Buying and selling a home is a process that is full of friction. For some buyers financing is a roadblock due to the 20% down payments most banks require. This is especially a problem in some of the most expensive cities in the US. For sellers the process is also frustrating. Even if you’re in a hot market, the process can be delayed by inspections, buyer financing, closing dates, sellers backing out of a deal etc. However there are several companies who are looking to improve the buying and selling process and have some fascinating business models. In this post we’ll share some of the innovations that are happening when it comes to buying, selling and financing homes.
Innovations in Financing a Home
SoFi’s offering is straight forward. They are best known for their 10% down mortgage product, offering jumbo mortgages of up to $3 million with no PMI. They currently offer 30 and 15 year fixed rate mortgages as well as a 7/1 ARM. By halving the down payment, they have opened up home ownership to more of their members. SoFi recently announced they were licensed in New York and I imagine they will get a great deal of traction there. In a recent podcast CEO Mike Cagney said that they’ve had multiple educational meet ups on the new offering in New York and have been inundated with requests from individuals looking to learn more.
Unison’s offering is a bit more unique. Unison can provide up to 50% of the down payment to purchase a property. The money is an investment into the home itself as opposed to being a loan which means your monthly payment remains the same and you are not required to have PMI. The company hopes to share in the profit when homeowners sell the property and will make money if the home has increased in value. Homeowners also have the opportunity buy out Unison after three years. The company details how this works on their website and shares certain scenarios where a property has gained value, lost value or stayed the same when a homeowner decides to sell the property.
Unison also has a program called Unison HomeOwner which provides cash to current homeowners in exchange for equity in the home. Homeowners use the money to eliminate debt, remodel, pay for school, invest, or as a cash cushion for financial stability. Unison HomeOwner was the first program that Unison debuted in the home ownership investment category.
Point’s product is similar to the Unison HomeOwner product and is an alternative to the Home Equity Line of Credit (HELOC). It is targeted at individuals who have equity in their home but would like to unlock some of the capital tied up in the home. Homeowners sell small fractions of equity in their home but must retain at least 20% of the equity after the investment. After a pre-qualification Point will make an offer, which is typically between 5% and 10% of the home’s value. From there an appraiser will come out to ensure the property is valued correctly. Point is paid back in one of three ways: when you sell your home, at the end of the term or at a time when you choose to buy back the value of the home. Similar to Unison there are different scenarios depending on what has happened to the value of the home.
Innovations in Buying and Selling a Home
Opendoor is one of the leaders when it comes to changing the way people buy and sell homes. The company is a two sided platform that lets sellers sell their home directly to Opendoor and buyers to view homes currently owned by Opendoor. The company currently operates in the Phoenix, the Dallas Fort Worth and the Las Vegas metro areas but plans to expand to other geographies soon. They also work with real estate agents to share offers from Opendoor with their clients. Opendoor offers a 30-day guarantee and will purchase back homes from buyers (less transaction fees) who are unhappy with their home. Opendoor recently raised $210 million which will be used to expand to 10 cities this year. The latest round puts their valuation at over $1 billion. In total they’ve raised $320 million in equity and $400 million in debt financing.
OfferPad is a company focused on improving the selling experience. The self-described ‘instant buyer’ of your home will send you a purchase price for your home within 24-hours. The fees to sell your home are similar to that of listing with an agent, but the process happens a lot faster. OfferPad shares their pricing here. Closings can happen in as little as 5 days. In January 2017, the company raised $30 million in equity and $230 million in debt to fund real estate transactions.
Knock was founded by former Trulia executives. Similar to Opendoor’s offering the company operates a marketplace for those looking to buy, sell or trade in their home. The major difference is that Knock tries to sell your home in 6 weeks and if they fail to do so they will buy the property for the agreed upon amount. The company’s business model is to make money on the transaction costs. If Knock buys a home and then sells it at a higher price, they provide the seller with 100% of the difference. They also plan to only hold 10-20% of homes on their balance sheet. The company recently raised a $32 million Series A led by RRE Ventures.
Improving the experience around buying, selling and financing a home is clearly a hot category in real estate at the moment. On the financing side these companies are looking to help individuals get into a home earlier than they otherwise would have been able to and for existing homeowners to unlock equity in a different way. On the buying and selling side of the equation companies are making real estate transactions much more seamless, offering many benefits to both buyers and sellers. Having other options than what a traditional bank would offer is something that is long overdue and it will be interesting to see how this space plays out over the coming years.
We wanted to learn more from these companies so we have invited many of them to speak at LendIt. OfferPad, Opendoor and Unison will all speak on a panel to share how they are changing the way buyers and sellers transact. We’ll also hear from SoFi and several other companies on how they are improving the actual mortgage process behind the scenes. Finally Point will be speaking about their model and how it is helping homeowners access capital tied up in their home. This will all be part of our digital mortgage, residential and commercial real estate tracks at LendIt USA. As a reminder, pricing for LendIt USA 2017 goes up on Friday.