Knock: How agents can lean into alternative lending in uncertainty

Craig C. Rowe

4 years ago

Craig C. Rowe; Canva

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This story was updated on Friday, May 26, 2023

Despite a market turbulent with interest rate anxiety and little inventory, alternative mortgage company Knock continues to offer ways for consumers to smooth out the typically rough process of buying a home. They do this by arming real estate agents and mortgage professionals with a bandolier of financial instruments to help evade the common hurdles along the path of relocating, or getting into your first house.

Despite having to layoff nearly half of its employees a year ago, Knock landed a significant round of financing (the same week) to cushion the bumpy ride that the market has taken us on since. The company has used that money to market a couple of enhancements to its list of offerings, centered around Home Swap, a lending product aimed at helping families buy a new home without having to rely on the proceeds from their current home. It’s a bridge loan, in short.

Buyers can use it to make an offer free of financing contingencies, as well as take advantage of a bridge loan to spruce up their existing home before staking a sign in the yard.

Knock GO is a cash-buyer program, or something akin to it. It’s a mortgage product that gives Knock buyers the advantage of offering on a home with the confidence of full approval.

Knock Nest, which allowed homeowners to sell their home to Knock and receive an all-cash offer with a long-term lease and repurchase option, has been discontinued.

The company has also developed a training program so real estate agents can help guide clients through the process, called Knock Certification. The following goes deeper into what the company and its clever lending topics can offer real estate agents and the mortgage partners with which they work.

Knock at a glance

Knock entered the market in 2015 with a service called Home Trade-In. Clients would search the open market and upon finding a home, engage Knock to secure it using a cash offer on their behalf.

Meanwhile, Knock would also buy the home the client is leaving, which it then prepares to put back on the market. Finally, the consumer would refinance the new home, thus buying it from Knock.

For lack of a better definition, this effective but arguably convoluted approach put Knock square in the middle of the iBuyer segment. IBuying has proven popular with sellers needing quick alternatives, but it’s a business model that even Zillow has proven works better as a lead generator than a revenue generator.

In the summer of 2020, Knock landed on what it called, “a ‘perfected’ version of the home trade-in concept,” the product that has accelerated its progress into major U.S. markets: Knock Home Swap.

Knock is now a mortgage provider, and instead of being at the center of the deal as the buyer, the company leverages local agents’ expertise to help sellers become buyers.

In an interview with Inman, CEO and co-founder Sean Black said the new model was on their roadmap. “We’ve always had the plan to make this one integrated solution for people buying and selling at the same time,” he said.

Black said that Knock used its early model to better understand the consumer mindset toward homebuying. It wrapped that data around a financing product to create a new way to buy a home.

Home Swap pre-approves clients for a traditional mortgage for a new home at competitive market rates, allowing them to shop the market with the confidence of a cash offer.

And if needed, the Home Swap Loan provides down payment funds, premarket home preparation and up to six months of mortgage coverage on the home being sold as part of a $650,000 interest-free bridge loan. Knock’s Concierge Team tackles the work needed to sell.

The seller reconciles all outstanding loan costs with Knock upon the sale of the previous home.

Its down payment services are also of great importance to the industry. A December 2020 study by RealtyHop showed that it takes years for a typical buyer to save money for a down payment; in some major cities, it takes more than a decade. Having cash on hand is a major hurdle to getting more buyers into the market.

Home Swap customers can also get a cash advance based on their equity in their existing home. Knock said this can be used by homebuyers to buy down their mortgage rate or make a bigger down payment on their next home purchase.

However, the ultimate difference with Home Swap is the agent. Knock helps agents remain tethered to the homeowner from sale to purchase, at no point being marginalized or devalued in the transaction.

Home Swap solves the long-standing industry dilemma of homeowner dependence on equity for their next move. It’s broken open the billions of dollars housed in America’s paid-down mortgages, essentially creating a new source of capital for the real estate industry.

However, should a buyer be new to the market without a home to leverage a Home Swap, Knock created GO, or “Guaranteed Offer.”

Knock GO is a “cash-like” conventional mortgage product that allows buyers to write an offer on a home without including a financing contingency, thus assuring all parties of closing at the agreed-upon date.

Additional resources

Executing a Home Swap

Home Swap starts with how it would be for most homebuyers: working with an agent to find a home.

As is the case across the country, and in most of Knock’s markets, there is not a lot of inventory within reach of most home shoppers. The benefit of homeownership doesn’t mean it’s easy to access cash to move, especially when so much net worth is tied to a home’s value.

Even in moderate and uncertain markets, the best offers are free of contingencies, have down payment cash ready, offer short close dates and have favorable inspection requirements.

In each of its 76 active markets, Knock partners with brokerages and individual agents to certify them to lead clients through the process. From there, it’s business as usual: Help your client get prequalified through Knock while surveying the open market.

Home Swap gives agents the advantage of working with a buyer who is financially ready to go, backed by a dependable financial entity. Offers can be submitted non-contingent on the sale of the previous home, further cleansing the offer of contractual hindrances.

While Knock is a mortgage company, it has built software to better how it operates and further differentiate itself from its plodding Wall Street competition.

Both the agent and client can interact using Backyard and Frontyard, respectively, the names given to the user interfaces developed to manage Home Swaps.

Accessible through a browser and the company’s companion app, the CRM-like system allows agents to manage their Knock certification and submit homes for Knock to consider financing.

The software facilitates agent training and testing, and agents also use it to keep track of leads Knock sends them, which come from consumers inquiring about services on their website. Each lead record has the owner’s details, and then properties are verified through Knock’s local MLS relationships.

Knock’s average customer has a FICO score of 620 or higher, not overly stringent. The company also prefers those with at least 30 percent equity in their home.

Know that Knock doesn’t blindly agree to back every submitted home. Like all lenders, a home needs to meet market-acceptable standards. Title issues, severe mechanical deficiencies and other detriments to a smooth sale will likely not meet financing requirements. This is also because Knock does not service its loans, instead selling them on the secondary market.

Accepted properties are approved for a home visit and surface-level inspection. Given each market’s status with the pandemic, the walkthrough might be handled by the seller.

Images and details are uploaded to Backyard, typically on the app, and include agent comments on conditions and regional market data. The ensuing report returned by Knock will contain its interpretation of value and expected list price.

Frontyard users can track the progress of their buying and selling, contact their agents, and remain connected to any repairs and market prep being conducted on their homes.

Knock offers a loan for up to $35,000 to help get a home market-ready. Its Knock Concierge service vets and oversees local contractors and manages the ins and outs of the process, which can include general staging, minor repairs, or even more extensive HVAC and major system issues. Sellers and agents can use their own contractors as well.

Any loan amount for market prep is paid back to Knock upon the home’s sale. Should it not sell right away, Knock can cover the home’s mortgage for up to six months, and provide a backup offer should it not sell in that time. The company states that 90 percent of its listings sell within 90 days or less.

In North Carolina’s Triangle region, consisting of Knock cities Raleigh and Durham, TriangleMLS reports that the average number of days on market for December 2020 was 20. In Orlando, another Knock market, Redfin reports median days on market as 22.

Zillow’s research shows that the national average for days on the market is 22. Thus, most Knock clients can expect to pay back less than a month of mortgage to Knock.

At the closing of the new home, buyers pay 2.0 percent feed based on the estimated list price of your old house, similar to loan origination. At no time are agents charged any fee for working with Knock. All commissions earned are between you, your broker and any cooperating agents.

Additional resources

Home Prep and Marketability Allowance

In early 2023, Knock increased the allowance it provides clients from $25,000 to $35,000.

Home Prep and Marketability Allowance is an interest-free bridge loan with a six-month term. It’s a component of the company’s Home Swap model, which allows sellers working with Knock to prepare their home for market through basic repairs, small finish upgrades, painting and other items buyers look for in a home.

The aptly-named allowance is designed to help sellers do what’s needed to ensure their home is as market-ready as possible before your Knock agent starts advertising. While taking the loan isn’t a requirement for participating in a Home Swap, it helps that the funds for fixing things up come from the same source and are managed under the same team. It’s also cleaner than leveraging a HELOC or other traditional mortgage-backed financial instrument to replace some old counters or touch-up a primary bathroom.

Sellers can use their own contractor, do it themselves or work with a Knock Home Consultant to guide the work needing to be done.

While it’s long-proven no enjoys a home improvement project, the advantage here is that with a Home Swap, sellers are not in the home when the work is being done, offering a tremendous respite from a process that can only exacerbate the problems with moving.

The industry has found that there are a number of ways to make a house show better and sell for more. A study by NAR, The 2022 Remodeling Impact Report, noted that Americans spent $420 billion in 2020 on home remodeling. A few projects noted for providing the best return include, installing hardwood floors, converting unused space into living areas, replacing or adding insulation and complete kitchen renovations. Of course, kitchens are costly.

While staging is common for sellers, it won’t always produce the dollar-for-dollar return that even some small physical improvements will. In fact, a number of companies have emerged to assist sellers with that very thing, such as Revive and Curbio.

Eano is another such company in business to help make home renovations easier to handle and more transparent, serving as a tech-forward intermediary between construction professionals and homeowners.

Plunk, a company similar to Revive, helps sellers weigh home project costs against nearby comps and fluctuating market data.

In the end, if improvements don’t do the trick, Knock buys the home from your seller, using its Knock Purchase Offer.

Additional resources

Home Swap Equity Advance

Knock will now work with any lender or agent to help homeowners leverage the equity in their existing home to buy before they sell, not just its existing clients.

Homebuyers can use the Knock Home Swap Equity Advance in conjunction with a purchase loan from any lender to make a non-contingent offer when buying their next home. Or, the equity advance can be used to buy down their mortgage rate or make a down payment on their next home.

A non-contingent offer is required for the Home Swap Equity Advance. If the borrower already has one in hand, they’ll be assessed a 4 percent origination fee for their equity advance. A $35,000 equity advance — the maximum that can be applied to home prep costs — would have a $1,400 origination fee.

The Knock Home Swap Equity Advance loan was originally introduced to help Home Swap clients prepare their existing home for market by making basic repairs, small finish upgrades, painting and other prep to help generate better offers and a faster sale.

Sellers still have that option, but can now work with any agent or finance their purchase with virtually any lender.

The Knock Home Swap Equity Advance can be combined with most conventional and jumbo purchase loans, but not FHA and VA-backed mortgages.

Homebuyers who want to finance their purchase with Knock and use their equity to buy down their interest rate also have that option.

Additional resources

Knock certification

In every market Knock enters, it looks to partner with agents to help facilitate its services.

As with every type of industry certification, the goal is to help broaden the agent’s skill set. Certifications help support a personal brand and demonstrate a commitment to ongoing professional improvement.

Knock certification, which is free, can be a lead source for agents. The company’s growth relies on consumer education and outreach to homeowners, so it’ll have only more marketing power as its model catches on around the country.

This will result in a steady stream of direct contact from homeowners looking to leverage their products. The company has a proven marketing action plan for every market it enters, and that can result in new business for agents who pursue partnerships with them.

Another advantage to Knock certification is the rare opportunity to earn commission as both listing and buyer’s agent. It’s even rarer for it to happen in such a short period of time.

As agents can attest to, most client relationships end after the client buys the home. The percentage of sellers who use the same agent they worked with to buy their home doesn’t need to be repeated for this argument for certification to have an impact.

Unlike other alternative homebuying services — namely iBuying — Knock has no intention of removing the agent from the transaction. In fact, the two most popular platforms in that milieu have recently backtracked to launch new services that involve agents, clearly recognizing that their in-house teams and business workflows can’t replicate an experienced licensee.

With Knock, commissions remain intact as they would in any other deal, according to contracts and negotiations between brokers and cooperating agents. Knock does charge its homeowners a 1.25 percent convenience fee, comparable to a loan origination fee.

It would be reasonable for a deal-savvy seller to approach their agent about a reduced fee given the added benefit of receiving splits from both ends of the transaction. Handle that as you would any other request for a discount.

Becoming certified to pitch and facilitate a Home Swap is quite painless, requiring a simple online training session with members of the Knock team. It usually takes a couple of hours at most and is designed to make agents comfortable discussing the program. However, Knock representatives are on hand to assist if necessary.

Gigi Olivo with YourGoTeam at JP and Associates McKinney is Knock-certified and recently helped a client through a Home Swap. “It was a learning curve for us both at first,” she said. “Knock’s customer experience manager and staff helped my clients and I navigate the transaction.” Olivo is always seeking innovative ways to serve her clients, she explained.

“In the Dallas metroplex, we are experiencing very low inventory and high demand. Many times this gets us into a multi-offer situation,” she said. “Knock allows us the opportunity to submit a strong offer without contingencies, it puts us in a better position to win.”

Once certified, Knock provides agents with an array of marketing materials, from traditional door hangers and print-ready, tri-fold brochures to social media content and an email badge.

Live training programs are available regularly on Knock’s website and take under two hours to complete. For some partners, Knock offers recorded sessions to complete when time allows. Passing participants are given a digital badge to promote the official designation.

Knock looks to partner with prominent brokerages in each market to offer certification at volume, working directly with the broker-owner to best coordinate training.

In an October 2020 article for Inman, CEO Sean Black posited that Knock represents another example of the industry’s progress.

“Looking to 2021 and beyond, it’s the most nimble and tech-savvy real estate agent who will not only survive this new tech-centric world but thrive in it,” he wrote. “It’s up to agents to decide if they are part of the last generation or the next one by succumbing to technology and change or embracing it.”

Additional resources

Knock GO

Knock GO appeared in the middle of the pandemic market, a time when mass-relocation trends fueled by remote work policies and lifestyle-driven entrepreneurs pushed real estate prices to crazy highs and made cash buying common. Suddenly, needing a mortgage was a detriment, a massive shift from a time when merely qualifying for a mortgage made a buyer the likely winner.

Knock GO, or “Guaranteed Offer,” is a cash-buying program. Buyers can bid on a home without a financing contingency. This means, in most cases, that a seller can accept an offer without worrying about lending hassles jeopardizing closing. It also provides appraisal gap protection, agreeing to fund the purchase via buyer credit (for up to 100 percent of closing costs) should an appraiser disagree with the contract price.

The product is available in every market where a Home Swap can be used.

Buyers will need to be fully qualified, and Knock GO requires the closing date to be set no less than 30 days from the contract date.

Cash buying will allow homebuyers an even greater advantage as interest rate jumps and the general feel of the market nudges would-be buyers onto the waitlist. Not only will cash buyers have negotiating power, they’re going to attract the attention of buyer agents scrapping for leads in a market hard to define. Historically, real estate market cool-downs coincide with recessions, not deliberate federal efforts to stave off rapid economic growth. Thus, home values aren’t dropping at the same rate (they are declining) because sellers are flooding the market with inventory.

Knock-certified agents can use GO to make clients more competitive and offer it as a trendy way to avoid the hassles of traditional, brick-and-mortar lenders. Still, buyers do need to be qualified, it’s not an automatic, but it is a great deal more simple.

Additional resources

Have a technology product you would like to discuss? Email Craig Rowe

Craig C. Rowe started in commercial real estate at the dawn of the dot-com boom, helping an array of commercial real estate companies fortify their online presence and analyze internal software decisions. He now helps agents with technology decisions and marketing through reviewing software and tech for Inman.

Table of Contents:

Knock at a glance

Executing a Home Swap

Home Prep and Marketability Allowance

Home Swap Equity Advance

Knock certification

Additional resources

Knock GO