The company will use the money to accelerate integration of its in-house mortgage services, title services and buyer’s brokerage (via a recent acquisition of another startup, Open Listings) into its core offering to homesellers, and to continue its expansion from a current 16 markets to 50 markets by 2020.
“We spent the past three years building a way for homeowners to sell their home online in a few clicks,” Opendoor CEO Eric Wu told Inman. “What we want to do is actually make buying a home on-demand simple and instant, and we’ll be building the underlying technology and infrastructure for that.”
The deal also gives Opendoor access to support infrastructure from SoftBank, the wealthiest startup investor in the world, opening the door for partnerships with other SoftBank Vision Fund portfolio companies — including tech-focused real estate brokerage Compass.
“We’re thrilled to partner with SoftBank — they are visionaries with the ambition to transform entire industries,” Wu said in a statement. “SoftBank understands that the traditional process of buying and selling a home is complicated, uncertain, and stressful for millions of people, and that Opendoor radically improves the experience.”
The SoftBank investment brings Opendoor’s total equity financing to more than $1.045 billion, and expands the size of Opendoor’s Series E funding round to $725 million ($325 million in Series E funding was announced in June).
The U.S. Securities and Exchange Commission database of filings does not include documentation of Opendoor’s Series E round yet, raising the possibility that Opendoor may add even more cash to the round (Wu declined to comment when asked about this prospect).
Opendoor also announced today that it had secured $2 billion in debt financing from “top banks.” That means the startup has the capacity to own roughly $2 billion-worth of homes at “any given time,” Wu said. Opendoor is currently buying more than 1,000 homes a month, according to Wu. And the company said it’s increased its “annualized acquisition run rate” to $3.8 billion, up from $1.2 billion in January.
Under the deal, Jeffrey Housenbold, a managing partner of SoftBank’s $93 billion Vision Fund, will join Opendoor’s board of directors, and SoftBank will take one of the startup’s nine board seats.
Opendoor launched in 2014 to offer homesellers in select markets a guaranteed cash offer and quick close through its website and mobile app.
Earlier this month, Opendoor announced the acquisition of discount brokerage Open Listings, which is focused on reaching homebuyers. With the addition of Open Listings, Opendoor will be able present customers with an “all-in-one” option to purchase a new home while selling their old one, all through the same online interface, “replacing the process of managing two separate transactions and the risk of a double move with one seamless experience,” as the company puts it. The end goal is to “make it as easy to buy, sell or trade-in a home as it is to hail a ride, book a flight, or shop online,” Opendoor has previously said.
Opendoor has yet to deploy this type of “trade-in” moving experience to homeowners. Competing real estate startup Knock offers a “trade-in” program, but is only active in four markets so far, compared to Opendoor’s 16. Opendoor does presently offer a “trade up” program in all of its markets, in which homeowners looking to upgrade can select a new or under-construction home from one of Opendoor’s participating builders (among them the giant Lennar) and then request a cash offer from Opendoor on their old home. If selected, the customer can arrange their close on a flexible timeframe between 10 days to nine months.
At the moment, Opendoor’s business is built primarily to serve homesellers looking for the security of a guaranteed cash offer and the speed and convenience of doing it over the internet — potentially eschewing listing agents entirely.
Prospective sellers in its 16 operational markets can visit Opendoor’s website directly, enter in their property’s information, and receive a cash offer on their home in less than a day. Those who choose to accept the offer pay a service fee averaging 6.5 percent (though it can range between 6 and 12 percent depending on the property) and can select a closing date that suits them. Opendoor aims to buy homes at fair market value, Wu said, though some data suggests that it often buys properties at a discount, albeit a much smaller one than traditional home flippers.
The company makes light repairs to its acquisitions and usually tries to quickly resell them, in part by using smart locks and security systems to allow buyers to tour the homes without agents at most hours, and seven days a week.
The new funding round will help fill Opendoor’s coffers as competition in the category of tech-enabled, fast cash, homebuying and re-selling startups, collectively known as “iBuyers,” is intensifying. Other rivals in fewer markets include the aforementioned Knock, Offerpad, Redfin Now, Zillow Offers, and Bungalo. Just two days ago, Realogy, the nation’s largest residential real estate brokerage holdings company, announced that it will launch its own iBuyer service through selected Coldwell Banker offices operated by its subsidiary NRT.
In addition to perfecting its platform for buyers and sellers, Opendoor will spend the SoftBank cash on further improving the accuracy and coverage of its pricing model. That’s so Opendoor can ensure it pays fair market value for home across all its markets, thereby attracting as many customers as possible, Wu said.
Perfecting its pricing model is capital intensive because it requires collecting and quantifying home-level inputs, such as curb appeal and interior condition, as well as gauging demand from buyers and how their preferences may be shifting.
Opendoor wants to become nothing less than “the source of truth for real estate valuations,” Wu said.
Does that mean that Opendoor could begin fielding a home price estimate tool for consumers, similar to Zillow and its Zestimate (though the company says that the Zestimate is merely a “starting point” for home pricing discussions), and Redfin with its Redfin Estimate and newly-launched Redfin Owner Estimate?
Asked about this prospect, an Opendoor spokesperson said homeowners in any market where the company operates can already use the service to get a valuation on their home in the form of an actual offer.
Opendoor claims one in two of “true sellers” who receive an offer choose to sell to Opendoor, up from one in three in January. It’s also added 500 employees since January and expects to reach 1,000 by the end of the year.
The company will continue to try to lower the overall cost of moving for homeowners, including by offering to perform custom, on-demand renovations to homes for buyers at below-market cost, according to Wu.
To do this, Opendoor will further build out an expansive network of vendors, including contractors, landscapers, painters and home cleaners; use its scale to purchase renovation materials at a discount; and arm its partner vendors with software to make their services as efficient as possible.
“If a new homebuyer wants to modify the home in certain way, we will eventually be able to deliver that hopefully on demand and make it a great experience at a low cost,” Wu said.