For nearly a decade, tech companies have tried to transform the traditional home selling process.
iBuyers first appeared around 2014, making it almost as easy to sell your home online as collectors sell their wares on eBay. iBuyers’ product targets homeowners, making it possible to sell your home without having to list it, fix it or open it up to strangers.
Today, there is a new breed of disruptors called “power buyers” trying to streamline the process for buyers.
Companies like Knock, Orchard, Homeward, Ribbon and Accept Inc. offer cash offers, bridge financing and “buy before you sell” programs that allow buyers to buy a home before selling their old one.
Power buyers are like a rich uncle, providing dollars up front so you can bid cash to buy a house.
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 deal revolution”.
“We are all collectively trying to fix a very broken transaction,” Black said during a recent fireside chat hosted by the Southern California News Group. “We try to reduce friction and streamline the process, providing the consumer with transparency, convenience, certainty and ultimately cost savings.”
Some power buyers charge a fee for their services. Others, like New York-based Knock, offer a mortgage for your purchase.
Knock starts by providing a mortgage pre-approval, then offers a six-month interest-free loan based on the equity in the buyer’s old home. Buyers can then bid as if they were a cash buyer. If their offer is accepted, Knock provides a mortgage as well as financing for the down payment and for repairs to the old house.
Buyers are free to move into their new home, repair the old one and resell it. Knock also offers a fallback offer to buy your home if it doesn’t sell within six months.
Black said his company funded nearly 900 home purchases in 2021, but only bought one home that didn’t sell in six months.
“We’re all strangers,” Black said of the 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 new outside perspective to fundamentally change the deal. To fundamentally reinvent it.
Here is an edited transcript of Black’s speech, which took place 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 about getting classifieds out of newspapers or MLS books – old-school MLS books – and put them online.
It was quite one-dimensional. You didn’t have any context around these lists.
This is where Trulia and Zillow really came in. Trulia arrived in 2005 and provided school information, crime information, and heat maps. In the case of Zillow, it was initially about the Zestimate and the democratization of buyers.
Now, obviously, consumers have more information than they could ever want.
By the way, it wasn’t good for real estate agents either because they spent a lot of time educating consumers for months and months and months who may or may not transact.
Q: So it changed the process of buying a house. But has this changed transactions?
A: What it did was provide better information to buyers, but it didn’t give sellers more transparency, more convenience, and certainly more 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 that if we could make the transaction less stressful, safer, more profitable, twice as many people would do it. Today, 16 years later, there are six times more unique visitors searching on the top three sites, and only 20% more people transacting.
We think there’s an opportunity to turn a lot more of those people who want to transact into people who can transact.
And the way to do that in the market is to create liquidity. We don’t have that, of course, in real estate. There are so many frictions, costs, inconveniences and uncertainties that you have far more demand than buying capacity.
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 who buy also sell. Americans are stock-rich and cash-poor. So you’re playing the game of chicken and egg: do I have to sell my house first and move out?
You can sell your home right now in literally three days, more or less. But then you would be homeless. And you would still have a mortgage reserve, and you would be outbid by someone else who doesn’t have it or doesn’t need it.
Q: And how do you create liquidity?
A: What we do effectively to create liquidity is that we make all buyers cash buyers.
Our first product, originally called Trade In and now called Home Swap, aimed to take 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 much money.
We let them buy their new house. We lend them not only a mortgage, but all the money they need for a down payment and to repair the old house. And what we actually do is send them to market with their real estate agent as an institutional cash buyer. And then they can win bidding wars.
We use data science to secure not only you, but also your old home and lend the money from your old home so you can buy your new home and move into it. And as soon as you move out, we bring in our contractors and get the old house ready to list, and you get 100% of the upside.
Q: Power Buyers offer a solution in today’s busy market for homebuyers who keep bidding up because they need to sell their current home or have a mortgage contingency. But what if the market slows down and it’s no longer as competitive to buy a home? Is demand from power buyers drying up?
A: Let’s take 2008 as the worst-case scenario for the housing market. The previous year, 5 million homes had been sold. In 2008, at the height of the crisis, 4.5 million houses were sold. Ten percent less. Houses will always be bought and sold. People are moving. And people will keep moving.
Sean Black at a glance
— Title: Co-Founder and Managing Director
— Organization: Knockaway Inc., aka Knock
— Residence: New York
— Education: Bachelor in International Business at Penn State, MBA in Entrepreneurship at Babson College
— Previous jobs: Three years as vice president of New York-based real estate firm Corcoran Group, founded by “Shark Tank” personality Barbara Corcoran; and member of the founding team of Trulia.com, spearheading growth and revenue.