Zillow Group is testing a new service that looks a lot like Opendoor. Sellers can use “Zillow Instant Offers” to get a bid on their property within 24 hours, and if they choose to accept it, close in as little as a week.
- Zillow Instant Offers is a marketplace for investors to compete for sellers, while Opendoor is a direct buyer.
Zillow Group is testing a new service that looks a lot like Opendoor. Sellers can use “Zillow Instant Offers” (Instant Offers) to get a bid on their property within 24 hours, and if they choose to accept it, close in as little as a week.
But don’t confuse Instant Offers for an Opendoor clone. Here are 10 important differences between the two.
1. Opendoor buys homes; Zillow Instant Offers connects sellers with investors.
Opendoor buys homes using debt from institutional investors, makes light repairs and then sells the properties at a premium.
Zillow does not buy any homes through Instant Offers. It acts as a middleman between homeowners on the one side and investors and real estate agents on the other, effectively creating a marketplace where investors can go head to head and compete for sellers.
Homeowners who sign up for Instant Offers will receive offers from as many as five investors within 24 hours. Homesellers who accept one will sell to an investor, not Zillow.
But Zillow will still monitor and facilitate transactions. Investors and sellers (and real estate agents, if one is involved) who use Instant Offers must exchange and sign paperwork through dotloop.
“We connect the seller and investor and create a loop in dotloop,” said Greg Schwartz, chief business officer at Zillow Group. (A “loop” is a dotloop transaction room.)
“Investors can use their own forms or the standard forms in dotloop to manage the transaction electronically. Zillow requires [that] the final P&S [purchase and sale] agreement is posted in the loop,” Schwartz added.
2. Zillow Instant Offers suggests using a real estate agent; Opendoor does not.
Instant Offers presents a Zillow agent advertiser as an option alongside bids from investors. Opendoor, which directly competes with listing agents, does not.
Encouraging Instant Offers users to work with real estate agents helps Zillow provide value to its agent advertisers, rather than potentially alienate them.
An agent advertiser’s “estimated sale price” and “estimated cash proceeds” will appear in a seller’s Instant Offers email beneath offers from investors. The agent advertiser creates this estimate — and a supporting comparative market analysis (CMA) — and can choose to be as optimistic as desired.
After comparing the agent’s estimated sale price to bids from investors, sellers may be tempted to list with the agent in the MLS. But even if sellers choose to accept Instant Offers, Zillow will encourage the seller to use the agent to close the deal, potentially setting up a slam dunk for the agent.
3. Zillow Instant Offers may send multiple offers; Opendoor sends one.
Homesellers can receive multiple offers through Instant Offers within 24 hours, but only one from Opendoor — also within 24 hours.
Zillow’s operation provides a choice to prospective sellers, and Opendoor’s exclusion from Instant Offers could cause the startup to lose business to Instant Offers investors, such as OfferPad and Blackstone’s Invitation Homes.
Instant Offers will effectively incubate and promote Opendoor’s competition. (Schwartz wouldn’t say if Zillow invited Opendoor to join Instant Offers’ investor roster.)
All offers from Instant Offers investors are good for five days. The same is true for offers from Opendoor.
4. Opendoor has more than two years of experience; Zillow Instant Offers is brand new.
Opendoor has been buying and selling homes for over two years, drawing on more than $300 million in equity funding to develop new technology, refine its business model and lower its cost to sellers.
Instant Offers is brand spanking new. But the service won’t push guinea pigs through untested tubing. It collects and sends property data to investors, wrangles and presents their bids, and then facilitates deals with battle-tested software, dotloop.
Most of the selling experience with Instant Offers rests with the program’s investors, not Zillow. And at least a few of them are highly experienced at using technology to make quick offers and close in days.
For example, one investor, Blackstone’s Invitation Homes, has bought tens of thousands of homes and converted them into rentals; and another, OfferPad, has used an Opendoor-like platform to purchase hundreds.
5. Instant Offers has built-in distribution opportunity that Opendoor can’t touch.
Tens of millions of consumers visit Zillow Group sites every month, offering the company the ability to immediately tempt active sellers, casual eye candy browsers and everyone in between to give Instant Offers a spin.
Opendoor has built a compelling property search site and advertised heavily in its markets, but it can’t match Zillow’s distribution or brand. However, the cash-rich startup will certainly pour millions upon millions more into advertising.
6. Zillow Instant Offers doesn’t collect fees (yet).
Instant Offers doesn’t charge any fees — not to sellers, investors or its agent advertisers. Its participating investors set their own fees, with the option to charge as little or as much as they like. And for now, its participating agent advertisers don’t pay any fee on top of their existing ad spend.
A sample Instant Offers package provided to Inman shows the following investor bids:
- $334,000 with no service fee ($334,000 cash proceeds)
- $360,000 with a 9 percent service fee ($327,600 cash proceeds)
- $319,000 with a 3 percent service fee ($309,430 cash proceeds)
As will likely often be the case, the agent’s estimated sale price ($372,000) and estimated cash proceeds ($349,680) look the best.
The message is clear: If you accept the highest investor offer rather than list with the agent, you risk leaving almost $16,000 on the table.
Meanwhile, Opendoor claims to buy at market value and charge an average service fee of 7.3 percent (down from 9 percent not long ago).
Will Instant Offers collect a toll in the future? Maybe, maybe not.
7. Opendoor offers a trade-in option and a money-back guarantee.
Opendoor’s “trade-in” program lets homeowners sell their home and buy a new one from Opendoor all at once. They can purchase an Opendoor listing or a new home built by national homebuilder Lennar. It also offers a money-back guarantee that promises a full refund to buyers should they sour on the home they bought from Opendoor.
As a middleman between investors and homesellers, Instant Offers does not provide any of these perks — though Instant Offers investors could choose to if they wanted.
8. Opendoor is building an experience for buyers.
All-day open houses, end-to-end software, mortgage brokerage and looped-in vendors are just a few of the perks that Opendoor provides to homebuyers.
Instant Offers is for sellers alone. Its partner investors, such as OfferPad, are designing ways to make it easy for buyers to purchase homes, but Instant Offers has no hand in that.
9. Opendoor can offer a faster close than Zillow Instant Offers investors.
Instant Offers sellers can close in as little as seven days after they accept an offer, whereas Opendoor sellers can close in as little as three days.
10. Zillow Instant Offers and Opendoor only overlap in one market, but that could change.
Instant Offers is being tested in Orlando, Florida, and Las Vegas. But given that Instant Offers investors have been buying and selling homes in many other markets, the service could expand to new ones if it proves a success in the test markets.
Opendoor, meanwhile, operates in Phoenix, Dallas-Fort Worth and Las Vegas, meaning Instant Offers is currently only fostering competition for Opendoor in one market.
When Opendoor announced a $210 million funding round in November 2016, the company was reportedly planning to expand to 10 cities in 2017, with the hope of covering 30 by the end of 2018. Opendoor is gearing up to launch in Atlanta, Georgia, and in the past, has mentioned Portland, Oregon as a potential target.
Because Opendoor and Instant Offers investors use automated valuations to make offers, the two will likely target markets with homogenous housing stock that is relatively easy to value.