With Knock marking three years since its launch, CEO Sean Black revealed the company’s plans for the future — and why he doesn’t consider Knock an iBuyer.
In September 2015, real estate veterans Sean Black, Jamie Glenn and Karan Sakhuja founded Knock with a fairly simple idea: give homeowners a guaranteed offer and then take over the sale of the house. If the company sells it for more within a set period of time, the homeowner gets the difference. If the company loses money, the guaranteed offer is still theirs.
As former founding members of Trulia, Black and Glenn felt confident in the popularity of such a model and they hoped to distinguish themselves from iBuyers by not simply guaranteeing a less-than-market-rate offer but also selling homes for more.
Now that the company is marking its three-year anniversary, the public is more receptive to such a business model. Since transitioning to its full home trade-in model in 2017, Knock has expanded into five markets, including this month in Dallas and Fort Worth, which Black revealed exclusively to Inman. As part of that launch, Knock hired licensed local experts to work with homebuyers in the area, including Adrienne Kieschnick, formerly Redfin’s top-performing agent in Dallas.
“Launching in Dallas-Fort Worth is an exciting milestone for Knock,” Black told Inman, adding that other plans in the works include new predictive analytic tool to help users determine what homes may soon hit the market and an ambitious strategy to go public through an initial public offering by 2020. “As we expand nationally, we’re eager to apply the benefits of our Home Trade-In to different regions of the U.S., where the environment may vary but competition is still fierce.”
With Knock marking three years as a company and two years since its first product hit the market, Inman asked Black to tell us more about how the company’s home trade-in model has been working — and why he doesn’t consider Knock an iBuyer. The interview below has been lightly edited for space and clarity.
How has Knock grown and changed since launching?
We started the company at the end of 2015 but we didn’t actually launch the product until fall of 2016, so it’s been two years. In that time, quite a bit has happened, not just with us but in the market generally. I think one of the biggest things has been evolving from what was originally our list guarantee product into a full trade-in. We focused a lot on helping people sell the home they had, for obvious reasons. That was the biggest problem that no one has ever really solved. But it was clear from the get-go that people also wanted help on the buy side and making the whole process smooth.
That was probably the biggest evolution in building a ton of tech and hiring a lot of talent around both sides of the trade-in. That was probably the biggest change. There’s also a humungous differentiator between us and the iBuyers, of which we don’t consider ourselves a part. We don’t flip homes, we only buy homes for customers we work with to identify a home that they want and then purchase that home and move them into it. And then obviously we’ve grown into the five markets. We started in Atlanta and we were there for our first year and a half, solely, to build the product and the technology and then quickly launched in Charlotte and Raleigh and then Dallas and Fort Worth. We have offices, in some case multiple offices, in each of those cities. Head count has gone up almost 200 percent since we launched.
How has your Trulia background helped with Knock?
When we started Trulia in 2005, the world was quite a different place. Ours was really the only company. I think we have gained a tremendous amount of insight. If you remember, our customer at Trulia was the agent. Our customer here is the consumer. Our users at Trulia were the consumer so we had the luxury of working with both. We learned a lot the hard way at Trulia about how to work with the industry, how the industry works and just the psychology of how people operate. If you think about the fact that there’s over six million homes bought and sold every year but there’s only 180 million buyers every month on Trulia, it tells you a lot about the psyche of people and how they hunt. And all the shows on every other network show you how obsessed people are. There’s just a lot of opportunity when you’re in it that long to really understand how people treat this transaction. It’s the biggest one and it’s also the one they obsess over the most. They buy one [house] while obsessing over whether they got a good deal, and then a couple of years later they start obsessing over the next one. Obviously, it also gives us a lot of credibility as well with investors and the market in general. So that’s super helpful.
Give us some numbers on homes bought or customers served.
So we’re only buying houses for customers with whom we’ve helped shop and identify [desired properties]. We do a whole bunch of things for them in advance. We obviously price your old home and we then help qualify them for a mortgage and all the other things you need to get a new home. That’s a key differentiator between us and the whole home-flipper bucket. We’ve now helped about 2,000 homeowners, so approximately a 5,000 percent increase since we launched on that first end-of-year quarter in 2016. It’s been quite a ride, for sure.
Do you think the increased recognition companies like Offerpad and Opendoor have been receiving has helped your industry?
When we launched in Atlanta in 2016, there wasn’t a heck of a lot going on. I think, at the time, there was only one other player and they were on the other side of the country. I think our biggest challenge, frankly, was inertia. Consumers needed to decide between doing it in a new way, which can be scary, or using the agent that their mother used or their grandmother used. Maybe the agent was their mother! It’s a bit of a battle getting people to try something new. We realized that when the competition came into our market, it would actually help us. They would help educate our market and suddenly people would be deciding between different ways or new ways of buying and selling homes. We clearly think we have the better solution, and much cheaper too. I think it’s tremendously helpful that the market is being educated and consumers are being educated and they know now that they don’t have to settle for a very arcane way of doing things.
Do you see iBuyers as your competition?
Zillow and Trulia are great partners of ours. Their Instant Offers product is not for consumers, it’s for us. We are Premier Agents in Zillow and they make their Instant Offers available to us and we submit our customers’ homes to them for offer. That’s a huge benefit for our customer to have that price for perspective and decide whether or not they want to take that price and let us put it on the market and see if there’s a better price or ultimately fall back on that price. Offerpad and Opendoor, I would technically say that they’re competition. But this market is so big and if you think about all of the incumbent players, Century 21 and Keller Williams and Coldwell Banker and those guys, they have the vast majority of the market share but it’s still very different parts of the market with very different priorities. We give the best of both worlds — we sell your home and we actually fix your home up for you so you get the best price and the most equity out of your home to afford the bigger house. We also move you into that new house before we even list your old house.
How do you use data science and predictive analytics to know which houses will sell and which won’t?
There are a lot for ways we rely on data science. For pricing a home, we built the same kind of AVM that we built at Trulia and Zillow but we went one step further and inspect every house that we price. We have a few hundred data points in which someone goes into a house for 45 minutes to an hour and basically evaluates the home. All those data points look at the algorithm so we can figure out what a marble countertop is worth or whether there’s a difference between granite countertops or white countertops. When you do that for a couple of homes and a community, you actually have a pretty good indicator of a couple of data points that say what is applicable to the neighborhood or the community. As a result, our estimates are tremendously better than a standard estimate.
One of the things we’ll eventually do is start showing people which houses are likely to go on the market in markets like Raleigh and Charlotte where there’s not enough inventory. There are probably sellers looking to jump into this process. We can knock on their door and say, ‘Hey, we know you want to settle soon, how about we give you an offer about the values you can have if you go on the market?’ That’s predicting the likelihood for someone to sell based on a lot of data that we accumulated about the market, the neighborhood and them.
Some markets across the country have low inventory and sales volatility. How have differing market situations helped influence Knock’s predictions?
This is another insight that we gained the hard way. We started Trulia in 2005-2006 and the recession happened a few years later. We had enough data on the site to look at user behavior as an indicator of where we were on the market. We started broadcasting that and being on CNBC and CNN once a week for a market report using not historical data that was unhelpful at the time but using real-time user activity on the website as an indicator of what people were thinking and where the bottom was.
One of the things we realized was that a hundred different real estate markets were all generally going down but some of them, like Arizona or Las Vegas or Miami, were going down dramatically. What we were surprised by was to see markets like Texas and Dallas hadn’t gone down at all, just moved sideways. We studied really hard what were the criteria that insulated them from the whole microeconomic downturn and we came up with 40 different criteria that we thought were critical. The good news is that while there were much fewer markets that modeled that criteria at the time, because millennials are now moving back into cities, there are now 50-55 markets that have that criteria.
So the strategy is different in different markets?
I don’t know if it’s different or if it’ll just tell you where the deals are and how great they are. In general, we can now predict the market as a whole, not just individual homes, and figure out where the market is likely headed, at least for the next several months. I think it helps us, at least at the tactical level, to go into a market like Raleigh or Charlotte, where it is super competitive, and give people a competitive edge. It may help people in softer markets understand how much longer it will take and how much you need to wait in order to do what you want to do.
Who is the typical Knock customer?
Overwhelmingly, they’re families of varying ages. In the South, people get married a lot earlier and a lot younger and have babies a lot younger. Parents usually have jobs, most of them, so when they have to move, they usually have a very finite time to do it. Oftentimes, they also want to upgrade while doing that because the kids are getting bigger, the family is getting bigger. I would say the most common element is that they have a family, that the cost of uncertainty, the cost of a deal not happening or a house not selling is pretty great and they know that going in as opposed to realizing that after the fact when it doesn’t work out.
How has your program for first-time homebuyers has been going?
We started testing that a couple of months ago and we’ve been testing it very lightly. The idea there was something like 70 percent, give or take, of people buying homes every year are also selling their homes. But if you think about the other third of buyers, we’re effectively just doing a trade-in with the first half. The idea was to test for them some product that would allow us, especially in super-competitive markets where there’s a shortage of homes like Raleigh and Charlotte, to be an all-cash buyer for them. We’re trying to figure out if it’s a universal solution for these buyers or if it’s only people in super-competitive markets that need that all-cash offer in order not to lose 3-4 bidding wars. It’s early days, we’re only a few months in and we’re treading lightly to figure out exactly what the customer meeting point is and exactly how much value we can bring to the table above and beyond doing it the traditional way.
What are the high points of your time as a company?
The evolution into the trade-in really came from hard-earned insights — really paying attention to what the customers wanted and how they wanted it and when they wanted it. We’re very culture and mission-driven. Everyone here, we call our employees Knockstars, really believes in and values the impact that they have on people. You hear and see that every day in our reviews and I think it’s pretty rewarding. We’re really proud of our company culture. We’re 100 people in 18 different states — we’re pretty distributed. Having something at the core that brings everybody together and mission-driven and very focused is important. We launched our first TV commercial in January between Christmas and New Year of this year. That was a big deal. We didn’t do that at Trulia until right before we went public and think it was more for Wall Street than it was for the consumer. This is really for the consumer and that was pretty incredible. Obviously, launching new markets is super exciting. And I would say the most important thing is that we’re building a brand. We know we’re building the next big Amazon-type brand for consumers. We’re telling people we’re building that one customer-based story.
What about the challenges?
There’s lots of challenges with growth. When we built Trulia, it was a fundamental shift and a leap forward for buyers because at the time, you were completely dependent on real estate agents for any kind of small bit of information about crime statistics and neighborhoods and schools. Now all that is obviously very available on Trulia and Zillow and on their websites. Back in 2005, in those nine months that you, on average, spent looking for a home, you had to talk to someone to get any bit of information. We’re building an end-to-end transaction platform. This is transactional, right? We have documents and appraisers and home inspectors and home contractors that we’re managing on this platform and so building the product faster than we grow is pretty challenging. I tell the people here that it’s like building the railroad in America. Imagine that you saw 100 miles of track and then you basically started the train on one end and said ‘okay, now you have to build the rest of the track faster than the train is coming at you.’
What are Knock’s plans for the future?
Obviously, we want to launch in more markets and get across the country as soon as possible. In Trulia, we launched in California and then we launched in the rest of the country six months later. This is not the same, we have to go market by market and tuck in all of the contracts and hire people locally. We have an agent network and a contractor network. We want to do that as quickly as possible but also as diligently as possible. We also made it public knowledge that our plan is to go public by 2020 while being in 20 markets if not more by then. We plan to build a big, independent company – there’s currently no one big enough to buy us, thank God. If you think about the size of that transaction, just commissions alone are $80 billion a year, there’s another $14-$15 billion in title insurance and $15-$30 billion in mortgage origination, so you’re at like $108 billion market size, whereas Zillow and Trulia only ever had that $14 billion spent in real estate advertising every year. This is considerably bigger as an opportunity and as a brand. We want to make sure we stay an independent company and build that over the next 20 to 30 years.
What is coming for real estate tech?
What the consumers have going for them is just being used to having on-demand everything, whether it’s a ride in five minutes or having a car dropped in your driveway without dealing with the dealer or having food delivered for you on a bicycle or any other way. I think that has really conditioned people, especially the younger generation, that things should be more transparent and more on-demand. That’s super helpful and I think that’s only going to continue especially as millennials become an increasingly bigger percentage of the homeowners and expect that kind of simplicity. I know we felt it. When we went from Atlanta to Charlotte (which is much younger as a whole), there was almost no skepticism in Charlotte. The resounding reaction was ‘of course this is the way it should work! Where have you been all this time?’ I think this is only going to increase. I’ve said this at Inman Connect in New York but I think that the brands our parents grew up with, Century 21, Coldwell Banker, Keller Williams, none of which have any differentiation or create any certainty, I think are going to slowly get smaller and companies like ours are going to take over and have platforms and create transparency. We’re going to get a lot of the middlemen and the middle costs of the way.