Knock — a tech startup that promises to sell a home within six weeks or buy the property for market value — has raised $32.5 million in a Series A funding round.
Knock currently only operates in Atlanta, but it plans to expand to other markets later this year. The startup is on pace to close 350 transactions in 2017, according to Knock CEO Sean Black.
What’s new about Knock
Knock puts its own spin on the property-exchange model by first trying to sell a property on behalf of a seller. It lists the property as a brokerage, charging a 6 percent commission if the property sells.
But if the startup can’t find a buyer within six weeks, Knock purchases the property itself at a guaranteed price, which is typically the same as the home’s list price, Black said.
“The value prop is basically to put our money where our mouth is…” he said.
For years, some agents have offered to buy a client’s home at a discount if they can’t find a buyer. The difference with Knock is that the company promises to pay full market value.
This claim, also made by Opendoor, may elicit skepticism.
But Knock has found a compelling way to back it up: if Knock purchases a home and sells it for more than the guaranteed price within a year, the company will hand over 90 percent of the difference to the seller.
The other 10 percent covers transaction costs. Knock doesn’t pocket any money for selling a home it buys for more than its guaranteed price, Black said.
Black said Knock has”unlimited access” to capital for buying properties. Knock takes on enough equity in any properties it buys to virtually eliminate risk for the provider of those funds, according to Black.
Knock vs. Opendoor — or not?
Black argues that Knock should appeal to a much larger segment of homeowners than Opendoor, going so far as to claim that Opendoor isn’t even a competitor.
He says Knock charges a fee that’s comparable to a traditional commission and fetches top dollar for homes. But Opendoor, he contends, tends to buy at a discount (a claim Opendoor would dispute) and charges a higher fee.
Unlike Opendoor, which has raised $720 million in debt and equity so far, Knock doesn’t let sellers choose an exact closing date. But it offers a certain and relatively quick sale, and, Black says, nets sellers considerably more than they would by selling to Opendoor.
“We’re trying to address the entire market who frankly needs the equity out of the home to pay for the next home,” he said.
Guaranteed price and streamlined technology
Sellers can obtain a guaranteed price from Knock in two ways: either by answering a questionnaire and uploading photos or by agreeing to a property inspection by a third-party home inspector.
Those who use the first option receive a guaranteed price online, while homeowners who use the second option receive one after the inspection.
Knock will never change its guaranteed price — regardless of whether the offer is made online or post-inspection — provided that an inspection doesn’t uncover a major defect and that the seller agrees to certain repairs.
Knock will arrange and pay for any repairs upfront, typically not spending more than $5,000 to $10,000. Repair costs are then deducted from the proceeds of the future sale.
The startup also uses technology to “streamline the logistics of showing the home, arranging paperwork and coordinating the closing online,” Knock said in a press release.
Knock almost always finds a buyer for clients, according to Black. Although he wouldn’t share how many transactions Knock has under its belt, he did say that startup has only had to pay rebates to sellers twice.
Part of why Knock can deliver is that — if a buyer can’t close on a mortgage before the six-week deadline elapses — Knock will buy the home for the contracted sales price.
As the home’s new owner, Knock will then sell the property to the buyer for that price as soon as the buyer closes on a mortgage.
Knock’s funding round was led by RRE Ventures, with “investors and advisors” from Redpoint, Greycroft, Correlation Ventures, Great Oaks Venture Capital, FJ Labs and Corazon Capital also participating.
Black noted that an SEC filing for the round only shows a “first close” of $12.2 million, but that the $32.5 million round announced by Knock is “oversubscribed” and has concluded.
Editor’s note: This story has been updated with additional information from Knock.