The post was originally published in Russian on Startup of the Day. Alexander kindly agreed to republish what we think is of great value to our readers.
A typical real estate bargain is an exchange. A person wants to sell their home to buy a new one for the obtained money, ‘bigger’, ‘smaller’ or ‘in another part of town.’ The usual sequence of actions in such a situation is to find a buyer, then hastily look for a new apartment before the first deal goes forfeit. This is inconvenient for all parties, all who tried it know that.
Orchard, the American startup of the day, allows to overturn the sequence of actions. The person signs an agreement with the startup, the latter evaluates the client’s old home and issues a credit of 80-90% of the home’s value. This money, added to the savings, either should be enough for the new purchase or it can be aided by a little mortgage. Then, the user calmly and without haste chooses the home of their dreams, and notably, the seller, all else being equal, will prefer this buyer – because they have cash in their pocket, it’s easier to deal with them.
The next step is moving, and only then one should start selling the old home. The second deal also goes better than in the regular variant, it’s easier to show an empty estate. When a buyer is found, the final mutual settlement takes place. Orchard doesn’t ask for any interest for the credit, but it charges the regular American fee for realtor support – 6%. From the client’s point of view – “those agents charge so much, but at least this one really works.” From the startup’s point of view – 6% of the estate’s price is an excellent reward for supporting deals, there is a next to zero chance of defaults on credits, the prime cost of credit money in the USA is almost zero. Economically it turns out that the feature works as a cheap way to attract customers into the regular real estate business.
In early September, Orchard attracted another 100 million dollars of investment and reached a value of around a billion. Of course, it cannot be cloned in Russia, we have expensive credit.
Translation: Kostiantyn Tupikov
Alexander made his career in Russian internet companies including Mail.Ru, Rambler, RBC. From 2016 to 2018 he was Chief Strategy and Analytics officer in Mail.Ru Group. In this position, he worked on M&A, investments, and new project launches. In 2018 he became Deputy CEO in Citymobil, a Russian Uber-like company that was invested by Mail.Ru Group and Sberbank (the biggest Russian bank), then he left the company to launch his own projects. Now Alexander is a co-founder of United Investors – the platform for co-investments in Russian early-stage startups. His blog #startupoftheday (#стартапдня) is one of the most popular blogs about startups in Russia.