This is an opinion-based response to Teke Wiggin’s “Opendoor’s money-back offer cures homebuyer’s remorse.” Opendoor also wrote a response to this piece.
Opendoor is a startup that descended upon Arizona sometime in 2015. Three young men from the San Francisco area have secured an insane amount of money from investors, and they chose the Phoenix market to prove their worth, build their reputation, explode their business — and become mega-millionaires in the process.
I love entrepreneurs, I love startups, I love creativity and the belief you can do things differently and better than they have been done for decades.
I don’t love people not getting the equity they should out of their homes due to lack of knowledge or an especially great sales pitch.
Maybe I feel this way because of the recession we are finally putting in our past. Maybe I feel this way because every home has an owner who deserves to know his or her full equity picture, and all the options.
I love that Opendoor gives people the option to cut and run if they need to or want to. I also love that the purchase prices didn’t seem to be the crazy lowball numbers I am used to seeing from investors.
But in most situations, in my opinion, Opendoor does the homeseller a disservice, and that seller would put much more in their pocket if he or she took the traditional route.
Sellers paid, according to Opendoor, 6 to 12 percent in fees. I’d like to know what percentage of sales were at 6 percent or 7 percent, rather than 10 percent to 12 percent.
(Opendoor provided this data and statement to Inman: “Over the past 3 months, 46 percent of our Phoenix customers paid 6 percent to 7 percent fees, and only 8 percent of customers paid above 10 percent. We are always working to lower fees and pass our cost savings back to our customers.)
Also, sellers pay for all repairs that were found during inspections, (repairs, if not warranted, are negotiable in traditional sales; plus sellers must pay whatever Opendoor charges for needed repair). According to Opendoor’s inspection brochure, the company offers two other options: Sellers can tackle the fix themselves or “say goodbye.”
(Opendoor said it loses, on average $1,750 per home to repair costs.)
And sellers split their closing costs with Opendoor (so no savings here); sellers are clearly giving up significant equity in exchange for convenience.
On a $300,000 house, giving up 3 percent to 4 percent of market value — plus paying 12 percent commission or fees and making all repairs needed — can add up to a very pretty penny.
(Opendoor: “Over the past 3 months, only 2 percent of our Phoenix customers paid 12-percent fees. Not one customer paid more than that.”)
The market value hit is worth $12,000, and the higher commission or fees is worth at least $18,000 — plus the repairs; that’s $30,000 less in their pocket by going with Opendoor versus hiring a real estate agent and selling the traditional way.
Also, Opendoor reserves the right to renegotiate after the inspection period if it decides that something they discover will affect the resale value.
This might just be a bad color option for the countertops, so that $5,000 hit is added to fees, but the property still shows as selling for 96 percent of market value. (This is how Opendoor makes money but appears to buy close to market value.)
Early warning signs
I read about Opendoor before they even announced that Arizona would be one of their first markets, but of course, it was no surprise it would choose Arizona. What was surprising is how quickly it bought up properties.
It seemed every time I pulled comps, whether for a buyer or a new listing, Opendoor owned at least one of the homes I was using to comp the neighborhood.
It became apparent quickly that Opendoor didn’t seem to have “adverse conditions” worked into its formula: backing a busy road, being on a busy corner or backing a business didn’t take the hit in its formula that it should have.
Those properties will always be more difficult to sell and usually only sell once they are reduced significantly below other homes in the same neighborhood without that adverse condition. I saw quite a few sales in which Opendoor clearly lost a lot of money.
Now, Opendoor is offering to buy back a house if a buyer has “buyer’s remorse.” I would guess most buyers have that moment of complete panic when they have moved into their new home, and they think every single thing is not working, not realizing that it is only operator error.
We all have that nagging insecurity that we messed up again, and we bought a lemon after a large purchase.
But let’s say this buyer doesn’t get over his or her moment of panic, and he or she really does want out. In this scenario, if a buyer chooses to return the home, what happens to the buyer’s agent commission?
Opendoor said, “If they (buyers) purchased a home through an agent, it’s fully their agent’s prerogative to keep their commission, return it, or offer to help the buyer find their next home commission-free.”
(Opendoor adds: “Opendoor’s guarantee program originally didn’t refund buyer agent commissions or transaction fees, but we modified the policy back in August after receiving feedback from our agent partners. When a buyer returns a home, Opendoor will refund the full buyer’s agent commission, as well as all transaction fees. No agent was ever asked or pressured to pay back a commission.”)
Opendoor says the buyer’s agent will look like a hero to that buyer. I’m sorry, but I doubt it.
Chances are buyers will blame their agent for selling them a lemon. They will think that the agent didn’t inform them of all of the risks and didn’t suggest enough inspections to be safe. They will not be able see this is a situation that could not be foreseen, or that it’s about their own insecurities — the buyer’s agent will be to blame.
You know what else I imagine? I imagine this buyer was not an easy one. Anyone who would go through the process of buying a house — only to return it within 30 days — is most likely a little high maintenance; perhaps he or she is the kind of buyer who has already worked with seven different buyer’s agents and either fired them or were fired by them.
If you have been in the business for any length of time, you know exactly the buyer I am talking about. We make the sale to buyers like this by sheer grit and determination.
One minute we’re enjoying the challenge, and the next minute we’re calculating that if the house does close, we will be making 36 cents an hour — that is, if we don’t speak with that buyer one more time before closing.
Imagine giving that commission back, and saying to this buyer, “Alrighty, let’s get started again.”
Even if we are willing to do that, guess who likely won’t be? The buyer.
He or she will probably rent. Or hire someone else who will do a “better job.” Guess who will become enemy no. 1 in the agent’s mind? Opendoor.
Welcome to real estate 101
We have enough risk in our profession. Why would we want additional risk? Opendoor says if we don’t want to return the commission, we can offer to represent the buyer on their next purchase “free of charge.”
Opendoor, welcome to real estate 101, but guess what? We don’t charge buyers for our services. We are paid by the seller for bringing a qualified buyer to their property. This is why you, Opendoor, paid this commission to us, and a buyer changing his or her mind does not mean we didn’t do our job.
Opendoor says if the buyer wants to return the home, then we have done a disservice to the buyer by selling it to him or her. Really? We don’t make decisions for our buyers.
We offer information, suggest inspections, tell stories about past clients and why they regretted a similar purchase, inform buyers of inspection time periods, offer lists of inspectors and websites, refer contractors, help get bids, show market trends and analysis, pull comps and point out details and reasons — but we don’t decide which house they buy.
How will we feel when the next buyer we are working with, even though delightful and fun, has an Opendoor listing on the list of must-sees? Also, what will brokerages do with commissions from Opendoor if they know it might ask for that commission back? I imagine they will hold those commissions until that buyback guarantee is over.
I don’t blame brokerages; once that money is in an agent’s grubby little hands, the chances of getting it back are slim to none. Honestly, lots of agents won’t have it to give back! We need those commissions to pay our mortgages, buy our gas, shop at Costco, etc.
Sometimes we don’t receive commissions as often as we would like, and so when one does hit our account, it is gone faster than you can imagine. Then what? We have to pay Opendoor back? Explain our financial circumstances to this buyer? No matter what, we are ruined to our buyer. What a nightmare. No, thank you.
The biggest mistake of all
All real estate agents who support themselves and/or their families through real estate sales know they are taking a risk by choosing this profession. As a single mom, I know this risk intimately. Adding additional risk to my commissions does not sound attractive.
It does not sound like something that would make me want to work with Opendoor, ever. I don’t want to have that conversation with my clients. I don’t want to tell them that I would prefer to stay away from Opendoor because I work very hard to support my family, and I am only a few missed commissions away from serious trouble.
Buying a house shouldn’t have anything to do with a real estate agent’s precarious financial position. It should be about the buyer purchasing the best house on the market for the buyer and his or her family.
Buyer’s agents should counsel their clients about making smart choices for their family. Our responsibility is helping them buy a home without any adverse conditions within the school district of their choice, within a good commute to work and with a great floor plan for their family dynamic — to find a house that is selling at a great price-per-square-foot and will work for them.
Nowhere in that decision should the owners of the house be considered because of their guarantees that could leave the real estate agent empty handed.
We are in the service industry. It is about the public, not us. But how do we keep it from being about us with this kind of guarantee floating around that will be horrible for us, even if it just means we have to wait another month for our commission?
We can’t filter Opendoor houses out of our client’s searches. We know they will find them elsewhere, and we will look shady for trying to hide them. Also, if Opendoor is selling a house that is perfect for a buyer, we want to show our buyer.
Opendoor has made mistakes in the prices it has paid for some of its homes, but this new policy could turn agents against the company.
I think that could be the biggest mistake of all. Soon, Opendoor will be like the builders who offer agents extra commission to bring buyers in when the market slows down, but lower the amount and the price point they pay on when the market heats up.
Opendoor, with its literal doors open 24-7, might start to sweeten the deal if the real estate agent is cut out of the picture, and the thought of saving money can be exciting and delightful, and it can feel like a windfall to many people.
Very few people understand the amount of time and effort that goes into what we do, so if they’re told real estate agent commissions are ridiculous, they will agree. Then we will have to worry about losing buyers to Opendoor. Just like we worry about losing buyers to new builds.
Opendoor will make the public believe that representation is unnecessary and expensive. The public is already bombarded with unrealistic information regarding the ease of our profession.
Bravo TV, you know I love you, but you certainly haven’t helped the public’s perception with your adorable boy real estate agents making deals in minutes and then showing those insanely high commissions pop up next to their beautiful faces.
It’s nowhere near that easy, especially when you care about people and put them in the right home for their family and for their finances.
Agents represent buyers and sellers; Opendoor represents itself.
Agents should be Opendoor’s ally
Opendoor also has offered extra advantages if the person both buys and sells with the company, and that level of shady is something I haven’t seen since 2006. Let’s not go back there, Opendoor.
You can offer your service without increasing your level of shadiness at every step. Don’t become the agent’s enemy. We should be your best asset — the people who help buyers see the advantages of the homes you are selling or bring you sellers when a situation is dire.
You’re young. Don’t make enemies before you’ve even found out who you are. Perfect your craft as you’ve started it — offering fair market value to sellers minus a whole lot of fees.
Buy right, sell right; you will grow and become rich, as long as you take the honest path that includes real estate agents.
Mary McIntosh is an associate broker at JK Realty. Follow her on Facebook.
Editor’s note: This story has been updated with responses from Opendoor.