A different twist on the iBuyer model that doesn’t force owners to sell at below market.
Homeward, an Austin-based real estate startup that aims to help people buy homes faster, announced this morning that it has secured $105 million in funding.
The 18-month-old startup raised $20 million in equity in a round led by Adams Street Partners that included participation from Javelin Venture Partners and existing backer LiveOak Venture Partners. Homeward also closed on $85 million in debt financing from multiple unnamed institutional lenders.
The announcement comes just 10 months after the company raised $4 million in equity funding and $21 million in debt funding.
CEO Tim Heyl founded Homeward in late 2018 after having worked in the industry for the previous decade, first as a broker then as the owner of a title company. During that time, he said he saw firsthand many of the problems in the industry. One conundrum he frequently ran into was people not wanting to make an offer on a home without knowing for sure their current house would sell in a certain amount of time.
To address that, a number of companies in the “iBuyer” market such as Opendoor and Offerpad will buy homes, usually at a discounted rate, to give sellers the freedom to move on quickly. But Homeward is tackling the problem from another angle.
Homeward will make an all-cash offer on behalf of a customer wanting to buy a house. Meanwhile, that customer can hire an agent to list their home without feeling pressured to sell it in a certain amount of time or at a discounted price. Once Homeward buys a home, it will lease the property back to its customer until they sell their house, get a mortgage, and can buy the property back from Homeward. During the process, Homeward offers a predetermined guaranteed price for its customer’s home with the promise that if it’s unable to sell the house for at least that amount, it’ll buy the house from them.
Heyl believes Homeward’s “alternative iBuyer” model is a better deal for customers since it doesn’t purchase a customer’s old home for below market value.
“We allow them to make a cash offer on their new home, so they can move on their timeline and sell their existing home for its full value,” he told Crunchbase News.
Heyl also said the downside of the traditional iBuyer model is that “customers leave a ton of equity on the table.”
“It’s similar to trading in your car,” Heyl told Crunchbase News at the time of Homeward’s last raise. “With a car, leaving 5 (percent) to 10 percent on the table might be worth it for the convenience. However, losing tens of thousands of dollars of equity in a house is a bigger deal.”
While Homeward’s model sounds similar to the one being operated by Knock, which in 2019 raised a $400 million Series B, Heyl said the difference is that Homeward “is an open platform that agents can leverage with their customers rather than competing against agents as Knock does.” For example, agents can register their clients on the Homeward site. As an agent himself, Heyl said he was tired of new players trying to cut agents out, so when forming Homeward, his goal was “to overhaul the transaction process” by partnering with agents.
Homeward gives homebuyers credit for their home equity upfront so they can make an all-cash offer on another home using the company’s funds. Buyers can then rent their new home from Homeward for up to six months while they finish selling their existing home. As mentioned above, as soon as their old home sells, they can buy their new one back from Homeward at the original price, plus a 2 percent to 3 percent convenience fee.
Heyl claims his company’s service pays for itself in the discounts it can bring and by making its offer more likely to be accepted.
Even during the COVID-19 pandemic, Heyl said that Homeward has continued to see “strong customer and agent demand” for its offering.
“Housing inventory is low right now, and customers are using our cash offer to beat out other bidders,” he said.
Homeward has trained over 1,000 new agent partners via its webinars since the COVID-related quarantines went in place, according to Heyl.
Prior to the pandemic, Homeward saw its closed transactions surge by 10 times in the 12-month period ending in February.
Homeward is profitable on a per unit basis if you count transaction revenue minus costs to acquire and complete each transaction, according to Heyl. However, it is not yet profitable on a net income basis.
“We continue to keep variable costs and overhead reasonable while increasing our margins,” he said.
Meanwhile, Homeward has 33 employees, up from fewer than 10 a year ago. The company will be “growing the team significantly” with the new financing, according to Heyl. It also will be able to purchase more homes for its customers and “expand its agent partnerships.”
Currently, Homeward operates in Texas, Colorado and Georgia. Its ultimate goal is to open its offering to agents nationwide.
As part of the financing, Adams Street Ventures Managing Partner Jeffrey Diehl will be joining Homeward’s board.
In a statement, Diehl said his firm is being “very selective” at the moment.
“But Homeward stood out,” he added. “The company’s growth is impressive, the leaders have deep industry experience, and their traction with agent partners has been much better than expected.”
Also participating in the round is Jed Katz, managing director of Javelin Venture Partners. A founder of Move.com (which was acquired by NewsCorp), Katz also has real estate industry experience.
“Homeward solves a major pain point for Realtors and their clients by making offers more competitive and home sales more certain,” he said in a statement, adding that Homeward is “well positioned to scale in a way the industry and the capital markets will embrace.”
Illustration: Dom Guzman