafter, we joined forces with our technical co-founder, Ian. Now, all we had to do was prove our concept with our first transaction and raise money.
You’ve heard of the overnight success story. This isn’t one of them. We had so many failures along the way to getting our first transaction done. We got ripped off. We got told “no” hundreds of times by investors and customers alike. Potential buyers, industry partners and investors laughed us out of the room. Some told us that what we were trying to accomplish was just too good to be true, or, there had to be some catch.
In August 2018, we hit rock bottom. I had to tell Harvard whether or not I was coming back or deferring (again). We had just hit another obstacle and it seemed ludicrous to keep going. I remember calling Nick that afternoon, saying we should call it quits. Nick offered to buy me a gin and tonic, and we went to our favorite bar perched where the Denver skyline meets the Rocky Mountains...
I was done. Beyond done. We had just 800 bucks left in our bank account from our pre-seed round, no viable way to run the business, and we hadn’t paid ourselves going on two years. Six hours and many drinks later, we mapped out our options and decided that we’d give the venture until the end of the year. We called everyone we knew, cold call after cold call, pitch after pitch. We had our first break in November when Y Combinator agreed to fly us out for a 10-minute interview. When the interview team asked us why the hell they should invest in us after two years of failing, I told them that we were an encyclopedia of a 1000 ways this venture wouldn’t work... and because of that we finally had the one that would.
There’s a lot of trust that’s built between partners when your chips are down. That’s when you learn who you are and who you are with. And it makes the victories along the way all the more sweet, in our case getting into Y-Combinator 7 days before we had planned on killing the company. And yes, the business model Nick, Ian, and I pitched to YC is the very same Accept.inc uses today.
The fundamental problem with a traditional mortgage transaction is that sellers and agents really have no way of knowing the creditworthiness of buyers who place bids on their home. That means sellers end up waiting 40+ days on a lender to know if the buyer is going to get a loan and the home sale is actually going to go through. Think of early Ebay (pre PayPal) when sellers wouldn’t even send a buyer’s item before they received a check by mail and knew it wouldn't bounce. Cash, on the other hand, is great for home sellers because they don’t need to wait anxiously for the buyer’s lender to OK the transaction; the transaction will fund the moment the buyer and seller want it to. The unfair advantages of being a cash buyer are hidden in plain sight: cash buyers are up to 4X more likely to win the bid than buyers who need a mortgage, get discounts off the home price, and can close faster.
This unfair advantage bestowed on those buyers capable of paying all-cash began to exclude the everyday buyer from competing on desirable homes, which doesn’t seem right. Buying a home is one of the biggest transactions of anyone’s life. It’s a crucial part of creating good towns, communities, schools and a society where people can thrive. So, we created a new kind of lender that facilitates cash purchases on behalf of buyers that qualify for a mortgage.
We invest in evaluating the buyer upfront -before they even identify a home- and approve them for our cash offer program. Once the buyer finds a home they love, we purchase the home all-cash at the price the buyer and their agent negotiate. We hold onto the home until their mortgage with us is ready to close and sell it to the buyer at the exact same price we bought it for. Sellers and agents can close in days instead of months, and any buyer who can qualify for a mortgage can put their best foot forward with an Accept.inc cash offer. Because we make money off the loan like ordinary banks and don’t commission our loan officers, we don’t need to charge buyers, sellers, or agents any additional cost to upgrade their offer to a cash offer.
Even as the company has grown and the roles have become more specialized, I still find myself asking about different individual buyers and their experiences with us. I guess you could say it’s my way of staying close to the product, but it’s more about reminding myself about the real-world impact Accept.inc has. One of my favorite success stories was from when we helped a teacher who had been struggling to win a home for 4+ years. The condo she wanted to purchase was popular with home flippers and the seller would only accept cash. She applied with Accept.inc (then called Board) and won – on her first offer!
A lot has changed since we started out in 2016: we’ve transacted hundreds of millions of dollars' worth of homes, grown the team to over 90 amazing people, and helped thousands of buyers, sellers, and agents. But one thing will always endure: our commitment to ensuring everyone has an equal shot at homeownership. As we announce our $90 million that we raised over the past year to get us closer to this goal, to keep adding new markets and to hire more people, I want to say a big thank you to the buyers, sellers, agents, investors, and of course employees who have supported and believed in us. We still have so much to do, but we could not have gone this far without you.
Oh and Nick, thanks for that gin and tonic 😉
Kelly K. | Nov 23, 2021
Kelly K. | Nov 23, 2021
Kelly K. | Nov 22, 2021