Real estate startup Opendoor, which buys homes for resale based on its black-box pricing algorithm, is making a bid to become one-stop shop for buyers and sellers.
The company has made its name with high-tech home flipping—allowing homeowners to sell online, sprucing up the place and quickly reselling it. Through a new app, Opendoor announced today, buyers can now browse homes, schedule a tour and make an offer all in one place, offering the first real iteration of what the on-demand process could look like from end-to-end. While people have been able to self-tour and buy Opendoor-owned homes directly, the company is now opening the process to any home for sale in Dallas-Fort Worth, Phoenix and Raleigh-Durham. It plans to expand to more markets later this year.
“We’ve always been very explicit that we wanted to simplify the transaction for both buyers and sellers,” says Eric Wu, CEO and cofounder of the five-year-old startup. “A vast majority of our sellers are also buyers.”
Wu, 36, said in a 2016 Forbes profile that the company was already introducing features to attract buyers, and last September acquired Open Listings, a startup that targeted buyers the way Opendoor targeted sellers, offering a platform that enabled buyers to search listings and submit offers, a key component to what Opendoor is unveiling today.
A mockup of Opendoor’s on-demand buying process.
Courtesy of Opendoor
Here’s how it works: When an app user finds a home she likes, she can schedule a self-guided tour. The expanded platform will also help buyers make more competitive offers by providing funds for all-cash offer, after they both agree on a dollar value. All-cash offers are tough to turn down; sellers like the speed and security—a factor that has given Opendoor an edge against other buyers.
Opendoor says the buyer has to line up proper financing beforehand and get approval from a lender in order to qualify. After the home closes, ownership is then transferred to the buyer.
The company will buy back the home within 90 days if a buyer isn’t satisfied. And if a buyer forgoes the all-cash option, Opendoor will offer a rebate, worth 1% of the home’s purchase price, to cover closings costs. (That’s inline with the industry expectation.) The caveat: It only applies when buying an Opendoor home directly or when an Opendoor partner agent is involved in the transaction.
The homebuying process doesn’t put the onus on the buyer as much as the seller, who covers the cost of commission—usually 6% of the purchase price. That’s split between the listing agent and the buyer’s agent, in this case, Opendoor (or an Opendoor partner agent).
Eric Wu, cofounder and CEO of real estate startup Opendoor.
Courtesy of Opendoor
“We have partners who lend against real estate and are excited to see us grow, so it’s not really a constraint on our part. We are already processing thousands of homes a month,” says Wu of the heavy capital investment. “One of the things we talk about a lot at Opendoor is how do we make this highly illiquid asset more liquid?” he adds.
Wu says Opendoor buys and sells more than 3,500 homes a month and that the company’s gross merchandise volume will be $5 billion this year. The company wouldn’t comment on whether it is profitable.
Not all are convinced of the ease, particularly (and unsurprisingly), real estate brokers. Yvette Grove with Dallas City Brokerage says while most Millennials give the iBuying process a try, most are first-time homebuyers and quickly find they need an agent’s guidance and expertise. “Where people are short-sighted is when they think the contract is the deal,” she says. “The real work is from contract to close.”
Grove’s colleague John Angell, meanwhile, thinks the purchasing process is just too detailed to put online. “You can’t take the real estate transaction and all of its complexities and put it into a webpage,” he says.
Buying and selling homes directly, or iBuying, is still a fairly new segment of the real estate industry—and small. In his report on the space, Mike DelPrete notes iBuying made up 0.2% of total transactions in 2018. But investors are betting on it growing. Opendoor, for example, has big names like the Softbank Vision Fund on its side. It most recently raised $300 million in March, valuing the company at $3.8 billion. In total, it has raised $1.3 billion in equity and more than $3 billion in debt financing. DelPrete names Opendoor the leader in the space—the company is in 21 markets (it just added Tucson, Arizona, this week) and says 800,000 people toured their homes in 2018.
Opendoor’s step today could help it fend off growing competition, which includes brokerages like Keller Williams and Redfin. Powerhouse Zillow also unveiled its own selling platform, Zillow Offers, in April 2018, betting on it to remake the company.
Still, while self-tours are opening one door, there have been questions surrounding safety. Inc. this week reported on instances of squatters in Opendoor homes. An Opendoor spokesperson says the company invests “considerably in measures to secure our homes, including home monitoring systems, security patrols, and vetting of customers before they are granted access to our properties.”
“We want to be the trusted brand that provides quality assurance in a highly fragmented, very scary, high-anxiety transaction,” says Wu. “Our goal is to give (our consumers) peace of mind.”