Flush with venture capital funding, the quickly expanding, fast-cash homebuying and re-selling startup Opendoor is quietly testing co-listing partnerships with selected agents outside the company, Inman has learned.
The San Francisco-based company is now co-listing some of its for-sale properties with agents that bring it sellers, with the prospect of said agents returning with more deals. The agent, meanwhile, gets Opendoor’s traditional referral fee and the new ability to market and host open houses at the property the agent brought to Opendoor, which the company is re-listing for sale.
So far, the company has selected about a dozen agent teams as partners for its new “preferred agent partnership” program, and has used them to sell close to two dozen properties.
Opendoor is looking to form similar partnerships with agent teams around the country, as the iBuyer looks to reach 50 markets by the end of 2020 (it is currently active in 16 markets and plans to be in 18 by the end of the year).
The program marks a new experiment for Opendoor, which previously often listed its homes directly on local multiple listing services on its own, using technology such as smart locks and sensors to enable potential buyers to take automated home tours at any time, with no third-party agent present.
It also marks a potential uneasy alliance with a forward-looking crop of Realtors, who Opendoor says it will equip with new productivity tools. These business relationships could bring Opendoor to the attention of more sellers, but they also might pose a conflict of interest to agents.
Read on to find out more about how this program works.
How Phoenix Realtor Kenny Klaus aligned with Opendoor
For a time, Phoenix, Arizona-based Realtor Kenny Klaus, of Keller Williams Integrity First Realty, believed he had found a way to benefit from Opendoor.
Realtor Kenny Klaus of Keller Williams. Credit: Kenny Klaus/Zillow
His 24-member team, The Kenny Klaus Team, would solicit and present all-cash offers from Opendoor to his seller clients, along with offers from other competing homebuying startups in the area (sometimes using a separate online storefront the Klaus team set up called OfferDepot).
If a client chose to accept the Opendoor offer, Klaus would guide the transaction to closing, collecting both a listing fee from his seller client and a referral fee from Opendoor, the buyer. Klaus told Inman he provides reduced commissions for sellers who opt to take cash offers from Opendoor and other iBuyers. Opendoor itself charges sellers an average 6.5 percent fee (though the fee ranges between 6 and 13 percent depending on the valuation of the home).
But Klaus soon recognized a drawback to this strategy: he could not host open houses for the properties he helped sell to Opendoor — a key source of new business. Indeed, a big part of Opendoor’s value proposition to sellers is that it gives you all-cash and a guaranteed close, without pesky open houses. When the startup takes the homes it has purchased, renovates them, and re-lists them for sale on its website and the local multiple listing service, it doesn’t typically use an outside listing agent, instead it lets new prospective buyers tour the homes without any agent present, using tech such as smart locks and sensors to let them in. (Opendoor is retaining that tech and capability in its new co-listing partnerships, but augmenting it with the ability to let its preferred agent partners do showings.)*
However, Klaus has now worked out a new deal with Opendoor. If one of Klaus’s clients sells their home to Opendoor, Opendoor returns the favor, not only by paying Klaus a referral fee, but also by re-listing the property with Klaus as the company’s listing agent.
This way, Klaus gets to host the open houses he would otherwise have to forgo, and Opendoor doesn’t risk losing a source of new business — the referrals from Klaus.
What Opendoor’s ‘preferred agent partnership’ entails
Opendoor’s “preferred agent partnership” program is nascent and likely to evolve based on input from partner agents. But for now, participating agents will:
- Make a habit of bringing Opendoor offers to their clients, in exchange for a referral fee from Opendoor if the offer is accepted.
- Receive referrals from Opendoor of sellers whose homes the iBuyer doesn’t want to purchase, in exchange for paying a typical referral fee to Opendoor.
- Co-list properties sold to Opendoor by their clients.
The program formalizes referral relationships that have existed for years between Opendoor and agents. But the co-listing arrangement represents a new test.
Source: opendoor.com
Klaus says his clients have sold about 50 homes to Opendoor since the iBuyer launched in 2014. He shows how agents can piggyback on the meteoric rise of iBuyers, even if that means swallowing concerns about the long-term threat posed by its business model.
Through OfferDepot, Klaus has generated leads by rounding up cash offers from Opendoor and competing homebuying programs from Offerpad and Zillow Instant Offers, and presenting them alongside his team’s estimate of what the home would sell for on the open market.
Between 20 and 25 percent of his seller clients whose homes fall into Opendoor’s prime “buy box” in Phoenix — homes generally priced at $325,000 or less, he says — choose an iBuyer offer. Those sellers almost always select Opendoor bids because they tend be higher than other iBuyer offers, he said.
“They are a lot more aggressive again right now, so that may go to 30 to 35 percent,” he said of the number of clients who will choose Opendoor.
How Klaus gets Opendoor to raise its cash offers
Klaus says his team often bargains up Opendoor’s initial bid, in part by highlighting property features that unrepresented sellers wouldn’t know to bring to the iBuyer’s attention. He also likes to think that Opendoor tends to provide more favorable offers to his clients because of the business relationship he has built with the company
Klaus’ team slashes the commission he charges a client when the homeowner sells to Opendoor – often charging only a 1 or 2 percent total commission, he said. The deals require less work on his part. Plus, he receives a separate referral fee from Opendoor, equal to 1 percent of the sales price.
“If you charge too much, they’re going to go direct to [Opendoor],” he notes.
Co-branded for-sale signs like the one that appears in this property (handled by Klaus’ team) stand in the yards of Opendoor homes listed by the iBuyer’s partner agents. Credit: Kenny Klaus Team/Opendoor
Under a program that Opendoor calls “hybrid listing,” Opendoor recently started offering Klaus the right to re-list the properties Opendoor purchases from his clients. Opendoor’s Culver says the properties show up the MLS as co-listed by Opendoor and the partner agent, but that the partner agent appears as “listing agent one” in the MLS.
Klaus is the sole agent that shows up on the listings he re-sells for Opendoor when they appear on consumer-facing websites, such as this listing.
Klaus said his team handles most of the work of selling Opendoor homes, including creating the MLS listing, communicating with prospective buyers and collecting the necessary paperwork to close a deal. The homes feature co-branded for-sale signs (as shown above) and come fully outfitted with Opendoor’s customary technology set of smart locks and motion sensors, so buyers can still use their smart phones to unlock and tour them independently.
But unlike other Opendoor listings, buyers may encounter a salesperson waiting inside Klaus’ Opendoor listings. This agent, a member of Klaus’ team, will try to convert some unrepresented buyers into clients.
Klaus declined to say whether Opendoor pays his team a commission for selling its properties. But the primary “pro for us is, now we have a vacant home that we can sit open,” he said. Opendoor spokesperson Cristin Culver said Opendoor does pay listing commissions to agents that co-list its homes, but didn’t specify the commission amount.
Opendoor and agents: strange bedfellows?
Klaus thinks Opendoor is trying to figure out what generates more business: making it attractive for Klaus and other partner agents to bring the iBuyer new customers or selling its homes independently.
The arrangement was a “solution” he and Opendoor came up with after Klaus questioned whether it made business sense for him to continue presenting his clients with Opendoor offers, since doing so meant potentially sacrificing his teams’ ability to host open houses.
Under the new partnership program, Opendoor also is supposed to send sellers it chooses not to work with, such as those with homes outside its “buy box” (the minimum and maximum price of a home Opendoor will buy) to partner agents. But Klaus says, so far, referrals from Opendoor have been few and far between. He hopes they will increase.
“That’s a sore subject,” Klaus said.
The partnership is a marriage of convenience, and a delicate one. Klaus wants to prove a win-win relationship is possible. But he said, “The question long-term is: Are they looking for partnership or are they looking to put us out of business?”
“Someone up top knows what their goal is,” he said. “If it gets to the point where there’s direct competition, I wouldn’t present the Opendoor offers.”
Source: opendoor.com
For Opendoor’s part, Kerry Melcher — the head of Opendoor’s brokerage arm and the former director of both the Arizona Association of Realtors and the Arizona Regional Multiple Listing Service — thinks the co-listing program will be “super useful” to the company, allowing the startup and agents to learn from each other and, indeed, perfect win-win relationships.
Klaus says he earns more money if a seller chooses to list with him on the open market, rather than accept an offer from an iBuyer. But he said he presents iBuyer bids out of a sense of duty: to ensure his clients get the deal that best meets their needs.
Where does Opendoor’s preferred partner agent program go from here?
For now, Opendoor only lets partner agents list homes that their clients have sold to Opendoor, but that could change in the future, Culver said.
One question mark is whether these business relationships may pose a potential conflict of interest. Depending on how the economics shake out, it could theoretically incentivize an agent to steer a client towards bids from the iBuyer, potentially testing their fiduciary duty to act exclusively in the interest of their client.
Fred Weaver and Kevin Kauffman
Kevin Kauffman — co-leader of the muti-state eXp Realty expansion team 46:10 is partnering with Opendoor in Phoenix, Nashville, and soon, Denver — says that, during the last housing slowdown, many investors offered similar incentives to agents to try to strengthen their offers on distressed listings.
“While I did not do this, I know plenty of people in the Phoenix area, where the buyer paid the listing agent money to negotiate the short sale,” he said. “For me, that’s definitely not new.”
Kauffman said his team has received a 1 percent referral fee from Opendoor in some — but not all — of the four or five cases where his clients have sold their homes to Opendoor, including deals his team closed in Nashville.
He said, as far as he knows, the 1 percent referral fee isn’t a standard offering from Opendoor. Opendoor’s website advertises the fee to all agents, seemingly including non-partner agents, however.
Kauffman’s team hasn’t listed any homes for Opendoor so far, but he said he’s in discussions to do so. His goal is to represent all manner of Opendoor properties, not just those that Opendoor purchases from his seller clients.
“I would hope to be able to earn that right in the future,” he said.
Kauffman said he assumes his team would receive a reduced commission for selling homes on behalf of Opendoor, noting that agents are often willing to accept below-market fees for selling bank-owned properties, in exchange for repeat business.
Ultimately, the preferred partner agent program will help Opendoor meet a goal it hasn’t spoken to Inman about before: to “bring the same simplicity and certainty we deliver to homeowners to agents,” as Culver put it.
“Next year, you’ll see us bring the program out of beta to democratize access to the partner program and launch tools to simplify how agents manage their business with us,” she added.
Meanwhile, in an initiative that’s separate from the co-listing partnerships, Opendoor is offering buyers in Phoenix and Dallas Fort-Worth the option on its website to connect with an outside agent and receive a $1,000 commission rebate if they use the agent to purchase an Opendoor home.
And thanks to Opendoor’s acquisition of Open Listings, a discount brokerage and referral platform, it’s also offering a trade-in program that lets homeowners sell their home and buy a new one with an agent from Open Listings’ network of third-party agents.
