Innovations In Lending: One-On-One With Knock CEO Sean Black

The FinTech company Knock is partnering with lenders and real estate agents to offer homeowners a chance to leverage the equity in their property so they can buy another house before selling their current one.

Based on the amount of equity in their property, a homeowner can use a Knock Home Swap Equity Advance loan for an up to 30% down payment, to buy down the mortgage rate, and to cover closing costs on their new house.

They can also use that equity to cover up to $35,000 in renovations and to pay up to six months of mortgage payments on their current property, according to a press release.

Knock was founded by CEO Sean Black, COO Jamie Glenn, and Chief Labs Officer Karan Sakhuja. Black and Glenn were founding team members of the online real estate marketplace Trulia before starting Knock in 2015.

Black recently sat down with Editor Kimberley Haas to talk about what Knock is offering and how lenders, agents, and customers are reacting.

Haas: Sean, maybe you could tell us a little bit about Knock, what you do in the FinTech space, and how you would explain your organization to somebody if you were to meet them for the first time.

Black: We’re most known for the Knock Home Swap. We allow and empower people to buy their new homes before they sell their old ones.

So, fun fact, there are six million, give or take, homes sold every year – although this year there may be a little less – but two-thirds, on average, of people who are buying homes have to sell and often need the money they have out of the one they’re in to buy the next one.

We make that all go away. I’d sort of liken it to, we’re your rich uncle, we give you all the money you need to go buy your new house. And then, only then, list your old home knowing exactly how much it’s worth, having borrowed the money that you need from it, and getting the help you need to put it on the market with your agent to sell it for top dollar. Certainty and cost savings are what we provide.

Haas: How does that work? I mean, how do you do the paperwork to have that happen?

Black: Yeah, so we’re a bit unique. We have evolved over the years but we are a licensed lender.

We can give you a mortgage and close on it and let you move in before any other lender because we use data science and technology to figure out how much your old house is worth and lend you the money that you have in it, the equity that you have in it, so that you can make the down payment on the new home.

Once you’re out, you can fix up the old home, you can use our contractors, or yours, or your agent’s. We pay them as you as the work is done so you don’t have to go out of pocket.

We make the mortgage payments on the old home for you for as long as the house is on the market interest free. And that allows us to close immediately because Freddie and Fannie don’t look at the old home as a part of your debt-to-income ratio. They know that we’re there. We provide a backup offer on the old home in the event that it doesn’t sell on the open market after six months.

So we give you a combination of your new mortgage that’s typically for 30% of the new home and then we give you the difference in the money in your existing home so that you’re able to move immediately, put your house on the market and get it fixed up without you being in it.

Haas: As you know, Sean, we got a press release and it talks about being available to all lenders and agents. What’s new with this press release? How are you explaining it to the public and your investors?

Black: We have a network of something like 130,000 agents across the country and we work in 75 markets. They have always come to us as a lender. They are the ones shepherding their clients through the transaction and the vast majority of our customers come through their agent.

We sometimes send the agents some of our direct consumers. But the big difference and the big feedback we got from the agent was, “Hey, this is great. It’s amazing, it’s competitive. I also have this lender I’ve done business with forever, and we sort of pass referrals back and forth to each other. I would rather not have to make the choice between one or the other.”

We allow them to effectively bring their own lender to the equation.

The lender that they bring would do whatever they would otherwise do for a 30-year fixed mortgage and we take care of the rest. We still provide the equity advance.

Haas: How many lenders does this open you up to? As you said, you are working with about 130,000 agents in 75 markets. What’s your projection opening this up to how much bigger will your potential market pool be?

Black: We had started this as a quiet pilot with a large national lender that has 3,000 loan officers. We worked the kinks out with them on how they could do it and offer it to their customers.

Those loan officers have their own relationships with agents. It was an easy way for us to collaborate with them. And then we said, “Hey, wait, we might as well just give this to any lender.”

This opens us up to any conventional lender that can originate a conventional conforming or jumbo loan because they really don’t have to do anything special.

Haas: What has the reaction been from lenders that maybe you haven’t worked with in the past when they see this product?

Black: The response really has been overwhelming. More so from the agents who loved what we did, but also loved the lender they’ve been working with and they get the best of both worlds.

I think the lenders are looking for anything to help get their customers off the fence, the agents are looking for anything to get their customers off the fence, and the customers are looking for anything to make moving more affordable.

Haas: Right. You just mentioned the consumer. What’s the overall benefit to the consumer with this new product and what’s the reaction been by those that use you?

Black: The product is the same that we’ve been offering. We’ve been around since 2015 and we’ve had some version of Home Swap.

It used to be called a trade-in and it’s gotten better and lighter and less friction full. This is another example where we’re just removing the obstacles from the consumer.

So look, the best of all worlds for a consumer is they go find the home they want, they’re happy about it, they are able to make a competitive offer and move in without having to wait three months to see if their home sells.

The cost is nominal. You’re going to get your new mortgage at a competitive rate because you’re going to shop around. Everybody does.

The only cost for doing it this way is 2% of the old home value to facilitate the loan that we’re giving you. It comes out of the proceeds of your home when you sell it.

To qualify for the Knock Home Swap Equity Advance the home for sale must be located in one of the 75 markets in which the company operates.

A map shows that Knock operates in the Southeast, Texas, the Great Lakes region, and on the West Coast. The new home can be located anywhere in the country.

According to the press release, the Knock Home Swap Equity Advance can be paired with most conventional and jumbo mortgages with the exception of FHA and VA home loans.

Knock has raised $900 million in debt and equity from investors, including Foundry Group, Greycroft, RRE, Parker89, and The National Association of Realtors. NAR’s 1.5 million members can market Knock’s homeownership solutions to their clients, according to the press release.

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