The Knock Business Model – How Does Knock Make Money?

Executive Summary:

Knock is an online real estate platform that allows property owners to trade in their old home for a new one (via the company’s Home Swap™ service).

Knock makes money via a convenience fee (equal to 1.25 percent) as well as the profit it generates when selling a home for more than it was purchased for.

Founded in 2015, Knock has grown to become one of the leading iBuying startups in the United States. The startup has raised $654.5 million to date.

What Is Knock & How Does It Work?

Knock is an online real estate platform that allows property owners to swap in their old home for a new one.

Knock’s Home Swap™ works as follows. First, homebuyers need to get pre-approved for the home swap by filling out a questionnaire.

Knock will then assess whether the buyer qualifies for a fully underwritten home loan (including down payment), which allows them to make qualified offers for homes they like.

Not every home is covered by the company’s Home Swap policy, though. The following criteria are used to assess whether a home qualifies:

  • Home is located within Knock’s service area
  • The property is a single-family residential home (such as condos or townhouses)
  • Property value above $150,000 (or a combined value of the old and new home above $350,000)
  • Occupied by the owner
  • The property is not distressed or bank-owned
  • The home does not possess any meaningful foundation issues or prior water damage

Once approved, buyers can start making offers for the homes they’re interested in. Buyers can work together with Knock certified real estate agents who help streamline the process.

After a successful offer is placed, buyers can already start moving into their new home while only paying for one mortgage at a time. Knock, in the meantime, will cover the old mortgage until the home is sold.

On the home-selling side, Knock will advance up to $25,000 in home prep cost to the seller. This allows them to sell their homes faster and at a higher price. Once the house is sold, the owner pays back any costs covered by Knock during the Home Swap process.

Knock is currently available in 11 cities across the United States. Interested buyers can access Knock via the company’s website or by calling in any of its local offices.

A Short History Of Knock

Knock, headquartered in New York City, was founded in 2015 by Sean Black (CEO), Jamie Glenn (COO), and Karan Sakhuja (CTO).

Prior to launching Knock, both Black and Glenn left a mark on the real estate industry by helping it to move online.

Black was part of the founding team at Trulia, an online real estate database that is now one of the most frequented property websites in the United States. During his 5-year tenure at Trulia, Black was primarily focused on building up the company’s sales and operations divisions, respectively.

Glenn, on the other hand, joined Trulia one year after its foundation as their VP of Product Management. Prior to that, he helped to build up Yahoo’s real estate and classifieds business.

Both Black and Glenn left Trulia around 2010. Two years later, the company was sold to Zillow for $3.5 billion in stock.

Black went on to start SalesCrunch, a sales analytics platform that provided companies with deep insights into their customers. SalesCrunch was acquired by ClearSlide in 2013.

Glenn, on the other hand, went on to serve as the Chief Product Officer at Jobvite before moving on to Uversity where he served as CEO. Uversity, a predictive analytics EdTech company, was acquired by TargetX in 2015.

Around the same time, a new trend in the real estate industry emerged. So-called iBuyer’s (short for Instant Buyer) were gaining massive traction and raising millions in venture capital funding.

These companies, such as Opendoor and Offerpad, use algorithms and terabytes of data to make almost-instant cash offers on homes. Their technological prowess allows them to flip homes a lot faster – often at greater profit margins.

The founding team, which was completed by Sakhuja, a seasoned Silicon Valley tech executive and founder, began jumping on that train as well.

They incorporated the business as Knockaway Inc. in August 2015. It launched its first market a year later in Atlanta. Months prior, the founders were able to raise their first-ever seed round of $2 million.

Atlanta became the startup’s test market to validate its home swapping hypothesis. After 9 months, that test was deemed successful – and rewarded with a $32.5 million Series A round led by RRE Ventures (announced in January 2017).

The company went on to expand in new markets while raising an impressive $400 million Series B in January 2019.

Throughout 2019 and 2020, Knock continued to grow its business at a rapid pace. In early 2021, it announced the hiring of former Lyft and Uber executive Michelle DeBella who became the firm’s first CFO.

The move foreshadowed its ambitions to become a public company. Knock even hired Goldman Sachs to drum up hype for a potential offering. Unfortunately, those plans came to a screeching halt in March 2022.

Knock announced that it would cancel its IPO plans while laying off close to 50 percent of its staff. To keep the party going, it raised $70 million in equity and $150 million in debt funding.

Today, Knock operates in 75 markets across the United States. it employs around 125 people.

How Does Knock Make Money?

Knock makes money via fees as well as the profit it generates when selling a home. Once the home purchase is finalized, buyers pay a 1.25 percent convenience fee (unless they opt to roll it into their mortgage).

Apart from the convenience fee, the majority of Knock’s revenue comes from flipping the homes it purchases.

As an iBuyer, Knock utilizes information from publicly available databases as well as historic sales data to properly value the homes it purchases. That data is enriched by the information that sellers provide during the initial questionnaire.

To that extent, it focuses on single-family homes in the price range of $150,000 to $500,000 in mid-size markets like San Antonio or Houston.

These types of homes are generally easier to value due to the abundance of historically available data. Knock furthermore employs human experts (such as real estate agents) to cross-validate the purchase and sales price it comes up with.

Knock Funding, Valuation & Revenue

According to Crunchbase, Knock has raised a total of $654.5 million across 8 rounds of equity and debt capital funding.

Prominent investors include Greycroft, Redpoint, RRE Ventures, Company Ventures, Foundry Group, and more.

The company did not disclose any valuation or revenue figures during its funding rounds. Prior to its scrapped IPO, Knock was seeking a valuation of $2 billion.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.