Way back in the day (which, in 21st century digital economy terms, probably means a decade or so), smart and important people used to express well-informed skepticism about the prospect of selling clothes, cars and even groceries via online or mobile channels. The concerns were reasonable and varied (logistical hurdles, perhaps, or just long-standing consumer habits), but, clearly, those views turned out to be wrong.
Now comes a similar question about the buying and selling of houses. Will consumers, over time, move to a digital model that offers more than just neighborhood, pricing and other such information — a model that provides end-to-end service, including mortgage assistance and what amounts to a trade-in on an old home for new property?
In a new PYMNTS interview, Sean Black, CEO of home trade-in platform Knock, talked about the role that digital can play in residential real estate sales — and how the company intends to use the $400 million it recent raised in a Series B funding round led by the Foundry Group.
Knock operates in such U.S markets as Atlanta, Charlotte, Dallas-Fort Worth and Raleigh-Durham, and has plans for more domestic expansion in the coming 12 months. It faces online competition from the likes of Opendoor, which, in the last half of 2018, bought Open Listings — a platform operator that aims to make it easier and lower-cost to find, tour and buy any home on the market, and will enable Opendoor to create an end-to-end marketplace for the buying, selling and trading of homes.
The goal? Make the home buying-and-selling process come as close as it can to the “ease of trading in your car,” Black told PYMNTS. He also likened the process to Uber, a relatively easy mobile experience by which customers can keep track of the transaction.
Home selling and buying is hardly anyone’s idea of great fun — and about 70 percent of people who sell their homes also plan to buy new ones. At best, the process — involving bank loans, inspectors, closing costs, brokers, nonstop research and other unappealing, time-consuming, paperwork-heavy tasks — amounts to tiresome preparation before the big party. Putting as much of that process online as possible, and on a single platform, could take away some of that hassle, at least in theory.
The Buying-And-Selling Process
The process works like this:
First, a homeowner submits a property to Knock for a price estimate, which is then followed by a phone consultation. A “licensed local expert” working with Knock then helps the homeowner look for a new house; Knock also helps customers find mortgages via the platform’s partners, Black said. Next, Knock buys the new home via an all-cash transaction (in fact, part of the new funding round will go toward paying for that part of the business, he told PYMNTS). Knock said paying cash usually results in discounts of between 3 percent and 5 percent.
The next step?
Knock handles the listing and sale of the old home with its own cash. Once the homeowner accepts an offer and the old house is sold, Knock transfers the new house into the customer’s name and mortgage. Knock and the customer then settle the improvement and other costs that the company incurred throughout the process. Finally, Knock takes a 6 percent commission on the sale of the old house.
On average, sales of the customers’ old homes tend to happen in half the time as other homes — homes that linger on the market might require Knock to refinance the transactions, he said. Knock uses both publicly available data and some 200 data points from its own inspections for each transaction.
“We are the broker,” he explained.
Hand To Hold
Black also noted that Knock offers personal assistance throughout the buying-and-selling process, not just a digital experience. The reason for doing so applies to other areas of retail and digital marketplaces, and will probably continue to do so, given long-term consumer habits and expectations. “No matter how much tech you have, people want a hand to hold,” Black said.
The fresh funding for Knock — along with other moves toward bringing more digital tools to residential real estate transactions — comes as a new report found that millennials are being shut out of the real estate market, as rising home prices and interest rates are pushing homeownership out of the reach of many first-time buyers. That said, Black noted that “99 percent of people who trade-in with us” are trading up for bigger homes, and desiring better school districts and neighborhoods.
“They are moving from a starter home and now want to start a family,” he told PYMNTS.
That does not mean they are all millennial consumers. However, since the company operates in the South, the homebuyers there tend to start their families earlier than in most other places of the U.S. Though Knock’s customers include people in their “30s, 40s and 50s,” he said, in areas such as North Carolina, users of the platform tend to be “very young and tech-savvy.” Black added that “we’ll probably do five more markets this year,” but he declined to elaborate.
The new funding will also help pay for more hiring. Even with digital technology, real estate buying and selling is a labor-intensive process, given all the different parts involved in every transaction, and variances in local laws that govern home buying and selling.
“It’s [freaking] complicated,” Black said.