Opendoor, the “big-data house-flipping startup” founded by former PayPal and Square exec Keith Rabois, has launched in Phoenix, Arizona, with plans to expand to Portland, Oregon, and Dallas, Texas, over the next few months.
In launching, the company has pulled back the curtain on its much-anticipated business model, revealing that it will charge a commission comparable to a broker’s fee; inspect homes before fully committing to the data-based offers it makes online; and work with sellers using listing agents.
Opendoor makes instant offers on homes based on an analysis of public and private data, and then flips them. Homeowners who sell to Opendoor must pay a 5.5 percent commission, or “convenience charge”; cover most closing costs (Opendoor will cover half of escrow charges); and accept a discounted price on their home.
“Our offers are priced close to our prediction of resale price minus a few percentage points to account for the risk we take upon the purchase of the home,” Opendoor CEO Eric Wu told Inman.
Opendoor “removes the uncertainty and stress involved in a typical real estate transaction,” said Keith Rabois, co-founder and partner at Khosla Ventures, in a statement.
Sellers enter their address and some basic information to receive an offer from the company within minutes, the company says.
Asked how Opendoor generates its home value estimates, Wu wouldn’t offer specifics. Be he did say that the startup gathers “disparate sources,” including home characteristics, home conditions, competitive market analysis, and market trends including close rates, listing rates, home price indices, historical data, location information and homeowner data.
Consumers working with Opendoor may choose their “move-out” and closing date. Wu said Opendoor can close a sales in as soon as three days.
“If you are considering selling your home, we instantly provide an offer at a fair price and give homeowners the freedom to move on their timeline,” said Rabois in a statement.
While Opendoor strives to offer the right price upfront, the company is willing to consider information from a seller — which might include photos showcasing a home’s stellar condition — that could convince the startup to adjust its offer.
And just because a seller accepts an offer from Opendoor doesn’t mean the sale is a done deal. The company must confirm that the condition of the home matches a homeowner’s description through a home inspection and final walk-through.
“If upon inspection we estimate the repair costs to be greater than your estimated costs, we will ask for a credit to cover our additional repair expenses,” reads the company’s website‘s explainer on home inspections. “You then have the option to move forward with the repair credit or to walk away at no cost.”
Opendoor isn’t slamming the door — so to speak — on listing agents. Many of its beta customers worked with real estate agents, according to Wu.
“We’re focused on perfecting the experience for homeowners, and we’re not excluding homeowners with [a] Realtor,” he said.
If Opendoor customers do work with real estate agents, however, they will have to pay a commission to their agent, in addition to covering Opendoor’s commission, paying most closing costs and accepting a below-market price on their home.
“You do not need an agent to sell your home to Opendoor; however, you are welcome to work with an agent and we can communicate directly with them if you prefer,” Opendoor says on its website.
“If you are working with a real estate agent, you may have to pay them a listing commission, which is typically 3 percent,” the company says. “You only have to pay the listing commission; our convenience charge replaces the buyer agent commission.”
In a sale where both a buyer and seller are working with agents, listing agents typically charge somewhere between 5 and 6 percent, and share half of that with a buyer’s agent. If a buyer is unrepresented, some listing agents may agree to charge a smaller commission since they don’t have to share any of it with a buyer’s agent.
Opendoor says it uses its 5.5 percent “convenience charge” to cover the cost of selling a home, which includes repair, maintenance, mortgage and insurance costs.
“Typically, homeowners eat these costs,” the company’s website says. “Instead, we take them on for less than the 6 percent agents typically charge to list a home for sale.”
Wu said Opendoor is using financing from a financial institution to buy homes, but declined to disclose the name of its partner.