In Seattle, the nation’s hottest housing market for 19 straight months, frustrated buyers are losing out to all-cash offers left and right, and real estate startup FlyHomes just raised a pile of cash to help them fight back.
FlyHomes landed a $17 million funding round to finance its new Cash Offers program, where the brokerage will purchase houses directly with cash and then hold onto them until the startup’s buyer clients secure financing. The goal is to present its clients as the equivalent of cash buyers, which in turn helps sellers get the most for their property.
The round features a star-studded list of investors led by Andreessen Horowitz, with participation from Shasta Ventures and Zulily and Blue Nile co-founder Mark Vadon, a previous investor. The company will use the cash infusion to get a line of credit for its Cash Offers program, grow the team and expand to new markets.
In an interview with GeekWire, FlyHomes co-founder Tushar Garg said sellers typically prefer to take the cash offer, even when they it isn’t the highest bid, because cash brings a degree of certainty. This handicaps buyers who have to go out and get financing, especially in the most active markets like Seattle and San Francisco were cash offers are plentiful.
“We don’t want sellers to have a dilemma to choose between these different buyers based on how much cash they have because the sellers are just speculating on the likelihood of closing,” Garg said. “If we do all the due diligence up front we can front cash on behalf of buyers and for the sellers, give them the most certainty of closing.”
Garg wouldn’t say how big of a line of credit FlyHomes is seeking, but the company plans to help about 50 buyers through the Cash Offers program this month. That figure should multiply in the coming months following the funding round. So far, FlyHomes has purchased seven homes through Cash Offers and has reached agreement to purchase another six in the next two weeks.
The idea for the program grew out of another FlyHomes initiative to help buyers in hot markets called Guaranteed Offers. The program adds an addendum letter to the offer contract of pre-approved, qualifying clients ensuring that the brokerage will purchase the home if the deal isn't closed by the agreed upon deadline.
FlyHomes says it has helped more than 100 buyers purchase homes through Guaranteed Offers, but Garg said a lot of its clients still lost out to cash offers. Despite having the extra layer of security, sellers still liked the quick closing that came with cash.
FlyHomes makes money on each Cash Offers transaction through the buyer commission that Garg says is typically paid for by the seller in the Seattle area. Clients pay for FlyHomes' cost of owning the home while they close on financing, though the company returns 1 percent of the commission to the buyer, which in most cases would cancel out those costs, Garg says.
FlyHomes takes a novel approach to homebuying, relying on a team of experts who work on different parts of the process, rather than individual real estate agents who own the process from start to finish. Employees are paid salaries rather than the commission structure of a traditional brokerage, which is a bit of a gamble considering the big dollars successful agents can rack up on commission.
The company is based in Seattle and its services are also available in the Bay Area, Chicago, and Boston. Garg says 80 percent of FlyHomes’ business is in Seattle. It is looking to expand to Portland and increase its presence in the Bay Area.
FlyHomes has more than 60 employees, and it has nearly doubled its headcount since the beginning of the year. The company says it has helped 400 people close on more than $300 million in homes since 2015.
Garg and his co-founder Stephen Lane, both former Microsoft employees, started the company to create a millennial-focused home-buying platform. Lane was inspired by his own experience buying a house and the aspects of the process he found wanting. FlyHomes’ first plan involved rewarding house hunters with airline miles when they purchase a home.
FlyHomes’ dalliance into direct homebuying is the latest in a trend of companies jumping into the complicated and often frustrating process. Zillow Group expanded its Instant Offers program last month to directly buy and sell homes and just listed its first home for sale. Redfin recently expanded its Redfin Now business, upping the home value volume it is willing to carry on its books. And there’s the more established companies in the space, OfferPad and OpenDoor.
What sets FlyHomes apart from these other services, Garg says, is where they operate. Zillow is starting out in Phoenix. Redfin kicked off in San Diego and the Inland Empire. These markets all favor buyers or are at least balanced. FlyHomes targets the toughest and most expensive housing markets in the nation.
“We haven’t seen the same sort of liquidity innovation come to seller markets,” Garg said. “We are making homebuying easier in the sellers markets, and instead of doing everything in-house and buying it ourselves, we are involving the buyers to become equivalent to cash buyers.”