A Seattle startup promising to turn any home-shopper into a cash buyer is getting a new infusion of cash itself.
Flyhomes announced $150 million in funding Thursday, with backing from investment firms, Zillow co-founder Spencer Rascoff and others.
The growth reflects a trend in today’s red-hot housing market: As bidding wars become common, an all-cash offer can give a homebuyer an edge because it typically means less risk to the seller that the deal will fall through.
In Flyhomes’ model, buyers first get pre-underwritten and receive a short-term loan allowing them to offer cash for a house. Then, once they clinch the purchase, they obtain a long-term loan through their own lender or Flyhomes’ in-house mortgage office.
The company collects most of the 2 to 3% commission that usually goes to the buyer’s agent and runs its own brokerage, mortgage and closing entities.
With the new funding, the company plans to “double the footprint” of where it buys and sells homes beyond today’s operations in Seattle, Portland, Boston and some areas of California, CEO Tushar Garg said.
Flyhomes declined to share Seattle-specific figures, but said it has completed $2.6 billion in home buying and selling transactions since its 2016 launch. Of the company’s 400 employees, 127 are in Seattle. That’s up from 60 total employees in 2018.
The company’s model isn’t quite that of a typical brokerage, nor a house-flipper known as an iBuyer. (Seattle-based Redfin and Zillow both have iBuyer operations that buy homes, make improvements and resell them in hopes of making a profit.)
Flyhomes’ short-term loans come with fees, some of which can be offset later if the buyer uses a Flyhomes mortgage, according to the company. Flyhomes agents are paid a base salary and bonuses based on how many homes they buy.
The company offers a similar cash-offer setup for people looking to “trade up” and buy a new house before selling their old one. That now represents about a quarter of Flyhomes’ business, Garg said.
While cash offers can indeed give a buyer a leg up, “it’s only in the current market conditions with so many buyers out there competing for the same home that this type of business model could work,” said Lawrence Yun, chief economist for the National Association of Realtors. “Under normal circumstances, there will be very little demand for this type of service.”
Garg argues cash offers are useful even in a slower market. “Investors always buy with cash,” he said. The company’s services for buyers and sellers are also meant to streamline the process, he said. “Homebuying is stressful no matter what the market is.”
The NAR’s Yun said he believes the country’s hot housing market is at “the peak.” Competition could ease next year, he predicted, if mortgage rates tick up, newly built homes come online for sale and more buyers are pushed out of the market by high prices.