- Companies that buy houses on the spot have gained notoriety for their aggressive sales tactics.
- Sundae wanted to make the "We Buy Ugly Houses" model more legitimate and transparent.
- But after customer complaints and waves of layoffs, it's accused of offering false promises.
A year ago in May, Josh Stech, the CEO and founder of the distressed-home marketplace Sundae, sat across from Dr. Phil on his eponymous TV show.
It was May 2022, and Dr. Phil — a Sundae pitchman and investor — had Stech on his show to explain what was so revolutionary about the company's model of finding buyers for properties where the homeowner is looking to sell quickly.
"Wholesalers," whose "We Buy Ugly Houses'' roadside signs dot the landscapes of American cities, have historically served this corner of the real-estate market. These wholesalers buy from highly-motivated homeowners that need cash quickly or want to avoid the aggravation of a typical transaction.
Sundae promised something different. It built a centralized auction process, where sellers of run-down houses would be able to market their properties to scores of investors.
From Dr Phil's couch, Stech described a conversation with a wholesaler who bought a home for $100,000 from a woman who'd just lost her husband and needed cash for her own full-time care. Stech said the wholesaler resold the home for $190,000.
Stech told the wholesaler that the woman deserved some of that profit.
"He looked me square in the eyes and said, 'That's all she said she needed,'" Stech told Dr. Phil.
The implication was that wholesalers were taking advantage of desperate homeowners, paying below-market prices and turning a quick profit. But Sundae, Stech said, marketed homes directly to investors, who would bid up the price in an effort to win the property. Sundae would make a percentage of the sale price in fees.
Stech's pitch promised a better experience for time-pressured and distressed sellers, one with less stress, a little more heart, and the potential for a better price too.
According to eight former employees, a homeowner, and complaints filed on the Better Business Bureau's website, it was too good to be true.
'Homebuyers with heart'
Stech began his career as an investor fixing and flipping houses in post-recession Las Vegas with his father, a serial founder of technology companies and business workshops.
From there he went on to co-found the real-estate-investor lender LendingHome, now known as Kiavi. Spotting an opportunity, he launched Sundae in 2018 with a mission of promoting a company that supported "homebuyers with heart."
The CEO made an impression on the venture capital crowd, ultimately raising $135 million in funding across four funding rounds. Backers include Peter Thiel's Founders Fund, as well as celebrities including the actor Will Smith and the basketball star Isaiah Thomas.
But while the company promised a new-fangled, platform-based solution for those looking to sell their home quickly, many of its customers were older, and not very tech-savvy or versed in real estate, three of the former employees said.
Two of the former Sundae employees told Insider that they often had to make determinations about the mental fitness of their elderly customers. This is not an uncommon problem in the industry at large — ProPublica reported for example that wholesaler HomeVestors bought houses from homeowners with dementia.
Constant pressure to hit sales goals was pushing some employees into unethical situations, two former employees said.
"I personally felt like they were taking advantage of people who were elderly or people who didn't know any better, and didn't know about real estate," the employee said. The employee speculated that selling through a traditional real-estate agent would have made homeowners more money.
Susan Canavari, the chief marketing officer at Sundae, balked at accusations that the firm took advantage of people, saying that "we do not tolerate those types of sales tactics" and that the platform was built to thwart such predatory practices.
A separate accusation by two former employees that the company was spamming customers with millions of mailers a month was "overstated," Canavari said.
Targets
The housing market has slowed dramatically, with sales of existing residential properties sinking to the lowest they've been in over a decade in January, except for the few months of near-shutdowns early in the pandemic. Investors pulled back at a record pace.
In response, the company expanded its reach to homes outside of its traditional purview of older homes in need of some repairs or renovations.
Five former employees said that it was often frustrating , because the majority of leads that came in via the Dr. Phil show — which an average of 2 million people view daily — were in markets that Sundae didn't even serve.
More recently, the company has followed the lead of the wholesaling industry by creating a door-to-door sales team, according to a job posting on LinkedIn. A copy of a sales handbook seen by Insider shows that door-knocking teams focus on "targets," or households that show up in public records as facing foreclosure or having "a potentially urgent need to sell the property."
"When you literally name people targets — people that we knew had high distress — and then you have a whole script focused on high distress, it felt like manipulation," a former employee said. "We just kept barraging them with people knocking on their door."
The company did not comment on the "targets."
The company has also adjusted its compensation model for sales employees,with annual base compensation now at $20,000 according to a job posting, a fraction of the $70,000 that the company once paid, according to three former employees.
The company said the salary reflects a new compensation structure that includes uncapped commissions, so salespeople can have a higher earnings potential.
Meanwhile, the company's fees, which originally stood at 5% of a transaction, rose to be as high as 11% in certain markets, substantially higher than traditional real-estate agents' fees.
As fees rose, so did pressure on the sales force to meet unrealistic performance expectations, including working longer hours, four of the former employees said.
'Hook, line, and sinker' for Sundae's pitch
When Sundae did land a homeseller, it often left them disappointed.
Chris Terry, a project manager in his 50s, had to quickly sell his Atlanta-area house in May 2022. He said he was familiar with real estate but was looking for a speedy resolution because his uncle was moving into hospice care in Florida, and Terry, his closest relative, had one month to orchestrate the move.
He turned to Sundae fully expecting to leave some money on the table in exchange for convenience. Terry's real-estate agent surmised that the home could fetch between $430,000 and $475,000, and Sundae's agent told him they would shoot to get him around $400,000. They also told him they would be able to quickly sell the home.
"I fell hook, line and sinker for it," said Terry.
The first offers he received from investors were half that amount — around $200,000 — before Sundae finally found a buyer for him at $375,000. He said that buyer was one of the largest institutional investors who purchased homes on Sundae's platform, but that the sale was contingent on a property inspection, which wasn't required in a typical Sundae deal. After the inspection, the investor stopped responding.
Sundae continued to work to match Terry up with another buyer, but even the company became wary of some proposed counterparties. Terry's Sundae contact urged him to reject one offer outright, since it came from a sketchy investor they didn't trust, Terry said.
The company brought him one final offer of $320,000, but told him it would be done off the marketplace. That investor offered to pay Terry's mortgage while they turned the home into an Airbnb but said they couldn't afford to actually purchase the home at that moment.
To Terry, the deal seemed sketchy. He came to think the company's mantra of transparency was "false advertising."
That investor showed up to Terry's property unannounced, violating Sundae's pledge to avoid the surprise visits common in the wholesaling business. That same investor also reached out to Terry's wife on Facebook to work with her directly, again using tactics the company didn't allow.
All this was unusual on the Sundae marketplace, Canavari said. When investors go around the marketplace, they are removed from the platform, she said.
She also highlighted positive reviews on forums such as the Better Business Bureau's website in addition to the detractors that posted there.
Terry said he eventually sold to the instant buyer Opendoor for $368,000 in July, selling within days of deciding to use Opendoor instead of Sundae. Opendoor listed the property at $425,000 the same month before it sold nearly a year later in June for $404,000.
Terry said selling his home through Sundae added to his stress as he moved to care for his uncle, calling into question the company's promise to "sell your home without the stress."
Layoffs after layoffs
The future for Sundae is unclear.
In an all-hands meeting in spring 2022, Stech said the company had two years of runway and would avoid layoffs, even if they didn't secure additional funding. But by June that year, the company conducted a round of layoffs, with Stech telling employees that the cuts would preclude more in the future. Still, the layoffs continued.
At one point the company had over 500 employees operating in 26 markets, but as of May it was down to 135 employees working in 11 markets.
In mid-June, the company did yet another round of layoffs and reduced operations further to six markets, according to a company memo seen by Insider. When Insider asked Canavari about the layoffs in June, she told Insider that she was leaving the company herself.
Internal discussions seemed to reflect a sense of doom. A screenshot of a Slack conversation, shared with Insider after it was accidentally shown on the screen during an all-hands meeting in May, shows two human-resource executives joking about the future of the company, as well as how attractive one employee was.
"Omg if we do layoffs may as well close the company cause will get skewered on Glassdoor and LinkedIn and not sure if could come back with another slew of that crap - don't know if I'd come work here aftee that lol," a person identified on the page as Dawn Tarner, then the senior director of employee experience and people operations, wrote.
"I mean it would have to go down to start up mode again," Beth Sallomi, then the senior vice president of people, responded.
A week later, Stech told the company that the two were let go.
Sallomi, Tarner, and the company did not respond to requests for comment.