News that Opendoor, the San Francisco-based iBuyer, acquired discount brokerage Open Listings was met with concern and cautious optimism as some agents called the move a “wake-up call.”
News of Opendoor’s acquisition of discount brokerage Open Listings was met this week with concern and cautious optimism — but little surprise — as some agents called the move a “wake-up call” for traditional brokerages.
For some, the appeal of an end-to-end solution that seamlessly binds Opendoor’s home-buying and selling arm with its mortgage and title insurance interests is unequivocal. For others, the ambitious scale of its reach, which through the acquisition now includes a new team of salaried in-house real estate agents and a cache of technology tools, is a stark reminder that traditional “independent contractor” models need be revamped to compete against the wave of iBuyers now emerging.
“It’s like buying a first-class ticket,” said Jason Frazier, the founder of Agent Marketer, referring to Opendoor’s latest acquisition, a move he believes other iBuyers will soon follow. “You’re getting from point A to point B just like the people in the back of the plane,” he said. “But you’re having a better experience doing it.”
Here’s what four real estate professionals had to say about the acquisition.
It’s all about the consumer experience
Jason Frazier, the founder of Agent Marketer, has kept a close eye on iBuyers like Opendoor since they began gobbling market share with the promise of seamless, hi-tech transactions that take a few days to complete.
Frazier, who has had 20 years of experience with tech startups and venture capital, says the acquisition of Open Listings will make Opendoor the first iBuyer to offer a “complete ecosystem” so that consumers can stay in, from beginning to end.
Although Opendoor’s experience may cost consumers more (fees that range from 6 to 12 percent, deductions for repairs, and an offer that may be less compared to what they’d get on the open market), Frazier says agents must understand one thing: consumers value experience over price.
“If I’m entering the Opendoor ecosystem, and I can stay in there and do everything I need to do, and get a great experience, there’s no need for me to shop around,” Frazier added. “If you’re going to compete and try to be better than that, you’re going to need to have the same type of services.”
Frazier says Opendoor’s move will push other iBuyers to craft more complete experiences for consumers, such as Zillow’s recent acquisition of Mortgage Lenders of America to make the home buying process through Zillow Offers more seamless.
“I think we’re going to see more of [iBuyers working to create an end-to-end experience],” he said. “I would imagine seeing more iBuyers do this because when it comes down to it, you have to get the consumer’s attention.”
On the traditional brokerage side, Frazier says agents and brokerages must resist the urge to wave off the progress that Opendoor and other iBuyers are making.
“What happens a lot is that agents and brokerages will spend too much time trying to poke holes at a model or try to discount a model or a service, as opposed to looking at what they’re doing and figuring out an opportunity to mimic it or reimagine that experience,” he said.
“You’re going to have to adapt your business,” Frazier added. “If your thought process is on anything other than that, then you’re already losing.”
‘I can’t compete in their niche, and they can’t compete in mine’
Glenn Phillips, the founder and CEO of Lake Homes Realty, says he admires the iBuyer model but doesn’t subscribe to the ‘adapt or die’ attitude that some agents and brokers have about the growing influence of Opendoor and its competitors.
Phillips thinks the acquisition of Open Listings will help Opendoor become more well-rounded, but he still feels no need to change his business model to compete with Opendoor or any other iBuyer because “real estate is about working your niche.”
“I keep an eye on different business models because theirs is quite unorthodox and mine is too,” he said, referring to his brokerage’s focus on lakefront estates. “But they don’t really concern me because iBuyers are a niche. It’s just a niche. They can’t play my niche and I can’t play in theirs.”
“Opendoor is for people who don’t mind taking less money, and not to offend, but it’s a really fancy version of We Buy Ugly Houses,” he added. “That’s a niche — it’s for people who will take less money for the convenience of moving quickly.
“But anyone who has been on the ground talking to real estate agents knows that’s only really valuable to a few people, but not the bulk of them.”
Furthermore, Phillips questions Opendoor’s ability to withstand a future housing crash, which he says will come. “I think it’s a phenomenal gamble to be owning property and the next economic downturn comes, and it always comes, and I have not seen them publicly explain what happens when home values fall and the market stalls.”
Brokers — it’s time to shape up
For 35-year real estate veteran Kenneth Jenny, the owner and founder of tranCen.com, there’s only one way for traditional real estate brokers to compete with iBuyers such as Opendoor: get rid of the independent contractor model.
“I’ve seen the industry from every perspective possible, and here’s my indictment: there are certain companies that understand the practice of random real estate controlled by independent contractors is coming to an end — now most brokers, are totally in denial,” he said. “They don’t think that’s the case.”
Jenny says agents’ independent contractor status makes it difficult to create a predictable, formatted experience like Opendoor, since every agent has the autonomy to run their business as they wish.
Brokers, Jenny says, need to control the process by making real estate agents into employees who are obligated to follow specific schedules and protocols in order to deliver on the brand promise.
“We have 1.3 million ways to do real estate in this country, one for every real estate agent,” he added. “There’s no brand that stands for anything other than an individual agent who says, ‘My name is Ken Jenny, and here’s what I’m going to do for you.’ The next agent in the same office could come in and offer something different.”
“No company using independent contractor agents can promise the consumer anything,” Jenny added. “If you go to Amazon, Amazon is formatted and employees back up that model to fulfill the promise of Jeff Bezos. The leader has a vision, and the employees back up that vision.”
Jenny says there’s little chance that traditional real estate brokerages will make the pivot because they are agent-centered instead of being consumer-focused.
“The way the brokers can survive is by competing with their agents for the same people that the agents have in their sphere,” he said. “Meaning, if the broker could make an offering with its own set of employees to then give the consumer an alternative under that brand — the consumer could have a random real estate experience or a formatted one, but the brokers are chicken.”
“They will not compete with their agents for the consumer,” Jenny added. “They need to make an offer that’s consistent and better than the one the agents are making.”
Experienced agents will win the day
Leslie Ebersole, a broker for Chicago-based Baird & Warner and CMO for BRIX Twin Cities, doesn’t think brokerages have to throw the independent model away to stay competitive.
But they need to work on building a base of experienced real estate agents (200+ transactions) who know the brand promise and how to execute it, rather than rely on “legions of inexperienced agents all scrabbling for a few deals.”
“An experienced agent can see the landscape, they can see everything that can possibly go wrong, and they’re watching for movement in the grass on a potential problem and they go stop it before it gets worse,” she said. “Inexperienced or poorly supervised agents don’t have that ability.”
Ebersole says the ability to properly price a home or create a comparative market analysis is “losing merit as a significant advantage for the average agent,” because of the growing accuracy of automated valuation models (AVMs). Instead, agents need to hinge their value on building a deep wealth of knowledge about their area, which includes things such as zoning regulations, local policies, taxes, and a property’s full history.
“You need people who know an area really well,” she said. “For example, on the backside of the street, the developer 15 years ago, had to have the land filled because it used to be a marsh, and they didn’t drain it right, and those houses over there have had a water problem in their basement since they were built in 1970. That was my house, but nobody told me that when I bought it.”
Beyond having experienced agents, Ebersole says brokerages have to improve their back-end technologies so agents don’t waste time on “grunt work,” and tighten up their standards on using those technologies.
“If you can’t get your agents to use the CRM so you can see who they’re talking to, and so you can see the steps of the transaction and who manages it, then what are you getting paid for?”
Finally, she says its irresponsible for Opendoor, or anyone for that matter, to promise consumers that they’ll have an experience that’s as easy as ordering a package off Amazon.
“That’s crazy. It’s never going to be that easy,” she said. “But what traditional brokers and agents can do is create really tight processes, and really well-defined value propositions that all of their people can not only communicate but execute. That’s when traditional brokerages will be saved — great people who can execute on the brand promise and provide high levels of service.”