Key points:
Buy-before-you-sell companies will give a seller an offer on their current home so they can get approved for financing on the new one.
The CEO of UpEquity said that he sees his company as a “transaction enabler” to help customers and their agents get to the closing table.
“We don't compete with agents,” EasyKnock’s CEO said, adding that his company provides “support tools, not alternatives” to agents.
Imagine a future where a client you're working with can make an offer on a new house without having to worry about it being contingent on the sale of their current home. Instead, they could simply buy and sell and move on their timeline without the stress of juggling multiple deals.
This scenario — where buyer contingencies become a thing of the past — is one that at least a handful of startups are attempting to make the norm.
It's not iBuying: It's buy-before-you-sell. And the CEOs of two companies in the space told Real Estate News that their products can make a buyer's offer more competitive in an already strained housing market.
How sellers can buy first, sell later
The buy-before-you-sell model takes advantage of the equity a consumer already has in their home. In principle, the idea is that a third-party company will make an offer on a seller's existing home at appraised value, which is enough to appease relentless loan underwriters and avoid the dreaded contingency language in their offer.
In practice, each company may have its own approach, fees and terms.
Tim Herman, founder and CEO of Austin-based UpEquity, said the way real estate transactions currently happen "is fundamentally broken" and "far too stressful." Consumers who are trying to buy, sell and move at the same time face three main challenges, Herman said.
"The first problem is most people can't qualify for a loan on their new house until they've sold the old one," he explained. "Number two is most people can't make a down payment on the new house without tapping into the equity of their old home, and traditionally that means selling the old home. And then number three is most people can't afford to make two mortgage payments at the same time."
The solution UpEquity offers, Herman said, is a "guaranteed offer" to purchase a buyer's current house which can be used to help that buyer qualify for a new loan. UpEquity rarely closes on these homes, but will work with clients and their agents to see that the home is sold quickly for "full market value."
The consumer keeps the proceeds, and UpEquity charges a fee equal to 1.9% of the new home value, Herman said, adding that it actually makes economic sense for most customers to pay the fee rather than deal with the hassle and stress of dragging out — and potentially losing — a transaction.
EasyKnock is another company trying to make the sell-buy process easier, and in addition to providing an upfront cash offer for a one-time fee, EasyKnock offers sale-leasebacks. A customer can sell their home to EasyKnock, and then take their time looking for a new home while they continue to rent their current home for up to a year. The homeowner-renter can also buy their house back from EasyKnock if they change their mind.
What's in it for agents?
EasyKnock CEO Jarred Kessler said he views his company as an "inertia breaker to help get more deals for real estate agents."
"This is just another selling tool for them to show that they're on the cutting edge of what's happening in the housing market," Kessler said. "We don't compete with agents. We're presenting support tools, not alternatives to what they do."
While UpEquity typically does not acquire the homes they make offers on, EasyKnock is in the business of buying homes. In addition to paying a commission to an agent on the sell-side of the transaction, Kessler said that EasyKnock also has a referral program. But the main value is in helping agents get more deals done, Kessler said.
Herman echoed the sentiment, saying that he sees UpEquity as a "transaction enabler."
"The number one thing that's in it for agents is that they're going to close more deals, and they're going to get clients that were otherwise stuck on the sideline," he said.
Herman also predicts that the buy-before-you-sell model is the future of real estate transactions.
"We fundamentally believe that this is the way that people are going to buy and sell homes in this country, but it has to make economic sense to people," he explained. "Our view is very clear that we're creating more value than we're charging."
Al LaTrace - October 7, 2023
