Knock, an innovative lender that helps homeowners buy a new home before selling their old one, has entered the Southern California market, the company announced Thursday, March 4.
The New York-based company said it launched operations in Los Angeles last week, then opened in seven additional areas from Bakersfield to San Diego this week.
Knock is now operating in 25 markets in seven states. It plans to reach 75 markets by 2023. Knock’s new operations are the first for the Golden State.
The rapid expansion comes after raising more than $600 million in debt and equity from investors like RRE Ventures and the Foundry Group.
The five-year-old home-finance firm has been lumped in with innovative real estate startups like iBuyers, which buy homes directly from sellers. Like iBuyers, Knock seeks to streamline the home selling process for a fee.
But Knock only buys the home if the property doesn’t sell within six months.
Initially, Knock would buy the customers’ new home, then sell it to the customer after they sold their original home.
The company shifted its financing strategy in July, however, creating its Home Swap program. First, Knock pre-approves the clients’ mortgage for a new home. Then it offers a second, interest-free bridge loan for up to $250,000 to finance the down payment on the new home and up to $25,000 for repairs to the old home. The bridge loan also can be used to cover the old home’s mortgage for six months.
The bridge loan — backed by equity in the old home — gets paid off after it sells.
Most people must sell their old home to have enough cash to make their new down payment, Sean Black, Knock’s co-founder and chief executive, said in a telephone interview. Knock’s bridge loan gives clients the ability to buy a new home without the contingency of selling their old home first — a condition that frequently disqualifies a buyer in a bidding war.
“It’s as good as an all-cash offer,” Black said. “You get to be a competitive buyer.”
The program is only available to clients who get their new mortgage through Knock. In additional to normal mortgage closing costs, customers pay a 1.25% “convenience fee.”
Knock has partnered with seven real estate brokerages in the region, who will promote the company’s online home-financing platform.
Black declined to release any numbers showing how Knock is doing, saying only that its volume increased “hundreds of percent” each year and currently employs about 120 people. The Wall Street Journal reported Knock has roughly 6,000 clients in the U.S.
But Knock’s business model is benefitting from a 61% drop in for-sale listings over the past two year, creating intense bidding wars.
“It’s a perfect storm for us,” Black said.
In addition to the L.A. market, Knock is beginning operations in Orange, Riverside, San Bernardino, San Diego, Ventura, Santa Barbara and Bakersfield markets.