A new real estate sales model appears to be suddenly mushrooming into existence. There are now at least three start-ups that will buy homes from people who want to sell immediately, including newcomer Knock.
Knock, OfferPad and Opendoor are trying to eliminate the home sale hassle by serving as a quick turn-around sales agent for homeowners. They are promising a painless click-and-sell process. The homeowner requests a quote and the websites respond with an offer, within hours.
If the offer is accepted, OfferPad and Opendoor will buy the homes outright. Knock is a little different. It will offer to sell the home within six weeks “for” you. If the home doesn’t sell within that time, Knock will then buy that home from the seller.
They all have their criteria for what homes they will buy. For example, the homes must be within their service areas, of course. Knock will only buy homes that are worth $150,000 to half-a-million dollars.
They must have a clear title, be owner-occupied or vacant, and be built after 1980. If they are older, they must have undergone a recent renovation. Excluded are homes in age-restricted communities, under contract with a solar company, in need of significant foundation work or water damage repairs, and they must not have un-permitted additions.
The Atlanta-based “Knock” is just beginning its rollout — in Atlanta — and just announced $32.5 million in funding to get started. It plans to expand nationally in the coming months.
OfferPad is based out of Gilbert, Arizona. It launched in 2015 and is operating in Phoenix, Las Vegas, Salt Lake City, Tampa, Orlando, and Los Angeles. It recently announced $260 million in funding to expand its current service to Atlanta, Charlotte, and Nashville. It hopes to expand to 30 cities by the end of 2020.
The San Francisco-based Opendoor has been around the longest. It launched in Phoenix in 2014. It also operates in Dallas Fort-Worth and Las Vegas and hopes to be national by 2018.
The concept gives homeowners a way to sell their homes quickly and efficiently. Whether buying the homes immediately or offering to sell them within 6 weeks, they all eliminate the uncertainty of home sales and promise to make it easy on the sellers.
Homeowners are also promised a fair market value for their homes. They begin the process by requesting a quote. The chosen company will then evaluate the value of the home based on the home’s features, the home’s condition, local market trends, and nearby sales. Sellers are encouraged to describe any special features or upgrades, after which they are then offered a price for their homes. The two sides can talk it through. Once there’s an agreement, the seller decides on a closing date and signs off on the deal.
It’s then up to the company that purchases a home to sell it, but the homeowner is now free to “move on” with money in his or her pocket. As I mentioned, Opendoor and OfferPad offer to buy the homes right away. Knock promises to sell the homes in six weeks, and will buy a home if it isn’t sold by the deadline.
Opendoor and Knock also have “for sale” listings right on their website. Opendoor offers a 2-year home warranty and a 30-day money back guarantee. If buyers are not satisfied for any reason, they can return the “home”.
Knock and Opendoor also have a “trade-in” service. Knock says on its website: “Trading in your house is now as simple and certain as trading in your car.” It appears that Knock is promising one seamless transaction.
Knock was incorporated in 2015 but is the newest bloke on the block to provide this kind of service and is only offering service in Atlanta to start. But the company is planning a quick expansion and promises the experience of experts. One of the co-founders ran Yahoo Real Estate. The two other co-founders helped launched Trulia.com, which was acquired by Zillow in 2015 for $3.5 billion dollars.
OfferPad is also backed by experienced real estate professionals. Co-founder Brian Bair says on his LinkedIn page that he’s closed more than 3,000 transactions worth over $600 million dollars. He says he’s earned the distinction of #1 Real Estate Agent in Arizona from Real Trends and was nominated in 2015 for the Inman Innovator Award.
The other OfferPad co-founder, Jerry Coleman, is one of the founders of Invitation Homes LP. Invitation Homes is described as one of the largest owners of single-family rentals in the nation with the purchase of more than 100,000 homes worth some $10 billion dollars.
Opendoor was founded by former Motivity.com founder Eric Wu, and former PayPal, Slide, and Square executive Keith Rabois. A recent press release says that Opendoor is handling $60 million dollars in transactions per month and has raised an additional $210 million dollars to expand to 10 new cities this year. No mention yet of which cities.
How much do sellers pay for these services?
Knock charges the typical 6% sales fee to sell a home. If the home sells for more, Knock will give the additional profit to the seller. Sellers are also responsible for typical closing costs.
Opendoor and OfferPad also charge the typical 6% fee but because they buy homes right away, they also charge a market risk fee. For Opendoor, that’s anywhere from 0 to 6%. For OfferPad, it’s between 1 and 7%. The market risk fee will account for things like the number of days it might take to sell the home, and closings that fall through.
As TechCrunch reports, Opendoor and OfferPad are promising market rate returns before the home is sold to the final buyers.
But how do they know the homes are being sold at market rate if they are never put on the market?
The biggest challenge for all three companies is to price the homes correctly. Knock uses its 200-point inspection for the purchase of homes along with other market factors.
Knock’s Sean Black says: “From our experience working in online real estate at Trulia and Yahoo, we recognized the need to utilize technology to streamline the home selling process.”
Here’s my take on all this:
Buying or selling real estate is often the largest transaction a person makes in their lifetime. It’s not something that typically can be done with the click of a button. Every house is different, Every neighborhood is different. The experience of a local professional with boots on the street is invaluable.
A woman who attended our Los Angeles event reached out to me today because she wants to sell her home. I referred her to a real estate agent in our network who specializes in that neighborhood. Sure enough, that agent already had a buyer looking in that area. That’s because the agent has sat at open houses, talked to buyers and sellers, and contributed to the neighborhood in various charitable way.
If you’re going to pay 6% to sell your home, wouldn’t you want that kind of personal touch?
On the other hand, there are circumstances where these tech companies could come in real handy.
With the population in America aging, more and more people will be inheriting old homes – and those homes may not be located far away. Using a tech platform to swiftly sell the home, even if it’s at a discount, may be the way to go in that scenario – especially if the sellers aren’t able to fly out to the area, fix the home up and find a good agent.
Either way, one thing we know for sure is that technology is changing everything and changing it quickly. We’ll be watching all three companies to see how they might change the way we do business when it comes to selling a home.
At Real Wealth Network, we’ve been offered an opportunity to be closely involved in a new tech company that will absolutely transform the rental business. We can’t talk about it yet because we signed a strict NDA…. but if you’d like to hear more about it, reach out directly at: email@example.com.
Disclaimer: The information provided on this page is for educational purposes only. Real Wealth Network makes no warranty or representation as to the accuracy, completeness or reliability of this information. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Real Wealth Network be liable to you or anyone else for damage stemming from the use or misuse of this information.