We’ve heard about the struggle for home ownership in the US over the past year and the numerous factors contributing to this issue including rising home prices and limited housing supply. And yet, home ownership maintains its status as a hallmark of the “American dream” among millennials.
Now, start up businesses are emerging to help millennials overcome financing challenges and fulfill their dreams of home ownership. At The Future of Real Estate Summit, Qualia’s Director of High Growth Accounts, Jamie Kump, sat down with leaders at Homeward and Divvy to discuss how their businesses are shaking up traditional home buying and offering alternative paths toward home ownership.
Brian Ma, cofounder of Divvy offered his perspective on why iBuying, rent-to-own, and other business models are gaining traction now. Tim Heyl, founder and CEO of Homeward, provided his take on how new technology-driven home buying options will empower both consumers and real estate professionals with more efficient and standardized transactional experiences.
New paths to home ownership: iBuying, rent-to-own, and other home financing models
In a traditional residential real estate transaction, a homebuyer finances a home purchase with a mortgage or pays for a home in all cash. Both Divvy and Homeward offer alternatives to traditional financing by providing funds for consumers to make an all-cash offer up front in lieu of a mortgage.
Divvy leverages a “rent-to-own” model that helps consumers build up equity in a home through monthly payments. Homeward’s model helps existing home owners unlock their home equity so they can purchase a new home and move into it before their current home is sold. Both Divvy and Homeward aim to reduce or eliminate the financial challenges prospective homebuyers face and to create liquidity in the marketplace.
Heyl noted that Homeward’s model exists as an alternative to iBuying which similarly aims to unchain existing home owners from their homes as they search for a new home. “As a real estate agent, I saw the iBuyer model starting to make progress,” he said. “[the iBuyer] model is giving certainty and convenience to a homebuyer, but perhaps not in the best way for the consumer or agent.” Heyl noted that innovation at the expense of the real estate agent will ultimately result in an inferior experience for homebuyers — especially in competitive markets where consumers can benefit from the expertise of a real estate agent.
The rise of alternative home purchase models
While Homeward, Divvy, and the iBuying model are not necessarily novel concepts, investors are increasingly turning their attention to these home buying and selling alternatives.
Ma used an anecdote from his time at Zillow 15 years ago to illustrate why he believes now is the time for home buying models like Divvy. During his time at Zillow, the company initially contemplated buying and selling homes; however, Zillow ultimately decided to “go after Google instead of realtors” and become a real estate search website.
“The takeaway here is that the industry was not ready 15 years ago and now it is,” Ma said. He broke down 3 reasons today’s environment is the perfect climate for companies like his.
- “Capital has changed.” According to Ma, after a rise in highly-operational companies like Uber, venture capital firms are more comfortable investing in operational businesses such as those buying and selling homes.
- “A vast amount of data.” Ma noted that there is now an incredible amount of data available to effectively underwrite consumers and make more predictable offers to consumers.
- “The industry is ready.” Ma believes that real estate agents, title companies, and lenders are more willing than ever to adopt new technology because they see a future where technology can help them 10X their roles.
New home purchase models and technology won’t eliminate jobs
Heyl and Ma both believe a digital end-to-end home buying experience is on the horizon; however, they don’t believe technology will fully replace real estate agents or title agents.
“I once made a list of everything a [real estate] agent does in a transaction from beginning to end and then divided that list between things that add value for the consumer and things that just need to be done administratively,” Heyl noted. “If we go about technology development in the right way, we’ll start empowering everyone in the transaction to invest 80% of their time in value-add components and 20% of time in the administrative tasks that currently take up the most time.”
Heyl cautioned that technology that eliminates human touch points completely will not result in an improved home buying experience. Ma agreed noting that home buying is an “emotional purchase” that requires more face-to-face interaction, reassurance, and expertise from title and real estate agents.
The future: a standardized real estate transaction experience?
To wrap up the discussion, Ma and Heyl delivered their predictions for the future of real estate transactions.
Heyl believes a branded, standardized home purchase experience will emerge as focus turns to consumer experience in the real estate transaction. “Right now, there’s no centralized business process from end-to-end,” he noted. “Each real estate agent, lender, and title company has their own process and preferred partners who create an ideal transactional experience together,” Heyl noted. “However, these preferred teams only happen a percentage of the time, and [as a result] there is no reliability or a standardized process.”
Ma agreed noting that in the next few years there will likely be much more collaboration between parties in the real estate ecosystem to create a digital end-to-end experience.
To watch this Future of Real Estate Session click below to access the video of the panel discussion.