The Inman community will meet virtually to Connect, June 15-17. It’s a powerful line of speakers, and our focus is on the New Normal – what business looks like on the other side of the pandemic. Let this conversation with one of our June Connect speakers serve as an appetizer and don’t forget to grab your ticket to June Inman Connect before prices go up.
Tenants fleeing cities to buy suburban homes. Remote home visits and closings. Supply wars and inventory shortages. Record low interest rates.
Will the changes in the real estate sector brought about by the pandemic be long-lasting or fleeting? Revolutionary or incremental?
Beat CEO and co-founder Sean Black believes that we are in the “third evolution of the real estate revolution” and that changes are taking place that will benefit consumers, while keeping real estate agents at the center of the transaction.
In the first stage of the real estate revolution, listings were put online, undermining real estate agents’ role as gatekeepers of information. Consumers then gained access to additional context around listings such as price history, market trends, and neighborhood-level crime and school data from sites like Trulia, where Black was part of the founding team.
While access to listings and contextual data made consumers better buyers, “the seller didn’t benefit at all” from these changes, Black said. As home values rose, so did commission income, traditional real estate commission structure remained intact.
But today, Black sees a “transaction revolution,” with buyers and sellers demanding – and getting – more transparency, liquidity and convenience. This third stage of the revolution began before the pandemic and will continue after it fades. But COVID accelerated trends that have been brewing for some time, such as paperless closings and iBuying.
“COVID forced the industry to transform,” Black said. “Security deposit, title and notary, things that seemed like the smallest part of the transaction, nobody was motivated to change them before. Banks wanted wet firms, but COVID they forced their hands. “
Due to the shortage of listings during the pandemic, buyers bidding for cash often have an advantage over those who have not obtained financing for a purchase. Even making an offer contingent on the sale of your own home can hurt a buyer’s chances of success.
That’s part of the value proposition of cash offering startups positioning themselves as transaction facilitators. Companies like Back Y Headband buy homes on behalf of your buyer clients. That’s a twist on iBuyer’s “instant offer” business model, started by companies like Offerpad Y Open door, which caused them to start buying properties from sellers who didn’t want to deal with the inconvenience of putting their homes on the market.
“IBuyers figured out how to reverse the transaction and that benefited all of us,” said Black. But there are “different types” of buyer business models, some more adapted to current conditions than others.
Black believes that iBuyers who primarily make instant offers to sellers who don’t want to list their homes are probably digging a hole right now.
From a consumer point of view, “It’s an interesting solution if you don’t want to list your home, but you also get a discount for leaving” with a cash offer. In today’s seller markets, “instant deal” iBuyers have to pay more, charge less, or buy fewer homes, making it difficult to grow or make a profit.
When the pandemic generated uneven demand for homes last summer, Offerpad and Opendoor launched traditional brokerage listing services, “underscoring the increasing convergence of iBuyers and the traditional industry,” real estate technology consultant and Inman contributor Mike DelPrete noted at the time.
Knock also modified its business model. After launching a service in 2015 in which it acted as buyer and seller on behalf of clients, last summer the company introduced “the Knock Home Swap” Service.
Now available at 40 markets in 10 states, Home Swap allows homeowners to leverage the value of their existing home to make a non-contingent offer and close a new Knock-financed home, before putting their old home on the market. Knock also offers an interest-free bridge loan that covers the buyer’s down payment, pays for cosmetic improvements to the old home to maximize market value, and covers up to six months of mortgage payments on the old home.
Knock will even handle the prep work necessary to get the client’s old home ready for sale, and provides software platforms where consumers, agents and other providers can manage all aspects of the transaction.
“No other platform, not even the big mortgage companies, gets their hands on all of those parts of the transaction,” Black said.
“Luck is the intersection of preparedness and opportunity,” Black said of the home exchange demand, which has helped real estate agents generate new business during the pandemic and keep transactions moving forward.
Part of the reason Knock is so well positioned, Black said, is that he and COO and co-founder Jamie Glenn have sought to build a platform that makes life easier for realtors to serve their clients, but still it depends on your input.
“Jamie and I have made big bets that the real estate agent will remain at the center of the transaction, for many reasons,” Black said.
While Knock is ultimately a technology company that helps automate the home buying and selling process, real estate agents “are in our app,” bringing local expertise, nuances, and “help through the emotional part of the transaction. “
“So the relationship we have with the agents is symbiotic – [the Knock Home Swap] it helps get customers off the fence, and the agent looks like a rock star and makes double the money because they’re buying and selling, “Black said.
The pandemic has highlighted disparities in wealth and class, with educated professionals better able to seize opportunities to work remotely, driving demand for housing in the suburbs and rural areas. Black believes that trend actually predates the pandemic, and that anything that makes real estate more “liquid,” easier to buy and sell, benefits average Americans.
He said the typical Knock customer sells a home for $ 300,000 and spends $ 400,000 when he is the buyer.
“This is the average American family, the bread and butter of the housing market,” he said. “The migration to these smaller cities that we have seen in the last 10 to 15 years, I would like to think that we help the average American to get more home in a better place with a lower cost of living.”
While many economists worry that the dramatic rise in home prices threatens to cancel out the affordability benefits that low mortgage rates provide, Black is optimistic that inventory shortages will soon diminish and that mortgage rates will remain low. .
“I’m not an economist, but the Fed’s commitment to keeping rates low for the foreseeable future will really help home buyers and sellers in general,” he said. “I think after this summer, the housing inventory will be reasonable again. In September, when the children return to physical school, the families calm down a bit. You will see more properties and fewer buyers. “
When the dust settles, Black says consumers will weigh “3 Cs” when choosing who to work with: certainty, convenience, and cost.
“I think what we saw before COVID, certainty and convenience were the most important,” Black said. “I think the madness of ‘Everything is a bidding war’ will dissipate, and certainty and convenience will re-emerge as what is important.”
Email Matt Carter