Startup Knock Bets Homebuying Can Be More Like Trading in a Car

(Bloomberg) -- Knock, a startup seeking to simplify the house-buying process by making it more like purchasing a car, raised $400 million in equity and debt as it seeks to double the number of U.S. markets it operates in.

The company, which currently operates in five cities, uses cash to acquire homes on behalf of regular buyers, who agree to buy the property from Knock once they are able to sell their existing house. The model is similar to how car dealers let buyers trade-in old rides as part of the transaction, Chief Executive Officer Sean Black said in an interview.

Knock isn’t the only startup trying to popularize the idea of trading in a home. Opendoor, which has raised billions of dollars for its algorithmic approach to flipping homes, has partnered with homebuilders to buy houses from people moving into new construction. Offerpad and Perch, two other startups with similar strategies, also tout trade-in programs.

Knock is different from those companies, functioning as a combination of a real estate agent and a short-term lender. It buys homes on behalf of its customers and also handles the sale of their customers’ old homes, profiting by collecting agent commissions on both transactions. It launched its service in Atlanta in 2016, and bought and sold homes for more than 2,000 customers last year.

The new fundraising round, led by Boulder, Colorado-based Foundry Group, comes at a time when a slowdown in housing is providing a new test for Knock’s proposition. Tight supply pressures buyers to move fast and marshal cash offers -- giving them a reason to choose services like Knock. Black said his company offers value in a slower market because it takes responsibility for selling the home that a customer is moving out of.

“I need the money out of my existing home to buy a new home, and I have to commit on buying the new home before I can list my old home, unless I want to sell it first and be homeless,” he said. “There’s a whole liquidity issue and chicken-and-egg problem that we’re solving.”

©2019 Bloomberg L.P.