For almost a decade, tech companies have tried to transform the traditional home sales process.
iBuyers first appeared around 2014, making it possible to sell your home online almost as easily as collectors sell their wares on eBay. The iBuyers’ product targets homeowners, making it possible to sell your home without having to list it, fix it up or open it up to strangers.
Now, there’s a new breed of disruptors called “power buyers” who are trying to streamline the process for buyers.
Companies like Knock, Orchard, Homeward, Ribbon and Accept Inc. provide cash offers, bridge financing and “buy-before-you-sell” programs that allow shoppers to purchase a home before selling their old one.
Power buyers are like a rich uncle, providing dollars upfront so you can make an all-cash offer to buy a home.
Knock co-founder and CEO Sean Black — who also helped found online real estate site Trulia — said power buyers are just the latest development in what he calls “the transaction revolution.”
“All of us collectively are just trying to fix a very broken transaction,” Black said during a recent fireside chat moderated by the Southern California News Group. “We’re trying to break down the friction and make the process streamlined, giving the consumer transparency, convenience, certainty and ultimately cost savings.”
Some power buyers charge a fee for their services. Others, like New York-based Knock, provide a mortgage for your purchase.
Knock starts by providing a mortgage pre-approval, then provides an interest-free, six-month loan based on equity in the buyer’s old home. The buyers then can make offers as if they were an all-cash buyer. If their offer is accepted, Knock provides a mortgage as well as funding for the down payment and for repairs to the old home.
The buyers are free to move into their new home, fix up the old one and sell it. Knock also provides a backup offer to buy your home if it doesn’t sell within six months.
Black said his company financed almost 900 home purchases in 2021, but only bought one home that failed to sell in six months.
“We are all outsiders,” Black said of real estate innovators. “That’s almost always the case with innovation because we didn’t know what we couldn’t do. … I think it takes a fresh, outside perspective to fundamentally change the transaction. To fundamentally reimagine it.”
Here’s an edited transcript of Black’s talk, which occurred on Dec. 7 at the National Association of Real Estate Editors conference in Miami.
Q: What is the “transaction revolution?”
A: If you look at where we were in the early 2000s, it was really about a digital revolution, and (for real estate sites), it was really taking classified ads out of the newspaper or the MLS books – the old school MLS books – and putting them online.
It was pretty one-dimensional. You didn’t get any context around those listings.
That’s where Trulia and Zillow really came in. Trulia came along in 2005 and provided school information and crime information and heat maps. In Zillow’s case, it was about the Zestimate initially and democratizing the buyers.
Now, obviously, consumers have more information than they could ever want.
By the way, it wasn’t good for the real estate agents either because they spent a lot of time educating consumers for months and months and months who may or may not ever transact.
Q: So, that changed the homebuying process. But did it change transactions?
A: What it did was get better information to buyers, but it didn’t give sellers any more transparency, any more convenience and certainly no more cost savings.
There’s still a lot of confusion about what’s going to happen, when it’s going to happen, and there’s a lot of uncertainty.
Our thesis was if we could make the transaction less stressful, more certain, more cost-effective, twice as many people would do it. Now, 16 years later, there are six times more unique visitors searching the top three sites, and only 20% more people transacting.
We think there’s an opportunity to turn a lot more of these people that want to transact into people who can transact.
And the way to do that in the marketplace is to create liquidity. We do not have that, obviously, in real estate. There’s so much friction and cost and inconvenience and uncertainty, you have a lot more demand than the ability to buy.
Q: So how do you help create more certainty and less friction?
A: A big part of the problem is that two-thirds of people that are buying are also selling. Americans are equity rich and cash poor. So you play the chicken-and-egg game of do I sell my house first and move?
You can sell your house right now in literally three days, give or take. But then, you’d be homeless. And you’d still have a mortgage contingency, and you’d be outbid by somebody else that doesn’t have one or doesn’t need one.
Q: And how do you create liquidity?
A: What we do effectively to create liquidity is we make all buyers cash buyers.
Our first product, which originally was called Trade In and now is called Home Swap, focused on taking the two-thirds of people who have a ton of equity in their home, but don’t have a lot of time and don’t have a lot of cash.
We let them buy their new home. We lend them not only a mortgage but all the money they need for a down payment and to repair the old home. And what we do, effectively, is send them into the market with their real estate agent as an all-cash, institutional buyer. And then they can win bidding wars.
We’re using data science to underwrite not only you, but your old home and lending the money out of your old home so can buy your new home and move in. And as soon as you move out, we basically have our contractors come in and get the old house ready to list, and you get 100% of the upside.
Q: Power buyers provide a solution in today’s busy market for home shoppers who keep getting outbid because they have to sell their current home or have a mortgage contingency. But what happens if the market slows and it’s no longer as competitive to buy a home? Does power buyer demand dry up?
A: Let’s take 2008 as a worst-case scenario for the housing market. The year before that, 5 million houses got sold. In 2008, in the depth of the crisis, 4 1/2 million houses got sold. Ten percent less. Houses will always get bought and sold. People move. And people will keep moving.
Sean Black at a glance
— Title: Co-founder and chief executive officer
— Organization: Knockaway Inc., a.k.a., Knock
— Residence: New York City
— Education: Bachelor’s in international business at Penn State, MBA in entrepreneurship at Babson College
— Previous jobs: Three years as vice president for New York real estate company Corcoran Group, founded by “Shark Tank” personality Barbara Corcoran; and member of Trulia.com’s founding team, spearheading growth and revenue.
Credit: Source link
