This month, we’ll talk to mortgage leaders about where the market is headed and how products are evolving digitally to suit buyers’ needs now. We’ll also explore emerging alternative financing options that are changing the game for buyers and sellers. Join us for Mortgage and Alternative Financing Month.
The cleaner a buyer can write their offer, the better the chances of it being accepted. In this heated, pandemic-prolonged seller’s market, even needing a loan is considered a detriment to your client’s offer.
That’s why alternative mortgage provider Knock is already ahead of its planned goal to be in 21 markets by the end of 2021. As of Jan. 7, it’s active in 18 markets.
Knock’s Home Swap is a unique lending product aimed at helping families buy a new home without having to rely on the proceeds from their current home. Therefore, the buyer can make an offer free of financing contingencies, as well as receive a number of other benefits designed to burnish a business process reputed for its hidden hindrances.
The company has also developed a training program so real estate agents can help guide clients through the process.
Well-funded in the hundreds of millions, Knock was founded and is led by a trio of proptech executives. It also recently hired Michelle DeBella, Lyft’s former vice president of finance, who made the National Diversity Council’s list of the 50 Most Powerful Women in Technology.
There’s no doubt that Knock is part of the new class of industry model-breakers, and here’s what you should know about it.
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Knock at a glance
Knock entered the market in 2015 with a service called Home Trade-In. Clients would search the open market and upon finding a home, engage Knock to secure it using a cash offer on their behalf.
Meanwhile, Knock would also buy the home the client is leaving, which it then prepares to put back on the market. Finally, the consumer would refinance the new home, thus buying it from Knock.
For lack of a better definition, this effective but arguably convoluted approach put Knock square in the middle of the iBuyer segment. IBuying has proven popular with sellers needing quick alternatives, but it’s a business model that even Zillow has proven works better as a lead generator than a revenue generator.
In the summer of 2020, Knock landed on what it called, “a ‘perfected’ version of the home trade-in concept,” the product that has accelerated its progress into major U.S. markets: Knock Home Swap.
Knock is now a mortgage provider, and instead of being in the center of the deal as the buyer, the company leverages local agents’ expertise to help sellers become buyers.
In an interview with Inman’s Patrick Kearns, CEO and co-founder Sean Black said the new model was on their roadmap. “We’ve always had the plan to make this one integrated solution for people buying and selling at the same time,” he said.
Black said that Knock used its early model to better understand the consumer mindset toward homebuying. It wrapped that data around a financing product to create a new way to buy a home.
Home Swap preapproves clients for a traditional mortgage for a new home at competitive market rates, allowing them to shop the market with the confidence of a cash offer.
And if needed, the Home Swap Loan provides down payment funds, premarket home preparation and up to six months of mortgage coverage on the home being sold as part of a $250,000 interest-free bridge loan. Knock’s Concierge Team tackles the work needed to sell.
The seller reconciles all outstanding loan costs with Knock upon sale of the previous home.
Its down payment services are also of great importance to the industry. A December 2020 study by RealtyHop showed that it takes years for a typical buyer to save money for a down payment; in some major cities, it takes more than a decade. Having cash on hand is a major hurdle to getting more buyers into the market.
However, the ultimate difference with Home Swap is the agent. Knock helps agents remain tethered to the homeowner from sale to purchase, at no point being marginalized or devalued in the transaction.
Home Swap solves the long-standing industry dilemma of homeowner dependence on equity for their next move. It’s broken open the billions of dollars housed in America’s paid-down mortgages, essentially creating a new source of capital for the real estate industry.
Executing a Home Swap
Home Swap starts with how it would for most homebuyers: working with an agent to find a home.
As is the case across the country, and in most of Knock’s markets, there is not a lot of inventory within reach of most home shoppers. The benefit of homeownership doesn’t mean its easy to access cash to move, especially when so much net worth is tied to a home’s value.
With so much competition for so few homes, offers need to be free of contingencies, have down payment cash ready, offer short close dates and favorable inspection requirements.
If this sounds like a few of your current clients, then consider them a potential fit for a Home Swap. Home Swap is available in the following markets:
- Ft. Lauderdale
- West Palm Beach
- Dallas-Ft. Worth
- San Antonio
- Los Angeles
- Colorado Springs
In each of its active markets, Knock partners with brokerages and individual agents to certify them to lead clients through the process. From there, it’s business as usual: Help your client get prequalified through Knock while surveying the open market.
Home Swap gives agents the advantage of working with a buyer who is financially ready to go, backed by a dependable financial entity. Offers can be submitted noncontingent on the sale of the previous home, further cleansing the offer of contractual hindrances.
Knock is both a technology company and a mortgage provider. Given its founders’ collective history, it only makes sense that they would build in a slew of software-powered efficiencies to ensure its promise to the marketplace of a new way to buy a home.
Both the agent and client can interact using Backyard and Frontyard, respectively, the names given to the user interfaces developed to manage Home Swaps.
Accessible through a browser and the company’s companion app, the CRM-like system allows agents to manage their Knock certification and submit homes for Knock to consider financing.
The software facilitates agent training and testing, and agents also use it keep track of leads Knock sends them, which come from consumers inquiring about services on their website. Each lead record has the owner’s details, and then properties are verified through Knock’s local MLS relationships.
Knock’s average customer has a FICO score of 620 or higher, not overly stringent. The company also prefers those with at least 30 percent equity in their home.
Know that Knock doesn’t blindly agree to back every submitted home. Like all lenders, a home needs to meet market-acceptable standards. Title issues, severe mechanical deficiencies and other detriments to a smooth sale will likely not meet financing requirements. This is also because Knock does not service its loans, instead selling them on the secondary market.
Accepted properties are approved for a home visit and surface-level inspection. Given each market’s status with the pandemic, the walkthrough might be handled by the seller.
Images and details are uploaded to Backyard, typically on the app, and include agent comments on conditions and regional market data. The ensuing report returned by Knock will contain its interpretation of value and expected list price.
Frontyard users are able to track the progress of their buying and selling, contact their agent, and remain connected to any repairs and market prep being conducted on their house.
Knock offers a loan for up to $25,000 to help get a home market-ready. Its Knock Concierge service vets and oversees local contractors and manages the ins and outs of the process, which can include general staging, minor repairs, or even more extensive HVAC and major system issues. Sellers and agents can use their own contractors as well.
Any loan amount for market prep is paid back to Knock upon the home’s sale. Should it not sell right away, Knock can cover the home’s mortgage for up to six months, and provide a backup offer should it not sell in that time. The company states that 90 percent of its listings sell within 90 days or less.
In North Carolina’s Triangle region, consisting of Knock cities Raleigh and Durham, TriangleMLS reports that average days on market for December 2020 was 20. In Orlando, another Knock market, Redfin reports median days on market as 22.
Zillow research shows that the national average for days on market is 22. Thus, most Knock clients can expect to pay back less than a month of mortgage to Knock.
At closing of the new home, buyers pay a 1.25 percent convenience fee to Knock, similar to loan origination. At no time are agents charged any fee for working with Knock. All commissions earned are between you, your broker and any cooperating agents.
In every market Knock enters, it looks to partner with agents to help facilitate its services.
As with every type of industry certification, the goal is to help broaden the agent’s skill set. Certifications help support a personal brand and demonstrate a commitment to ongoing professional improvement.
Knock certification, which is free, can be a lead source for agents. The company’s growth relies on consumer education and outreach to homeowners, so it’ll have only more marketing power as its model catches on around the country.
This will result in a steady stream of direct contact from homeowners looking to leverage their products. The company has a proven marketing action plan for every market it enters, and that can result in new business for agents who pursue partnership with them.
Another advantage to Knock certification is the rare opportunity to earn commission as both listing and buyer’s agent. It’s even more rare for it happen in such a short period of time.
As most agents can attest to, most client relationships end after the client buys the home. The percentage of sellers who use the same agent they worked with to buy their home doesn’t need to be repeated for this argument for certification to have impact.
Unlike other alternative homebuying services — namely iBuying — Knock has no intention of removing the agent from the transaction. In fact, the two most popular platforms in that milieu have recently backtracked to launch new services that involve agents, clearly recognizing that their in-house teams and business workflows can’t replicate an experienced licensee.
With Knock, commissions remain intact, as they would in any other deal according to contracts and negotiation between brokers and cooperating agents. Knock does charge its homeowners a 1.2 percent convenience fee, comparable to a loan origination fee.
It would be reasonable for a deal-savvy seller to approach their agent about a reduced fee given the added benefit of receiving splits from both ends of the transaction. Handle that as you would any other request for a discount.
Becoming certified to pitch and facilitate a Home Swap is quite painless, requiring a simple online training session with members of the Knock team. It usually takes a couple of hours at most and is designed to make agents comfortable discussing the program. However, Knock representatives are on hand to assist if necessary.
Gigi Olivo with YourGoTeam at JP and Associates McKinney is Knock-certified and recently helped a client through a Home Swap. “It was a learning curve for us both at first,” she said. “Knock’s customer experience manager and staff helped my clients and I navigate the transaction.” Olivo is always seeking innovative ways to serve her clients, she explained.
“In the Dallas metroplex, we are experiencing very low inventory and high demand. Many times this gets us into a multi-offer situation,” she said. “Knock allows us the opportunity to submit a strong offer without contingencies, it puts us in a better position to win.”
Once certified, Knock provides agents with an array of marketing materials, from traditional door hangers and print-ready, tri-fold brochures to social media content and an email badge.
Live training programs are available regularly on Knock’s website and take under two hours to complete. For some partners, Knock offers recorded sessions to complete when time allows. Passing participants are given a digital badge to promote the official designation.
Knock looks to partner with prominent brokerages in each market to offer certification at volume, working directly with the broker-owner to best coordinate training.
In an October 2020 article for Inman, CEO Sean Black posited that Knock represents another example of the industry’s progress.
“Looking to 2021 and beyond, it’s the most nimble and tech-savvy real estate agent who will not only survive this new tech-centric world but thrive in it,” he wrote. “It’s up to agents to decide if they are part of the last generation or the next one by succumbing to technology and change or embracing it.”
There’s currently a waitlist for certification of individual agents (those not working with a brokerage partner), but the company will immediately reach out to schedule a session.
Home Swap is Knock’s flagship product. Along its growth trajectory, an ancillary but valuable byproduct emerged, giving Knock customers another way to sell and occupy homes: Nest.
Knock Nest is a sale-leaseback program, formally launched in the fourth quarter of 2020. Inman’s Marian MacPherson reported on Nest in December, writing that it “allows homeowners to sell their home to Knock and receive an all-cash offer with a long-term lease and repurchase option.”
Sale-leasebacks are exactly that: The owner of a property sells it to an investor contingent on their ability to remain in place via a long-term lease with the new owner.
Sale-leaseback are traditionally a liquidity strategy more common in commercial real estate, as it frees up capital for enterprise investments and capital expenditures. It’s also used when companies are facing financial constraints.
There are some occasions when sale-leasebacks are terrific options for homeowners, such as a pending foreclosure or other dire financial scenarios, such as long-term healthcare.
This kind of option is exactly what makes real estate such a good asset. Unlike paper investments, owning property allows people more control over ways to increase or cash in on its market value.
However, Nest doesn’t have to be used for only dire life scenarios. It can provide cash for business startups or other large-scale investments, such as college tuition or a second home. It’s also a great way to supplement retirement income.
In December, Knock CEO Sean Black said Nest is designed to help the 97 percent of homeowners who have equity in their homes.
“We created Knock Nest to allow homeowners to put the equity they’ve worked hard to build to work for them — whether it’s to achieve their dreams, help with life’s uncertainties, or plan for the next stage of their lives,” he said.
Nest requires a similar process as Home Swap and also charges a 1.25 percent fee. To get started, homeowners submit home images, details and area market information for an initial CMA.
If the home is approved by Knock and an offer made, Knock will work with the seller’s agent to facilitate the sale. Once the sale is closed, sellers are able to access the cash usually within two weeks.
Knock will also work with customers to lock in a buy-back price upon execution of the Nest agreement. Leases are for 12 months, at which point the lessee can renew, buy back the home or decide to move.
“There is a wave of innovation to give people easy access to the equity they’ve earned, and move more quickly and freely without a lot of cost and uncertainty,” Black said in the December announcement. “So I would like to think that Home Swap created the category that we’re in terms of innovating with something that’s more certain and convenient, and more liquid.”
Nest is ultimately the formalization of a service Knock had offered to customers of Home Swap. Black said they’ve performed close to 800 sale-leasebacks. Nest is active in select Arizona, Colorado, Florida, Georgia and Texas markets.
Have a technology product you would like to discuss? Email Craig Rowe
Craig C. Rowe started in commercial real estate at the dawn of the dot-com boom, helping an array of commercial real estate companies fortify their online presence and analyze internal software decisions. He now helps agents with technology decisions and marketing through reviewing software and tech for Inman.