The Austin residential real estate scene is far from a buyer’s market. Houses are selling for tens of thousands or even hundreds of thousands of dollars over asking price, sometimes with dozens of people bidding on the same property.
The result: companies springing up to give buyers a competitive edge.
One such local company, Homeward, helps buyers make cash offers on homes, making it easier for first-time buyers to snag houses and existing owners to buy without selling first. The company just raised $371 million in its latest funding round. Northwest Venture Partners led the equity portion of the funding, totaling $136 million, while Blackstone Alternative Asset Management led the $235 million debt portion.
This funding comes on top of $105 million in financing Homeward received last May and $25 million raised in 2019. It also foretells impending growth for the company. Homeward CEO Tim Heyl said he expects the company to reach 500 employees by the end of the year.
The company’s strategy is multi-faceted. It pre-approves mortgages for first-time homebuyers and those looking for second homes, who can use Homeward’s cash to make offers then buy the house back from the company. Current homeowners can secure a new home before listing theirs on the market, buying it back from Homeward after their own sale goes through. Heyl said the two services draw in roughly the same number of customers.
“What we've done is we've eliminated the three contingencies that hold back buyers from winning,” Heyl said. “The first one is the home sale contingency. The second one is the financing contingency. And the third one is the appraisal contingency.”
Homeward also has mortgage and title arms that can make the company a one-stop-shop for buyers. Heyl said most people who use the cash offer program also choose to use Homeward for the mortgage process.
Homeward charges users a convenience fee — typically about 2% of the home’s value — which users can add to their purchase price or drive down by opting to use the company’s title and mortgage services as well.
While any independent real estate agent can use the company’s services for their clients, Homeward also partners with groups such as Keller Williams, Realty Austin and Compass. Heyl said keeping real estate agents in the mix was central to his business model.
“Homebuying is most people’s largest transaction of their lifetime, and the most infrequent transaction of their lifetime,” Heyl said. “The vast majority of consumers are hiring a real estate agent to guide them through this process.”
Heyl himself is an active real estate agent, in addition to his day job as Homeward’s CEO. He got his start in Austin after college and quickly became one of the top-selling agents in the city. A few years later, he founded a real estate team, The Heyl Group, which operates in major metros throughout the state. He also started and sold a title company called Mint Title, as well as a leads conversion company called Phone Animal.
Homeward is the first business he’s raised funding for, however. Despite the massive capital needs of the company, Heyl said he’s satisfied with the results of the most recent funding round and isn’t looking to launch another funding effort anytime soon. He did say he could see taking the company public down the road, but given the potential for growth, that isn’t on the immediate horizon either.
“The market is so big and the opportunity is so right,” Heyl said. “Homebuyers and real estate agents have spoken. They definitely want to be in business with us, and they definitely want to take advantage of our solutions.”
Homeward’s primary service — providing cash to homebuyers — is growing in popularity, with other companies also emerging onto the scene. Austin-based UpEquity, which started in 2019 and has gone through Y Combinator, raised $25 million earlier this year and is gearing up for another funding round in the third quarter, according to CEO Tim Herman. He said the company expects to complete $700 million in transactions in 2021.
Mortgage expert John Mallett said in a hypercompetitive market like Austin, sellers will often go for the highest bid or the surest thing. Sellers tend to favor cash offers, even though they may not be the highest offer, because there’s a much lower chance of a buyer backing out or a deal falling through.
He said cash offers are attractive to sellers as well — they’re three to four times more likely to be accepted than traditional bids — but they're not the only way to win a bidding war. Other strategies — like getting an iron clad letter from a lender saying a loan has been approved and enlisting the help of a trusted real estate agent — can also push buyers to the front of the line.
This article has been updated to clarify Homeward's mortgage pre-approval policy.
