FOMO: The (Literal) Land Grab For Real Estate Startups

Call it groupthink, on a grand scale, to the tune of billions of dollars.

Call it FOMO. But then again, YOLO. So why not stake a claim?

News came this week that a cramped space is getting a bit more crowded. We’re talking about the real estate sector, where certainly there seems there is an opportunity to change the status quo.

In Texas, there is Homeward Realty, with $4 million in equity raised and $21 million in debt borrowed, per its latest announcement. The funding round was led by LiveOak Venture Partners; debt came from Genesis Capital, Keystone Bank and others.

As anyone who has been on either side of the real estate transaction – whether it’s a home buyer, seller or flipper, whether it’s for commercial space or pied-à-terre – paper dominates. PDFs, faxes, commissions, inspections – there’s no end to the paper chase. Sellers want higher margins. Buyers want cheaper prices, and everyone wants the process to be a bit more streamlined.

In the Homeward model, done through an online platform, users who wish to sell their homes get credit upfront. This reportedly lets them make offers on new properties, securing a new place to live even before the old property is listed. The firm and the homeowner reach a pact through which Homeward will buy the listed property at a pre-fixed price in case it isn’t sold. The firm charges a 1.9 percent fee.

Homeward has said it will use the funding to boost staffing, while the tally of fundraising deals in the real estate sector stretches into the dozens year to date. Earlier this year, Crunchbase said that venture-related deals in the real estate space topped $1.9 billion into May. The $314 million raised in all of 2017 pales by comparison.

The move toward speed in transactions (call it iBuying) may change the way we transact. The startups have their perceived differentiators. Opendoor, for example, makes cash offers for homes, makes repairs and puts those homes back on the market. And in another model profiled in this space, Bundle Select helps companies get employees settled as they buy and sell homes and relocate, working with realtors, title companies and real estate services.

But might it all be coming to the proverbial peak? Market-making exists only so far as there is a market to be made. In recent data, posted at the end of last month by the National Association of Realtors, pending home sales were up 1.1 percent in May, but were 70 basis points lower than a year ago. Banks by and large reported strong earnings, in part on strong mortgage activity, but then again, these are the traditional conduits of lending and financing, perhaps less attuned to the iBuying model that is gaining VC capital. In another sign, U.S. homebuilding activity as measured by housing starts has declined for two straight months.

And while many expect to see a rate cut from the Fed coming soon – and this would indeed make debt, and buying a home, cheaper – the cut seems poised to come amid fears of economic weakness. No easy way to tell if the housing market has a hard landing or a soft one, but for now, the startups are striking VC funding while the funding is hot.