Show Me The Money: Real Estate Revenue In The Modern Age Of Home Flippers

*This article originally appeared on Forbes

We’ve all heard of home flippers. They’ve been around for almost as long as real estate itself, even before Real Estate Web 1.0 . Watching the dramatized version of them on HGTV is a guilty pleasure for many of us. They purchase distressed homes, sometimes in “up-and-coming” neighborhoods, and make extensive and expensive renovations before flipping them on the open market for as much double what they paid.

One of the ways real estate is being disrupted today is by companies that make instant offers on consumers’ homes. Known as iBuyers, these modern day home flippers are essentially Silicon Valley and Wall Street applying money and (often, very little) tech to the age-old business of flipping. IBuyers buy homes in good-to-great condition in established neighborhoods and make only a few thousand dollars in repairs needed to resell the home on the market for a profit.

As a result of adding so little value, iBuyers’ revenue is much smaller than traditional home flippers. When buying houses, iBuyers reportedly charge up to 10% to 15% in fees instead of the 5% to 6% commission charged by traditional agents, and then sell the house for an average of 5.5% more than they paid the home seller, according to one analysis. IBuyers then pay 3% to the eventual buyers’ agent and a great deal more in property taxes, maintenance, HOA fees and other holding costs. So despite charging consumers more than agents, iBuyers’ revenue is much smaller, especially considering the risk and losses they take buying and holding thousands of empty houses.

But big investors don’t like small revenues, so some iBuyers are recognizing the value of the houses they buy, also known as gross market value or GMV, as revenue, despite creating very little in the way of economic substance by the time they sell the houses. Think about it: If an iBuyer sells 1,000 homes a month at an average price of $300,000, that’s $300 million in revenue using this accounting method. Three hundred million dollars is far more attractive to investors than the thousands of dollars in revenue iBuyers actually make on each house when all is said and done.  

For those of us who were around during Real Estate Web 1.0, this brings to mind tactics called round-trip revenue that got one company and CEO into big trouble. While round-tripping isn’t always illegal, it is almost always a disingenuous way to bolster revenue and, therefore, the company’s stock.

In the case of iBuyers, it’s pretty easy to argue that reporting the price they pay for houses as revenue is done with a disingenuous spirit. The far more transparent way for iBuyers to recognize revenue would be to only recognize the 5.5% average appreciation from reselling homes at a higher price, and their 10% to 15% fee — the same way that 3% is made when a home is sold or bought in transactions carried out by agents at traditional brokerages and ones with new approaches.

At least three companies currently offering an iBuyer service are publicly traded — their stock prices could increase considerably when the billions of dollars’ worth of houses they buy are recognized as revenue. Inevitably, executives and other employees of these companies could also benefit when selling their own personal stock at the rising stock price. But Wall Street seems to be aware of and okay with the fact that these companies are recognizing GMV as revenue, so what’s the problem?

The problem is that only a tiny percentage of the price of the home, if any, actually hits the company’s bottom line, but that’s not obvious to the average consumer, or even the seasoned trader, buying the company’s stock. From public filings, we can see that iBuyers are selling more and more homes each quarter, which translates into some large GMV revenue numbers. For example, Zillow's expanding iBuyer "Homes" segment grew from $11 million to over $40 million from Q3 to Q4 2018, an amazing 400% growth. But when you look past the eye-catching top-line gross GMV Revenue, you find that their Q4 Gross Profit for that segment was only $700,000 in Q3 2018 and $2 million in Q4 2018. Said another way, $40 million in GMV revenue cost them $38 million to generate. Zillow did admit recently that margins on “Instant Offers” are “razor thin” and that the actual goal is to sell mortgages. But, investors could get caught up in the massive GMV revenue numbers.

But what happens when the music stops? IBuyers use debt financing from large, conservative financial institutions like banks to purchase all these homes. If iBuyers continue to buy more houses than they sell, stockpiling inventory or deferring mounting losses, banks could stop financing new purchases until old inventory is sold, even if at a loss. Fewer houses purchased will ultimately translate into fewer homes to sell, (perhaps dramatically) less revenue and increased realized losses, which in turn could reduce iBuyers’ public stock price. A lower stock price could further decrease the iBuyers’ leverage or ability to borrow, which would in turn depress the stock further — yet another vicious cycle. Given that both Wall Street analysts and national audit firms are aware of and reporting on this revenue recognition method, iBuying will not likely be deemed illegal. But rest assured, as executives are selling a rising stock, it is the shareholders buying that stock that will be left holding the bag.

Big companies are moving into the iBuying business, becoming some of the meaningful drivers of the Real Estate Web 3.0 transformation of the homebuying and selling transaction. With so much investor money at stake, we need to make sure we don’t go down the disingenuous path that some did in Web 1.0. Instead, as a new wave of innovators, we should challenge ourselves to give consumers certainty, convenience and transparency into the realities of this business.

Will Agents Survive Real Estate Web 3.0? (The Short Answer Is No)

*This article originally appeared on Forbes, with an extended version on Medium.

You can go anywhere in the world and buy the same cup of coffee at Starbucks for $4 or the same Big Mac from McDonald’s for $5, but you cannot use the same real estate agent twice in two years and have the same experience with a $300,000 home sale or purchase. Why? Because real estate agents are independent contractors doing their job, well, independently. The franchises with which they are affiliated have little control over how agents do their job or their customers’ experience. And with a median annual salary of $45,990 , agents simply don’t have the capital, technology or other resources needed to make the transaction predictable, convenient and transparent.

We are in the early stages of “Real Estate Web 3.0.” In internet terms, Web 1.0 was mostly about putting listings online, and Web 2.0 was about empowering buyers with information and context about those home listings. Web 3.0 is about completely transforming the transaction, giving consumers certainty, convenience and transparency while selling their largest asset.

The innovative companies powering Web 3.0 have raised billions of dollars in just a few years to build technology platforms that simplify the complex and laborious process performed by agents. To understand how this wave of innovation and its impact on real estate agents is different from previous waves, let’s take a quick history lesson.

Catching Up On Real Estate Web 1.0 And 2.0

The first wave of real estate innovation began in the 1990s when home listings moved from newspapers to online. The National Association of Realtors (NAR) licensed the domain, which quickly became the largest consumer real estate site. But as the name implies, NAR’s primary customer is the real estate agent, not the homebuyer or seller, so there was very little incentive to share information that would make consumers less dependent on real estate agents.

Enter Web 2.0 in 2005, when tech startups started attacking the information thiefdoms plaguing the homebuying and selling experience. I was a founding team member of Trulia, which launched as the first independent home search engine with contextual data and maps. The following year, Zillow (which acquired Trulia in 2014) launched the Zestimate, giving consumers their home price estimate without needing to contact a real estate agent. Both websites took off, and today, homebuyers visit Trulia and Zillow a combined 200 million-plus times a month.

While Web 2.0 democratized the information buyers need to make the biggest purchase of their lives, home sellers still did not benefit. The process of selling a home is every bit as opaque, uncertain, stressful and expensive now as it was then, and sellers still pay the same 6% commission. Ironically, the very companies that empowered buyers with information they need to make their biggest purchase without agents became increasingly dependent on those very real estate agents for revenue and, therefore, survival.

Enter Real Estate Web 3.0

By aggregating hundreds of millions of homebuyers, Web 2.0 innovators enabled the next wave of innovators to focus on transforming the home selling transaction. Here are three key areas where I believe we're making this possible:

Data science: Web 2.0 companies used data to estimate home values, but Web 3.0 companies are inspecting the inside of homes to more accurately price them by including renovations, upgrades and premium features. This enables our company, Knock, and others like it to more accurately determine how much we can sell a customer’s existing house for on the open market and, therefore, how much house we can buy the customer. It also makes it possible for modern day home flippers, such as iBuyers, to make instant offers on houses so homeowners can focus on their new home search.  

Technology: Since this wave of innovators are licensed brokers, they’re automating as much of the process as possible with technology. Sellers can finally have transparency into the pricing of their homes; they can monitor and provide feedback on the home prep and listing process, review and sign documents online, and connect instantly with experts to guide them through the process, all from the convenience of their phone.

Liquidity: Sixty-one percent of home sellers are also buying their next home at the same time. Most need to sell their existing house to get the down payment and mortgage on their new home. And so begins the proverbial chicken and egg game: “Do I sell my old house first and move in with the in-laws, or do I make an offer on a new home and pray that my old house sells in time?” And during the months it takes to sell a home, homeowners must hire, manage and pay contractors, keep the house immaculate, and leave on a moment’s notice when agents brings buyer to the house. But innovations enabled by Web 3.0 allow sellers to skip some or all of this stress and uncertainty.

So what role does a real estate agent play, if any, in a world where tech-driven solutions can offer a certain, convenient and stress-free consumer experience? The reason Starbucks and McDonald's can provide a predictable, repeatable experience and quality product worldwide is that they own every part of their value chain.

The good news for agents is that a license is still required to perform some parts of the transaction, like making and negotiating offers on homes. So agents do have the opportunity to be part of the next wave by becoming expert negotiators. However, this opportunity will likely only be available to a small percent of the estimated two million licensed agents in the U.S., so it’s the most skilled who will win out — to the benefit of the consumer, which is really what it's all about, right?

How We Turned Our Company Into A Cult

*This article originally appeared on Medium

We are obsessed with company culture at Knock, so much so that we think of Knock’s culture as more of a cult. To understand why let’s look at the definition of both:

At Knock, we’re on a mission to make trading in your home as easy as trading in your car. That’s important because over 70% of the 6 million home sellers each year are also buying their next home at the same time. Selling a house means months of stress, repairs, uncertainty, night and weekend showings, etc. Most importantly, the majority of Americans have their savings tied up in the equity in their current home, and making that savings liquid means helping them move up into bigger houses, in better neighborhoods, with better schools — basically, move up in life! In short, this is an easy mission to get behind!

This isn’t our first experience building an amazing company culture and reaping the rewards from it. My Knock co-founder Jamie Glenn and I were also on the founding team at Trulia. We believed way back in 2005 when Trulia started that an amazing culture is at the core of every wildly successful company, so we spent a lot of time thinking about it. We summed up our company culture at Trulia with the mnemonic device BOFFI, which stood for “Best idea wins, Output not input, Feedback, Fun, and Integrity.” BOFFI wasn’t some bullshit mission statement on our wall, but an ethos that we ate, drank and breathed day in and day out. Our culture ran deep, so deep that numerous Trulians stayed for 10 to 12 years after joining, a virtually unheard-of tenure in tech. It was that passion and those people who took Trulia public on the NYSE in 2012 and that sold Trulia to Zillow for $3.5 Billion just two years later.

So how do you create and foster a multi-billion-dollar company culture that can stand the test of thousands of employees, especially when your team is fully distributed across 18 different states like we are at Knock? As Steven Covey said in “The 7 Habits of Highly Effective People,” you start with the end in mind.

At Knock, we started early by getting the first 13 Knockstars (that’s what we call our employees) together at our first annual offsite during the Sundance Film Festival to get their creative juices flowing. We thought long and hard about the sort of place we want to work, the culture we want to create, the values we want to foster and the kind of people with whom we want to surround ourselves. Practically speaking, we broke up into 4 teams, with each person in each team writing down the core values to which they aspired on Post-it notes, and then each team grouped their alike Post-it notes on big flip charts. When all 4 teams came back together to compare notes, we had striking similar values across all 13 people and all 4 teams. We decided to use these core values to set a framework in place and then let the culture evolve around it — and that’s how we came up with POPSICLE.

Ok great, so now we have a catchy mnemonic device to describe the values and culture to which we aspire, now what? The Knock team has grown nearly 200% in the past 9 months alone. How do we practice what we preach and reinforce these values through rapid growth? The most important thing we do on a daily basis is give people a great deal of autonomy to make hundreds of decisions and judgement calls throughout the day on their own, so long as they consult POPSICLE as their North Star.

But here are a few other ways we enforce POPSICLE:


Since we are all distributed, we encourage Knockstars to use our POPSICLE Slack channel to post shout-outs to other Knockstars when they exhibit POPSICLE behavior!


Once a month we send everyone an anonymous online survey that rates how we are doing on each of our core values. We then discuss the results as a group on our weekly All Hands video conference and collaborate on solutions should we be deficient in any area.


Because we are fully distributed, we don’t spend a lot of money on real estate (office space) ironically. We have 6 offices, but all inside of coworking spaces, and we give totally remote folks a budget of $400 a month if they want to join a local co-working space. So we take that savings and invest in multiple offsites throughout the year culminating with the All Hands offsite toward year-end. We have conducted these in Park City, Utah during Sundance Film Festival, Santa Cruz, California during surfing season and most recently Napa, California during harvest. These weeklong offsites give us ample opportunity to reinforce our core values, collaborate on big initiatives and do lots of bonding as a team that renews everyone’s passion for our mission. The below photos speak volumes for how critical these events are to reinforcing our core values and culture as a cohesive team.

knockaway event company cult
turning our company culture into a cult


The grand finale at our offsites is the POPSICLE Awards. The POPSICLE Awards recognize 3 Knockstars who exhibit our core values the most, as voted on by every Knockstar at the company. We make award winners read what their peers wrote about them in front of everyone at the offsite, a positive spin on Jimmy Fallon’s Mean Tweets. If you watch the super short video below of 2018’s first prize winner Sheba Adams you will truly appreciate to what degree Knockstars bleed blue and to what end they will go to realize our mission.

So is this a group of people characterized by devotion to an idea, movement or work (Cult) or is this a set of shared attitudes, values, goals and practices that characterizes an organization (Culture)? Obviously both, but first and foremost we are a group of passionate people devoted to our mission of helping people realize the American dream, so we lean hard into Cult! What I am proud to say, however, is unlike your average cult, that devotion and drive isn’t mandated top-down, but is cult-ivated from within — from each and every single one of our Knockstars, just like it was when we created POPSICLE at the start.