I want to talk to you about new ways to sell homes. Let's not encourage people to sell but just swap instead.
This was some of the news announced recently by a company called Knock in the US.
Not just any company. One that through both equity and debt had raised over $600m. An eye-watering amount of money for a company that has only been operating since 2015, but certainly not uncommon in the US markets, especially during the peak PropTech hysteria of 2015-2017. Sky-high investments at eye-watering valuations were readily available.
It is also another company that is adapting. Now this I am not against at all, even despite the money raised for one particular business model. Times change, business models adapt and this is no different.
This, however, is actually a rather large pivot. Let me explain the importance.
When I advise friends what to do when buying and selling, often I politely suggest they break it all down into key stages.
1/ Sell your house
2/ Rent for a period of time while the dust settles
3/ Buy new house
A look of surprise is often the result. You mean don’t get into a chain? You mean waste money on rent?
Conversations continue but ultimately many have gone down that line and many thank me (obviously it isn’t right for everyone but I still maintain it is an easier way to operate in the UK market).
Therefore imagine my interest in Knock’s shift. They have moved from a more direct iBuyer model (many will know my thoughts on this from my analysis of the sector back in February this year) to that of a more indirect faciliator.
They have launched the Knock Home Swap™ which, in the strictest sense, is purely offering a mortgage product to buy the future home first by way of a bridging loan. It is partnered with the offer of $25,000 to do up the old home. The idea here being to make it look immaculate and ensuring you have the best chance to make top dollar when on the market.
I think this sits nicely in to a narrative I believe will become more and more prevalent in coming months and years. That of the symbiosis between PropTech and FinTech. Clever people who realise that the route to increasing opportunity is in the liquidity of money. Unlock that vault and you unlock the potential for future opportunity.
This stuff doesn’t depend on Dishy Rishi opening the cheque book but other clever people understanding the relationship between the financial services market and the property one. There are distinct crossovers (indeed here are 559 PropTech/FinTech companies that you can start with!) that can be found on both rental and sales sides that could formulate an interesting business.
Perhaps what is more interesting here is again this move to being an indirect facilitator. In this case, Knock are no longer dealing with the end consumer but actually the agent. This is wise on one hand as they shift to a B2B proposition and thus possibly easier to scale, BUT more difficult on the other. Being a “Knock Certified Agent” means your brand is in the hands of others.
Having said that, let's look at revenue, and there is an awful lot to find there to fuel the hopes of those investors.
Firstly, mortgage revenue. There is obviously a lot of revenue there from those product sales. Secondly, the home improvement side. I like this angle, people may see the opportunity here and use their “approved contractor network” to fuel this and take revenue.
Lastly there is the guarantee, back to the roots of the iBuyer, that they will buy the property if it doesn’t sell after six months. No mention of the deal there in the press release but look, interesting. Get the home seller to pay for the repairs and maintenance and then buy it at below market value - not beforehand. Not a chance, no way.
Give them the best chance of selling at the best price they can negotiative as the buyers will not want to keep on paying bridging loan payments. They will have them by the short and curlies...for want of a better term.
I kind of think this is a little bit like being a knight in shining armour, but it falls some way short of the actual rescue. I’m suspicious of the intention here but like the innovation and thought of how to deliver a solution.
I think quite a few may fall for the shininess of the armour...