In 2019, home sales remained relatively stagnant, even as unemployment figures and  interest rates dropped. 2019 housing figures appear puzzling on a surface level and may lead one to assume that millennials and Gen Xers are simply “not  interested” in home ownership. 

Real estate search trends and survey data, however, reveal that the American dream for home ownership is not dead, just suppressed. Mounting student debt coupled with reduced inventory for affordable housing has limited many prospective home buyers from affording the initial down payment investment. 

And that’s where Unison (and similar businesses) come into play. They are shaking up traditional home ownership models by providing down payment assistance for home buyers and offering new ways for existing homeowners to unlock home equity. 

Unison, a San Francisco-based real estate company, offers homebuyers funds for a down payment in exchange for a percentage of their home’s future appreciation. Additionally, Unison helps existing homeowners tap into their home equity (again, for a portion of their home’s future appreciation).  Unison calls their model “home co-investing” and since inception, the company has invested in real estate totaling more than $4.2 billion in value. 

Qualia CEO, Nate Baker, sat down with Unison’s VP of Research, Brodie Gay, to discuss Unison’s business and how homeowners benefit from the shared appreciation model. The chat is part of Qualia’s Executive Insight Series, which invites influential executives to sit down and talk about changes and trends impacting the real estate industry. 

Qualia CEO talks to Unison’s VP of Research about home co-investing

Understanding home co-investing 

Brodie noted that people have long-invested an “incredible amount of money” (often more than their net worth) in homes. Unison’s shared appreciation and partial ownership model (or what they refer to as “co-investing”)  help homebuyers purchase a home without putting all of their net worth into a single asset. 

 “Imagine you walk into your financial advisor’s office and they tell you they are going to take all of your money and then lend you ten times that amount and put it all in one stock,” Brodie said, “You’d immediately lose respect for this advisor, yet that’s what many homebuyers are doing… What Unison does is take some of the chips off the table.” 

Unison provides funds upfront in exchange for a share in the future appreciation of the home. Unison’s model works like this:

  • A homebuyer sets their sights on a $1 million home
  • A homebuyer requests $100,000 from Unison to bridge the down payment affordability gap while maintaining their ability to diversify their funds
  • Unison provides the $100,000 and forms a contract that Unison will share in 40% in the change in value (appreciation or depreciation) 
  • Sometime later, for example, 5 years later, if the homebuyer sells the home they review the change in value. For example, it may increase 10% in value. 
  • The homebuyer returns the $100,000 to Unison plus provides an additional $40,000 (the 40% of the property’s increase in value).

Unison’s down payment assistance product is just a small portion of their business. According to Brodie, nearly 90% of Unison’s business is devoted to helping existing homeowners free up frozen equity to purchase a new investment. With a similar model, homeowners can unlock their home’s equity in exchange for a portion of the appreciation when they sell their homes. 

How Unison predicts home value with data

Nate and Brodie next discussed Unison’s approach to home price modeling at length. Unison’s property-level data allow analysts to create sophisticated models that help Unison price their offers to homebuyers and homeowners.

“We try not to look at the world as cities,” Brodie noted. “We look at each home individually and what is around that home. For example, how many jobs are around the home? From there we can determine if homes surrounded by higher wage jobs, for example, perform better than homes in rural areas.” 

Brodie and his team also use what he calls “historical simulation” to determine how Unison contracts created in the 90s, for example, would fare today. These data sets also inform Unisons pricing models. 

Lastly, Unison does on-the-ground appraisal work and image capturing to determine home values. The company also targets a specific audience of homebuyers and owners who will stay in their home for at least 3 years to avoid clients who may be home flippers. 

Exploring the future of homeownership 

To wrap up the conversation, Nate and Brodie discussed changing sentiments around home ownership. Brodie noted that he doesn’t believe it will be a notion of “owners” versus “renters” but rather a move toward rent-to-own models or partial ownership models like Unison, Patch Homes, and others that bridge the current gaps toward ownership. 

“Historically, debt markets emerge before equity markets,” Brodie said of the current mortgage-dominated landscape. “It takes a lot more regulation to make equity investments. We needed technology and better systems to make equity markets more developed.” 

To listen to the entire conversation between Brodie and Nate, watch the video below.