Opendoor & Offerpad; What's Their Angle?
Rental Property Investor · Chandler, AZ · Member since 2011 · 145 posts · 79 votes
Opendoor & Offerpad; What's Their Angle?
Most Popular Reply
Robert AdamsBusiness Member
Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votesThey are in Las Vegas and Henderson now as well. My experience with them on the buyer side is over worded contracts but pretty smooth transaction and listed slightly above recent comps which is typical for our market. On the sellers side..............I wouldn't recommend it.
Here is how it works:
Over the past 7 years the Vegas Valley has seen enormous growth in the housing market and home values. Many people have no idea what their home is worth. Some homeowners even rely on outdated autovaluations like Zillow's Zestimates for home values. Then opendoor or similar company gets in touch with a homewoner (because they are spend an insane amount of money on marketing to reach sellers that are not in tune with the market). FOR EXAMPLE: The homeowner maybe bought their home in 2011 for $200k for the sake of round numbers. Now lets fast forward to 2018 and the home is now worth $400k. The seller looks on websites like Zillow and sees there home is worth $380k. This seller is already underselling themselves by $20k, but wait it gets worse. Then opendoor comes along and says we think your home is worth $370k to $380k BUT we will buy it right now from you without you having to market the home or do any showings etc for $375k but we are going to charge you a fee up to 12% (in our example this would equate to $45,000). Then on top of that they charge a 7% Commission (that would equate to additional $26,250). Then opendoor would clean the home, maybe paint it, maybe put new carpet if you are lucky then resell your home for $400k in a week or two. Below I have compared 2 examples of selling traditionally with a Realtor at 6% commisions (which it may be less as it is negotiable) vs selling with opendoor or similar service.
Comparing Opendoor to a Traditional Sale with a Realtor
$400,000 Home via OpendoorHome Value: $400,000Sales Price: $375,000 Charge 12%: $45,000 Commissions 7%: $26,250 Total Costs via Opendoor: $71,250 Net Proceeds to Owner: $303,750 | $400,000 Home via a RealtorHome Value: $400,000Sales Price: $400,000 Traditional Closing Costs 3%: $12,000 Commissions 6%: $24,000 Total Costs via a Realtor: $36,000 Net Proceeds to Owner: $364,000 |
In this Example Selling with a Realtor will save you $60,250!!!
Most homeowners I know could use an extra $60,000+ in their pocket! It is my firm belief that homeowners do not know how drastically their bottomline is affected by selling with these unethical companies.
BEFORE YOU SELL WITH ANY COMPANY ASK THEM "HOW MUCH MONEY WILL I WALK AWAY WITH?"AND THEN COMPARE THAT TO A TRADITIONAL REALTOR SALE.
I confronted them on a public post of Opendoor on Facebook, you can see for yourself how it went below
(after my question about them charging 19% they stopped responding):
HERE IS THE ORIGINAL POST
The Adams Team at Rothwell Gornt Companies4.971 Reviews
154 Replies
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Robert Adams:
To make this debate as simple as possible compare 2 things:
1. Net proceeds to seller after selling to an ibuyer like open door, offer paid, or a dozen others.
2. Net proceeds to seller after selling traditionally with a knowledgable Realtor.
If you compare these to things you will see the true "cost of convenience" and can make an informed decision. If option ones gives the seller a check for 300k and option 2 gives the seller 340k the "cost of convenience" is 40k. Then the seller can choose if convenience is worth 40k or not.
ibuyers purposely make the process different than traditional selling so sellers think the "cost of convenience" is lower than it actually is. They do this by using a different fee structure, justifying "fair market offers" with low and old comps. Just cut to the chase and compare the 2 items above.
its just bait and switch wholesaling tactics although unlike unlicensed wholesalers who have no money to close.. these guys at least they have the money behind them and can close.. there adverts are pretty basic they hit on the same thing wholesalers who send out yellow letters hit on.. and use the exact same tactics.. get into contract then renegotiated on repairs.. pretty standard stuff.
- 7yRobert AdamsBusiness MemberReal Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
They just raised another $300M snd are now valued at $3.8 BILLION.
More uninformed homeowners will lose tens of thousands of dollars to corporate greed. Before you sell to an ibuyer such as opendoor ask for the bottomline. How much will the seller's check be after closing with an ibuyer vs the amount of the check to seller from selling with a Realtor. Then make an informed decision.
The Adams Team at Rothwell Gornt Companies4.971 Reviews - Rental Property Investor · Hilo, HI · Member since 2017 · 16 posts · 13 votes7y
I have attended a half dozen OD "open houses". The process is nice and easy. Just call the phone number and they tell you the lock box code for an allotted time. Pretty fast and the house is all to you. I did notice the camera and router they use is Huawei. This was interesting because It was the first and only time I've came into contact with a Huawei product. If you don't wear a tinfoil hat, Huawei is possibly linked to Chinese Govt. spying. Just ask the US and Canadian govts.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Robert Adams:
They just raised another $300M snd are now valued at $3.8 BILLION.
More uninformed homeowners will lose tens of thousands of dollars to corporate greed. Before you sell to an ibuyer such as opendoor ask for the bottomline. How much will the seller's check be after closing with an ibuyer vs the amount of the check to seller from selling with a Realtor. Then make an informed decision.
same thing with any wholesaler.. if these companies sole purpose is to buy and resell. they have to buy a deep discount.
- 7yRobert AdamsBusiness MemberReal Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
@maryland the buying side of these types of deals has been pretty smooth from what we have seen. The concern is more so for sellers.
The Adams Team at Rothwell Gornt Companies4.971 Reviews - Littleton, CO · Member since 2012 · 29 posts · 22 votes7y
I'm hesitant to even post, but what the heck. I'm a long time Bigger Pockets member, been a realtor since 2006, done flips, rentals, mobile homes, and last November took a position with Opendoor in Denver. So, I'll give you my perspective (I've met a large percentage of the sellers in the Denver market). And this is strictly my opinion, not a company opinion, posted because I like the BP community.
First, ignore a big chunk of what's been posted by people who haven't actually been through the process or really researched it. Every day, every week we work to get the margin (and the cost to the seller) as low as possible. The service fee (similar to a listing fee for a Realtor) covers the broker co-ops (our biggest expense), some overhead costs, and a predicted holding cost. Appreciating market like Denver = lower fee, flat or depreciating market = higher fee (but not that 12% plus 7% or whatever someone quoted earlier). Denver is running 6-9% I think currently.
The repair estimates are incredibly detailed as noted. In general, these are repairs that you would be doing before going on the market to get your home to a similar condition to the comps sold, and much of the time are deferred maintenance or DIY project items. And, it's pretty straightforward stuff, we're not making major changes like a true flip. And, the homeowner can do the repairs or OD can (with a caveat for work require a license). Generally, it's more cost effective for OD to do it unless you're a professional with crews/negotiated rates. And, you can walk at any time if you change your mind.
At the end of the day, you should check with OD, with a Realtor, with the others trying to get into the space, etc. Compare the bottom line from the start - whatever you're needing to do to get your home ready for sale, time on market, holding costs, transaction costs, title costs, really run the numbers and be honest with yourself. Most sellers I speak with have done that and OD works for them (of course if it didn't I probably wouldn't be talking with them). Some are represented by Realtors, a few are Realtors, a few are flippers (post flip), most are people relieved about not having to get and keep a house show ready or worry about a deal falling through at the 11th hour.
The one thing I would say is every seller I have dealt with in our market has been pretty dang happy, with the biggest worry being "when will the other shoe drop? This is too easy". Generally it just works in our market, thanks to a lot of people each doing what they do well.
@Account Closed - I'm not sure what you were seeing with the Huawei? In Denver we don't use systems like you described (but we do have security in place in the homes), and generally you just go to the house with the Opendoor App. It sees where you are and will unlock the door right from the app.
I was skeptical myself and ran a couple of my properties through the system, and one I thought was a little high and one a little low. Both definitely in what I would say was the range of a possible listing price. I don't think this will get rid of Realtors, but it will (and should) give people a true idea of their home value and let them have options depending on their scenario.
Sorry for the long post, but I live this day in and day out. Again, my opinions only and they do not represent OD opinions.
John
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes7y
Huawei has consumer and commercial-grade products in a variety of industry groups. We (my company/companies) use Huawei inverters in our commercial utility connected solar farms and have invested small 6 figures (8 figure if you include the cents;) in their products.
I am posting in the spirit of "...ignore a big chunk of what's been posted by people who haven't actually been through the process..." From a 'user' perspective, it's nice to see insiders posting about the real scoop. Too often we see posts from people who don't have direct experience and bash products w/o first hand knowledge.
- Member since 2019 · 11 posts · 2 votes7y
The repairs are things most agents would not have their clients do. My clients who started going this path have come back to me with huge inspection items. Carpet that is perfect for resell they have said it needs to go, solid AC units over 8 years old that are well-maintained need to go, etc, so start adding all new flooring, two new AC units, and this list goes on and on and our clients would not be doing those in resell.
I think this model is amazing. It is the Ritz Carlton of home selling. However, the average American cannot afford to have a penthouse at the Ritz for a week nor should they dish out all of their equity to Wallstreet.
I have heard sellers saying we got what our home was worth. We got appraised value. Who is appraising the home? Who is representing and having the sellers best interest? If you make $80,000 a year with three kids and two car payments should you be staying at the Ritz?
Again I am not anti this model. I love this model. I just want the consumers to know their facts before they buy into the idea if a realtor was to sell their home it would net something similar to them. A realtor will net them more.
- Rental Property Investor · Richardson, TX · Member since 2016 · 1 post · 4 votes7y
So, I just sold my investment property house to Opendoor last week and I had a great experience with them. I was extremely nervous to use them because of all the bad reviews I have seen from realtors and a few people who felt they were low balled by them so I entered the transaction very cautiously and was ready to bail at the slightest sign of trouble. I usually don't post reviews because it is time consuming but I feel like others should know about my experience in case they are worried like I was.
So.... I put in for offers on a Tuesday for offer pad, Opendoor, Zillow and Perch all of whom responded by Thursday with an offer. Opendoor offered the most by a 7k spread, fees were all about the same from each company but I spoke to someone at all the companies just to get me info. Their processes all seemed about the same. Offerpad disparaged opendoor a bit when I told them that opendoor offered more money and they told me that opendoor was going to get me with lots of repair costs, so this had me worried. At any rate, I accepted the Opendoor offer because I felt what they offered was right in alignment with what other houses had sold for when factoring in seller concessions, which many sellers paid on their transactions on that neighborhood, I have MLS access so I know this. So I felt good about the offer, yes they do take 8.5% which is a lot but I needed to unload the house quickly to get the money for another deal so I considered this my convenience fee.... they said they could close in 14 days.. Perfect!
They came out 2 days later for an inspection and I thought for sure they would get me on repairs because the prior tenants had a dog and the house reaked of dog smell, they also had a bunch of kids so the walls had finger prints all over and there were some holes in the exterior vinyl siding. I had budgeted 3k for deductions. But, you know what? They called me the next day to say there was $0 in repairs required...say what!?!?
OK... Cool but I remembered reading some reviews where they get you at closing with hidden fees, so when they sent the closing disclosure I scrutinised it and found nothing out of the ordinary just the usuals... HOA transfer fee, title insurance, taxes, title company fee.. That was about it.. The net was what I had expected. I went to the closing appointment exactly 14 days from when I signed the contract and closing lasted about 20 minutes. The money was wired to my bank account in exactly 87 minutes after closing. It was seriously the easiest transaction ever. I would totally use them again when in a time crunch to sell. Could I have gotten more money if I sold with a realtor? .. Yes..... would it have taken me than 14 days? .. Yes... for my need, opendoor was perfect. Plus looking at comps and such and paying 6% vs 8.5‰ and not paying the mortgage, insurance, utilities, and maintaining the yard, etcetera for an extra 2 months or so while the house was on the market, I think I would have made 5 to 8k more with a realtor but it was totally worth it to unload that house quickly with zero stress.
- Investor · Plymouth, MI · Member since 2016 · 48 posts · 70 votes7y
I have a rather curious view of the ibuyer model. I am often putting in offers on homes against zilow, offerpad or opendoor here at marketplace homes. Sometimes I'm selling back to them. My observations are that opendoor and Zillow are overly data driven and lack human logic and that can be exploited;
1). The fee is not important, the fair market is. Ibuyers can be tricked to over pay easily. But it's in data,not negotiation. The data can get us flippers big ibuyer profit.
2). These companies are often overpaying either on purpose or by accident. Zillow just reported over $100k per home loss on flipped homes, wowza! How's that data working for you?
3). It is VERY easy to drive up your offers from ibuyers and I'll show you how.
Unlike traditional flippers that work to find what a seller needs, the new ibuyer model is based on offering what the buyer wants to pay (without discussion). As the old saying goes, he who speaks first loses and there are some easy ways to beat the giants.
All the ibuyers use avm's. Many are based off Zillow (but they don't admit it). Zillow is certainly off Zillow. Your zestimate will drive your offer at all these shops.
How do you drive up your zestimate? I can add 20% to any zestimate in 60 days.
1). When we buy, we purchase above market and pay ourselves a commission back as the broker. This moves the avm's up. But our seller gets the same number. Example - we close a $200k home at $240k with a $40k commission. Since it's a cash deal, it's fine.
2). If I sell to an ibuyer, I adjust all the Zillow data to reflect the remodel. I also run the comps on zillow to compare to strong comps.
3). Then I might list the home I just bought at $260k. Zillow will almost instantly bounce up the zestimate. This started after a lawsuit where a seller blammed Zillow for a low zestimate for hurting his home value.
4). Sometimes we buy multiple homes in a neighborhood using this method, essentially setting up an avm to fail and driving up 20% over value in a tiny submarket.
5) with in days of the listing, you have an avm at over 20% above fmv. Then you call the ibuyers and you will chuckle at those data driven offers... Believe me. Who cares if they want 10% at $260k when I'm $60k over fmv.... But they are 10% below the avm... Yep, win win!
If you think they have people reviewing offers you are wrong. Zillow brags about 90,000 offers they put out. At that volume, it's all avm driven. I generally get offers in 30 minutes. No one is thinking it through.
Other areas an avm really wins and you will get a lot from an iBuyer;
1) the home is on a main road, but the other comps seem fine. Avm doesn't pick up the road.
2). Interior colors outdated are not avm dependent.
3). The most unupdated production home in a production neighborhood will get the same offer as the most upgraded. If your home is modest you can win. If you are over upgraded, you won't get the most from whole seller.
Lastly and most curious, I've bid against ibuyers for a $200k home and every company is putting in offers, then looked 4 homes over and saw a forclosure for $100k... And I'm the only one buying that. Go figure.
My hope is that other flippers take my suggestions and drive up your prices to ibuyers getting yourself a very nice win indeed.
Originally posted by @Michael Kalis:
My hope is that other flippers take my suggestions and drive up your prices to ibuyers getting yourself a very nice win indeed.
Z has outsourced a 3rd party brokerage in our town to do their buying. They seem a bit more reasonable. Opendoor on the otherhand is overpaying from what I've seen. They must be going after marketshare. When I checked last week, they had 63 active listings in Denver. I'm guessing about $20mln sitting active plus more under contract. Those carrying costs have got to be adding up.
- Investor · Plymouth, MI · Member since 2016 · 48 posts · 70 votes7y
Hey @matt - Denver is one market I am unfamiliar with. Although I do understand buying marketshare to a certain degree, the levels I have seen have been curious.
- Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes7y
Originally posted by @John McCool:
I've submitted my house to Opendoor as a seller. Their offer came back right at what my realtor was suggesting I list the house at. The Opendoor offer was 372k, at closing I have to cut them a check for 9.5% of that 372k, roughly 35k. That leaves me with 337 in my pocket. There are no additional fees, commissions, nothing. I'm not sure where you guys are all getting your numbers from.
I understand why a realtor wouldn't like their services, they are basically the Carvana of housing. My sister sells cars and hates Carvana, my friend, who also happens to be my realtor (he's also an appraiser), is not crazy about Opendoor either. That said he was very surprised at the offer they've made. I'm going to have him go over the contract to make sure I'm not missing anything (and yes, I'll gladly pay him for his time), but so far it appears to be very fair and very legitimate.
Regarding inspections and repairs, there is a kick out clause in the contract, that if I'm not in agreement on the requested repairs I can back out of the deal with no obligations.
-John
It just seems they are having you pay the privledge of selling your house to them. How can this be better for you. Why do they need that 12% charge for what?
- Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes7y
Call me crazy but maybe the concept of housing as an investment and extreme profit is just going to exacerbate the problem. Didnt extreme wall street greed mess things up royally in 2008.
None of this helps the average homeowner - the bedrock of a stable country!
Everything is being "Amazoned" to the lowest common denominator.
Just like foreclosures the only ones that can get a deal are the wealthy, the average guy who wants to buy a house and not be saddled with extreme overvaluation on a home has no options. Its always profit over people.
Maybe it is time we reign in the entire concept of housing.[Please do not call me a socialist just some common sense!}
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes7y
I believe these national startups are a flash in the pan. They are not long term viable They are capital intensive, the debt service is going to kill them. For a period of time they will be able to raise more money, but it will dry up. Unlike facebook or other tech startups, their cost per unit does not continue to fall past a certain point. Any bump in the road and they run out of money.
My assumption:
Average house price 200,000 They have particular criteria, age size , etc.
50 states and average of 50 houses at any given moment 2500 houses inventory
200,000 x 50 x 50 =500,000,000
debt service 8% annually = $3.3m a month average days on market 60-90
Insurance on 2,500 houses @ 100 a month = 250k
property tax on 2,500 @ 100 a month = 250k
Title fees, stamps etc.
Carrying costs almost 4m a month 60-90 days average on market, assuming no repairs of title delays etc.
This does not take into consideration the maintenance which will take a small army just to check on the properties cut the grass.
The marketing budget has to be in the high 7 figures. They are all over the media
They will pay buyers agents 3% to sell the houses.
This is all before they pay the staff and keep the lights on.
If they could keep thier fixed costs to under 10% per house, they may be able to break even. That would assume they buy 20% below market and sell at market, with no repairs or delays.
200k house @ 10% fixed costs = 20k. They have made no improvments and need to sell the hosue for 220k+ to be even. They have not covered the cost of running the business & marketing, just the inventory cost.
They have the same problems, we all have as small investors. They can not buy under market or sell over market any more than any other investors. I do not see how they will create superior returns, with such a large infrastructure. If we are not meeing our goals, we can ride it out though the down turn or adjust our model and rent the property. When the market softens, their investors are going to sell their shares and the business will be forced to sell the assets to cover their investor liquidation. Unlike other start ups that have no asstes and no inverntory, they are on a shorter leash. They are tied to stock market valuation, not the RE market.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Rob Massopust:
Call me crazy but maybe the concept of housing as an investment and extreme profit is just going to exacerbate the problem. Didnt extreme wall street greed mess things up royally in 2008.
None of this helps the average homeowner - the bedrock of a stable country!
Everything is being "Amazoned" to the lowest common denominator.
Just like foreclosures the only ones that can get a deal are the wealthy, the average guy who wants to buy a house and not be saddled with extreme overvaluation on a home has no options. Its always profit over people.
Maybe it is time we reign in the entire concept of housing.[Please do not call me a socialist just some common sense!}
hud houses are to be offered to owner occ for 14 days if no one buys then they go on the open market
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Lesley Resnick:
I believe these national startups are a flash in the pan. They are not long term viable They are capital intensive, the debt service is going to kill them. For a period of time they will be able to raise more money, but it will dry up. Unlike facebook or other tech startups, their cost per unit does not continue to fall past a certain point. Any bump in the road and they run out of money.
My assumption:
Average house price 200,000 They have particular criteria, age size , etc.
50 states and average of 50 houses at any given moment 2500 houses inventory
200,000 x 50 x 50 =500,000,000
debt service 8% annually = $3.3m a month average days on market 60-90
Insurance on 2,500 houses @ 100 a month = 250k
property tax on 2,500 @ 100 a month = 250k
Title fees, stamps etc.
Carrying costs almost 4m a month 60-90 days average on market, assuming no repairs of title delays etc.
This does not take into consideration the maintenance which will take a small army just to check on the properties cut the grass.
The marketing budget has to be in the high 7 figures. They are all over the media
They will pay buyers agents 3% to sell the houses.
This is all before they pay the staff and keep the lights on.
If they could keep thier fixed costs to under 10% per house, they may be able to break even. That would assume they buy 20% below market and sell at market, with no repairs or delays.
200k house @ 10% fixed costs = 20k. They have made no improvments and need to sell the hosue for 220k+ to be even. They have not covered the cost of running the business & marketing, just the inventory cost.
They have the same problems, we all have as small investors. They can not buy under market or sell over market any more than any other investors. I do not see how they will create superior returns, with such a large infrastructure. If we are not meeing our goals, we can ride it out though the down turn or adjust our model and rent the property. When the market softens, their investors are going to sell their shares and the business will be forced to sell the assets to cover their investor liquidation. Unlike other start ups that have no asstes and no inverntory, they are on a shorter leash. They are tied to stock market valuation, not the RE market.
I suspect their cost of capital is about half of what your thinking.. and I experimented with my Summerlin Townhouse. I called them.. they offered me 260k and its fair market value is a tad over 400k.. not sure how many bite on that.
so then there is one in Oregon and I responded to that solicitation with my house here in lake Oswego.. this one was a little different.. they offered an automated number very quickly they offer just under 700k.. on a house that would retail today at about 1.2 but they also showed a matrix of how I could net more money with an agent.. and here are 3 agents that are pro's in the market.. and two of those agents called me for listing appointments.
so I see this as more Zillow type just fishing for leads that agents pay for..
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes7y
I did the same thing. I had them quote a house that is woth 310 and they offered me 275.
Regardless of their cost of money, they are being valued as a start up and will never achive the results venture fund investors are looking for.
The Zillow referal model is viable. However, it is not a multi-billion idea. There are already a ton of sites providing that service.
Originally posted by @Jay Hinrichs:
Originally posted by @Lesley Resnick:
I believe these national startups are a flash in the pan. They are not long term viable They are capital intensive, the debt service is going to kill them. For a period of time they will be able to raise more money, but it will dry up. Unlike facebook or other tech startups, their cost per unit does not continue to fall past a certain point. Any bump in the road and they run out of money.
My assumption:
Average house price 200,000 They have particular criteria, age size , etc.
50 states and average of 50 houses at any given moment 2500 houses inventory
200,000 x 50 x 50 =500,000,000
debt service 8% annually = $3.3m a month average days on market 60-90
Insurance on 2,500 houses @ 100 a month = 250k
property tax on 2,500 @ 100 a month = 250k
Title fees, stamps etc.
Carrying costs almost 4m a month 60-90 days average on market, assuming no repairs of title delays etc.
This does not take into consideration the maintenance which will take a small army just to check on the properties cut the grass.
The marketing budget has to be in the high 7 figures. They are all over the media
They will pay buyers agents 3% to sell the houses.
This is all before they pay the staff and keep the lights on.
If they could keep thier fixed costs to under 10% per house, they may be able to break even. That would assume they buy 20% below market and sell at market, with no repairs or delays.
200k house @ 10% fixed costs = 20k. They have made no improvments and need to sell the hosue for 220k+ to be even. They have not covered the cost of running the business & marketing, just the inventory cost.
They have the same problems, we all have as small investors. They can not buy under market or sell over market any more than any other investors. I do not see how they will create superior returns, with such a large infrastructure. If we are not meeing our goals, we can ride it out though the down turn or adjust our model and rent the property. When the market softens, their investors are going to sell their shares and the business will be forced to sell the assets to cover their investor liquidation. Unlike other start ups that have no asstes and no inverntory, they are on a shorter leash. They are tied to stock market valuation, not the RE market.
I suspect their cost of capital is about half of what your thinking.. and I experimented with my Summerlin Townhouse. I called them.. they offered me 260k and its fair market value is a tad over 400k.. not sure how many bite on that.
so then there is one in Oregon and I responded to that solicitation with my house here in lake Oswego.. this one was a little different.. they offered an automated number very quickly they offer just under 700k.. on a house that would retail today at about 1.2 but they also showed a matrix of how I could net more money with an agent.. and here are 3 agents that are pro's in the market.. and two of those agents called me for listing appointments.
so I see this as more Zillow type just fishing for leads that agents pay for..
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Lesley Resnick:
I did the same thing. I had them quote a house that is woth 310 and they offered me 275.
Regardless of their cost of money, they are being valued as a start up and will never achive the results venture fund investors are looking for.
The Zillow referal model is viable. However, it is not a multi-billion idea. There are already a ton of sites providing that service.
Originally posted by @Jay Hinrichs:Originally posted by @Lesley Resnick:
I believe these national startups are a flash in the pan. They are not long term viable They are capital intensive, the debt service is going to kill them. For a period of time they will be able to raise more money, but it will dry up. Unlike facebook or other tech startups, their cost per unit does not continue to fall past a certain point. Any bump in the road and they run out of money.
My assumption:
Average house price 200,000 They have particular criteria, age size , etc.
50 states and average of 50 houses at any given moment 2500 houses inventory
200,000 x 50 x 50 =500,000,000
debt service 8% annually = $3.3m a month average days on market 60-90
Insurance on 2,500 houses @ 100 a month = 250k
property tax on 2,500 @ 100 a month = 250k
Title fees, stamps etc.
Carrying costs almost 4m a month 60-90 days average on market, assuming no repairs of title delays etc.
This does not take into consideration the maintenance which will take a small army just to check on the properties cut the grass.
The marketing budget has to be in the high 7 figures. They are all over the media
They will pay buyers agents 3% to sell the houses.
This is all before they pay the staff and keep the lights on.
If they could keep thier fixed costs to under 10% per house, they may be able to break even. That would assume they buy 20% below market and sell at market, with no repairs or delays.
200k house @ 10% fixed costs = 20k. They have made no improvments and need to sell the hosue for 220k+ to be even. They have not covered the cost of running the business & marketing, just the inventory cost.
They have the same problems, we all have as small investors. They can not buy under market or sell over market any more than any other investors. I do not see how they will create superior returns, with such a large infrastructure. If we are not meeing our goals, we can ride it out though the down turn or adjust our model and rent the property. When the market softens, their investors are going to sell their shares and the business will be forced to sell the assets to cover their investor liquidation. Unlike other start ups that have no asstes and no inverntory, they are on a shorter leash. They are tied to stock market valuation, not the RE market.
I suspect their cost of capital is about half of what your thinking.. and I experimented with my Summerlin Townhouse. I called them.. they offered me 260k and its fair market value is a tad over 400k.. not sure how many bite on that.
so then there is one in Oregon and I responded to that solicitation with my house here in lake Oswego.. this one was a little different.. they offered an automated number very quickly they offer just under 700k.. on a house that would retail today at about 1.2 but they also showed a matrix of how I could net more money with an agent.. and here are 3 agents that are pro's in the market.. and two of those agents called me for listing appointments.
so I see this as more Zillow type just fishing for leads that agents pay for..
back in 2011 2012 when hedgefunds started buying SFRs in mass quanities I would watch what they were buying at courthouse steps and think shoot these guys are dumb this wont work.. well I just never imagined they could package them all up and then sell the lease revenue as a derivative.. I figure for sure they would flame out.. at least the ones I saw buying low end C class or below.. and that did play out after a few years they stopped buying those as we all know that revenue from those assets is anything but stable.
- Member since 2018 · 2 posts · 0 votes7y
Originally posted by @Curt Riffel:
My understanding is they have the financial backing of Berkshire Hathaway, so basically billions.
They operate in 3 markets, Phoenix, Dallas, and ??
The offer I received on my house from Opendoor was over the Zestimate if that means anything. I was just curious, not looking to sell right now, but thought the offer was fair or high. My wife and I have enjoyed looking at the open houses they have throughout the Dallas area. They are open from 6am - 9pm with an access code sent to your phone. Really easy process to view homes with no expectation from a realtor.
The fees to sell to them are around 9-11% if I recall correctly. They are very upfront about the fees and can close on a certain date if that is helpful to you. I think it is a game changer in the real estate industry.
I am personally looking forward to all selling fees dropping because of technological advances and flat MLS listing fees. The days of 6% commissions are numbered.
I'm a Realtor in the Austin area, and there's a frequent discussion about this lately especially with Zillow and a few other big names offering something similar. My question to you us, why would someone pay 11% when they could pay ~6% or less and help a local business owner and/or get better service?
I think about my coffee shops. I would much rather go to a local shop than Starbucks (even though they employ many local people. I feel the tax benefits, creativity, capitalism, and sometimes slight inconvenience is often worth the extra effort.
I feel like the biggest hurdle in real estate today is in the amount of choices. Not knowing who to trust or hire, and that's why so many people would go to some place like offerpad or zillow... but they're trading years of experience for a min wage employee that's inputting the transaction from a sheet of paper and not helping the 15+ local families in the process, AND still paying more to do so?
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes7y
Originally posted by @Lesley Resnick:
I believe these national startups are a flash in the pan. They are not long term viable They are capital intensive, the debt service is going to kill them. For a period of time they will be able to raise more money, but it will dry up. Unlike facebook or other tech startups, their cost per unit does not continue to fall past a certain point. Any bump in the road and they run out of money.
My assumption:
Average house price 200,000 They have particular criteria, age size , etc.
50 states and average of 50 houses at any given moment 2500 houses inventory
200,000 x 50 x 50 =500,000,000
debt service 8% annually = $3.3m a month average days on market 60-90
Insurance on 2,500 houses @ 100 a month = 250k
property tax on 2,500 @ 100 a month = 250k
Title fees, stamps etc.
Carrying costs almost 4m a month 60-90 days average on market, assuming no repairs of title delays etc.
This does not take into consideration the maintenance which will take a small army just to check on the properties cut the grass.
The marketing budget has to be in the high 7 figures. They are all over the media
They will pay buyers agents 3% to sell the houses.
This is all before they pay the staff and keep the lights on.
If they could keep thier fixed costs to under 10% per house, they may be able to break even. That would assume they buy 20% below market and sell at market, with no repairs or delays.
200k house @ 10% fixed costs = 20k. They have made no improvments and need to sell the hosue for 220k+ to be even. They have not covered the cost of running the business & marketing, just the inventory cost.
They have the same problems, we all have as small investors. They can not buy under market or sell over market any more than any other investors. I do not see how they will create superior returns, with such a large infrastructure. If we are not meeing our goals, we can ride it out though the down turn or adjust our model and rent the property. When the market softens, their investors are going to sell their shares and the business will be forced to sell the assets to cover their investor liquidation. Unlike other start ups that have no asstes and no inverntory, they are on a shorter leash. They are tied to stock market valuation, not the RE market.
Lesley, I contend your assumptions are off. I am curious, where are you getting your speculative data from? A better question is why are you making this data up instead of looking at the actual Jacksonville FL market data where they operate? OpenDoor is in 20 markets, not 50. They are in Jacksonville FL and in Raleigh NC. In Raleigh, OpenDoor as of 6/1/2019 has 223 properties in Wake county, which is all I can see because I am not a Realtor. Here's their current top 6 city mix:
12 APEX
27 CARY
13 FUQUAY VARINA
14 HOLLY SPRINGS
103 RALEIGH
24 WAKE FORESTThe average square footage is 2096 sq.ft, and their average purchase price is about $268,341. That's $59,840,500 of property basis just in Wake county NC (Raleigh) and not Durham and Chapel Hill and surrounding area. $60M in Wake. So I contend your $500M is low since 12% of that is just in Wake county, just part of one of the smaller markets on their list. They have sold about 250 houses so far in 2019 based on 444 public record DEED transfer line entries from OpenDoor to their end buyers and the fact that there are duplicates in there (I didn't count each).
Note rates shouldn't be that far off from REIT rates, so as Jay said your number is about twice what I would expect (1 year LIBOR @2.5% +1.5% spread +/-).
I don't have the sales history in automated searches, so I did 5 sales they did on 5-31-2019 by hand. Their spread averages 4.6% but it's too small a sample set to be meaningful. One property was sold at a loss. Their average turn is about 90 days. At that rate... 4 turns per year or about 20% on capital, gross spread not net. These guys aren't like AH4R buying fixers at the courthouse.
I am thinking of selling through them once just to see what it is like. At least I will get a number.
The OpenDoor PPM or S-1/S-11 has all the details of their business. If anyone has access, I would like you to please contact me...
@Jay Hinrichs , American Homes for Rent is still alive at a $9B market cap. Their last quarter (ended 3/31/19), after all expenses including interest payments and after depreciation expense, they made $33M on $277M in revenue. I had my doubts early on, but they clearly made their business model work. They never achieved a multiple of book value, though, which I think was their 'wish'. They are sitting on billions of unrealized
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Martin AH4R in our market bought A and B assets very little C.
some of the hedges though in the deep deep south were buying C class though and still do.
- 7yAdam SchneiderPro MemberLender · Raleigh, NC · Member since 2012 · 957 posts · 639 votes
@Chris Martin Thanks for providing the quick analysis on OpenDoor in Raleigh. If they have 223 properties, and have sold 250 after 5 months of the year, that looks closer to a 4.5 month turn rather than a 3 month turn, or am I missing something (250 / 5 is 50 sales a month....roughly 4.5 months to burn through current inventory).
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes7y
@Adam... @ not working on old android at the moment. Adam, good question. I am not in front of my Linux machine at the moment so I will summarize. I don't have exact numbers on how long it took them to sell their last sets of properties. I don't currently have visibility to the deed Trail other than the current ownership. The 5 sample Sales that I used were based on Wake County sales via ROD Books! I searched for deed transfers with grantor as opendoor, and randomly used five records from the last day of last month. I found who they sold to and then looked up the property card to find the deed transfer dates. One sale occurred on a property that they bought late last year, and I think those long sales Cycles will skew the average. But the mean I believe, will be 60 to 90 days. The other four sales were between 32 and 68 days if I remember correctly.
To get the ROD data for the prior owner in the Deed Trail, I will need to use a screen scraper. The old one I had written in Python doesn't work anymore so I won't have an answer in short order. It would be a lot easier to just read the private placement memorandum but I am not in that privileged group to see the document..
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes7y
Revenue-wise , they are making money on fees that are above average compared to traditional brokerages and they are making a small spread on the property sale. Even with just two turns on their Capital per year, they might have a sustainable business model. Reading and digesting the PPM... that will show the real story.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.