During an ICNY panel, leaders from several startups revealed that consumers have little interest in closing on a home in 24 hours; instead, they want a frictionless transaction.
Court Cunningham, the CEO of iBuyer Orchard (formerly known as Perch), said he makes a point of talking to customers on a weekly basis. And often, he said, these conversations reveal a preference that scrambles some conventional wisdom in the real estate industry.
“People don’t want to move faster,” he said on a panel at Inman Connect New York 2020, titled “The Transaction of the Future.”
Indeed, there is little interest in closing a gigantic transaction in 24 hours, he said. Homebuyers and sellers want to think over big decisions and prepare for life transitions that come with moving, such as sending their kids to a new school.
“This instant closing, I think, is not going to happen,” Cunningham added. “I think people want a couple weeks minimum to close.”
Adena Hefets, the CEO of Divvy Homes, a venture-capital backed startup that blends rent-to-own financing with iBuying, agrees with this idea.
Divvy can purchase a home on behalf of renters in as little as seven days, but evidently that doesn’t matter to Divvy’s customers: “Our customers were like, ‘Eh, I don’t want to close that quickly,'” said Hefets.
What consumers do want, panelists agreed, is a smoother and more seamless transaction.
Orchard tries to pull this off by guaranteeing the sale of a customer’s old home. It will either sell the home on the open market or purchase the property at an agreed-upon price if it can’t find a buyer.
It will also help the same customer find a new home to buy and purchase it on their behalf. The customer rents the home from Orchard until their old home sells. Then, with proceeds from the sale of their old home, the customer buys their new home from Orchard.
In essence, Cunningham said: “We’re providing a bridge loan and liquidity insurance for the standard 6 percent broker fee, and that is, we think, going to drive change.”
FlyHomes offers a similar service. Its CEO, Tushar Garg, described the logic animating such services: “We start from the buyers and say, ‘How do we enable the first-time homebuyers get into the home?'” he said.
Part of facilitating a seamless transaction requires bundling together all ancillary services, including mortgage and title services, panelists said.
To that end, both Flyhomes and Orchard offer such services to their customers, with the goal of wrapping them into seamless end-to-end buying and selling experience.
All the panelists agreed that the ideal transaction experience will also require a human touch. Real estate agents will be needed far into the future, though they will likely either have to provide new value to maintain their commission rates or lower their fees, they said.
“You need technology as backing and of course liquidity and financing side to it,” Tushar said of the moving parts that will augment assistance from agents.
The successful one-stop shops will build trusted brands. Cunningham envisions an evolution similar to what transpired in the auto sales industry.
“There used to be lots of mom and pop [dealers],” he said, but now, CarMax and a few other heavyweights are dominant.
Hefets, the Divvy Homes CEO, also foresees the emergence of companies like hers that empower people to nab the homes that they want to live in, even if they can’t afford to buy them.
“I think iBuying is helpful in that it makes the process really seamless, but in my view, the real issue is, if you want a house you’re going to do whatever it takes to get that house,” she said. “The real issue is: Can you get it, or can you not get it?”
Divvy Homes is offering a way for people who can only rent to snag their dream home. It will buy a home on a renter’s behalf on two primary conditions: The person must sign a three-year lease, and they must agree to purchase the property from Divvy before the lease expires — or skedaddle.
The renter then pays an extra monthly fee on top of market rent. This fee goes into what is essentially a down payment savings account controlled by Divvy. The account is also an equity stake in the home, according to Divvy. And as this stake increases, an amount commensurate with it is deducted from the renter’s rent.
Then, when the renter has enough money and a good enough credit score to qualify for a mortgage, they can put those savings — the equity stake — towards their purchase of the home from Divvy.
The model doesn’t come without risks, however. If the renter breaks their three-year lease, they will lose half of the down payment savings controlled by Divvy. If the renter decides not to buy the home, they receive cash back from Divvy that is commensurate with their equity stake and the home’s current market value.
“There’s sort of a second pillar that’s starting to emerge in the world of startups,” she said. “People who will help you with the transaction … but now we also have people helping you with financing.”