High-tech residential real estate brokerage Redfin is partnering with Opendoor, the private Silicon Valley startup that makes cash offers on homes directly over the internet, in a move that is likely to raise the eyebrows of many competitors in both the traditional real estate and fast-growing online cash offer (or “iBuying”) space.
In Atlanta and Phoenix, Redfin now lets prospective homeseller clients use its website and mobile apps to request an all-cash offer for their property directly from Opendoor, or a free meeting with a Redfin real estate agent, where the agent will present two selling options: 1) the Opendoor all-cash offer or 2) an estimate of how much Redfin could get if the seller wanted to list with the brokerage on the open market.
Redfin, which maintains a highly-trafficked home search portal that includes for-sale listings from numerous other brokerages, will also offer special marketing perks on the homes listed for sale by Opendoor that appear on Redfin’s site and apps. The companies will evaluate expanding the partnership to other markets outside of Phoenix and Atlanta.
The partnership looks like a bid by Redfin and Opendoor to jointly counter Zillow Offers, Zillow Group’s iBuyer program, which also lets customers request all-cash offers on their homes over the internet.
And it may highlight the business case for a merger between Redfin and Opendoor.
CEOs of both companies wouldn’t completely rule out this possibility, though Redfin CEO Glenn Kelman said he didn’t think a merger was likely.
“These two companies respect each other; we obviously compete in some areas, but we’re going to try to make it work in Atlanta and Phoenix, and if it does, it could lead to something really exciting or it could be something more limited,” Kelman said in a statement.
Redfin will continue to buy homes itself through its own iBuyer service, Redfin Now.
Its integration with Opendoor, however, lets the high-tech brokerage extend instant offers to many sellers whose homes Redfin Now isn’t prepared to buy yet.
Opendoor operates in 20 markets nationwide, while Redfin Now is available in only a fraction as many. For example, Redfin Now currently isn’t buying any homes in Phoenix and Atlanta, the two markets where the Redfin-Opendoor partnership is going into effect.
“Just as traditional agents are our partner for brokered sales our own agents can’t handle, Opendoor is our partner for giving customers reliable, competitive offers on homes we ourselves can’t buy,” said Redfin CEO Glenn Kelman in a statement.
In Phoenix and Atlanta, users of Redfin’s website and mobile app are now invited to request an offer from Opendoor. Prompts will appear in the form of a button on property pages for off-market homes and on a page through which homeowners may schedule a listing consultation with a Redfin agent.
Redfin’s marketing of Opendoor offers can result in a variety of outcomes. For starters, Redfin visitors can ask for an Opendoor offer directly online, and forgo any meeting with a Redfin agent.
But if the homeowner requests a meeting with a Redfin agent that includes a presentation of an Opendoor offer, three scenarios could ensue, according to an explanation of the program provided by Redfin.
In the first, a seller would choose to pass on the Opendoor offer and instead list with Redfin on the open market. Here, the seller would typically pay a 4 to 4.5 percent commission, with 1.5 percent going to Redfin and 2.5 to 3 percent going to a buyer’s broker. Sellers who are willing to hold out for the best deal might be most attracted to this option, since they would pay a below-market commission rate and avoid shelling out a hefty service fee to Opendoor.
In a second outcome, the seller could choose to sell directly to Opendoor unrepresented (without help from a Redfin agent). The seller in this situation would pay Opendoor’s service fee, which averages 7.9 percent but can range between 6 and 13 percent. Redfin would also receive a referral fee from Opendoor, while the Redfin agent would receive a “small, flat-fee bonus” from Redfin for conducting the presentation.
Redfin spokeswoman Alina Ptaszynski said Redfin was “not sharing the specifics of the referral arrangement.”
In the last scenario, a seller could elect to sell to Opendoor with representation by a Redfin agent. This would equip the seller with an advisor tasked with representing the seller’s best interests. But it would also involve paying the most in fees: 1.5 percent to Redfin and Opendoor’s service fee (7.9 percent, on average).
Redfin in this situation would also receive a referral fee from Opendoor.
Opendoor previously announced an agent partnership program in which it would pay a 1 percent fee to agents who transacted with the iBuyer. Agents could collect the fee from Opendoor even if they represented the seller and charged a listing fee to the seller — not just if the seller chose to sell to Opendoor without their representation.
Opendoor currently only says publicly that it will pay such a fee if an agent refers a seller who sells without representation to Opendoor.
But Opendoor continues to pay at least one partner agent, Arizona Realtor Kenny Klaus, a 1 percent referral fee when he represents the homeowner in the sale of their home to Opendoor, according to Klaus. And Opendoor will do this with Redfin under the new partnership, based on Redfin’s explanation of it.
A spokesperson said Opendoor is sunsetting the initiative under which agents could both receive a referral fee from Opendoor and collect a listing fee from the seller. The spokesperson would only say about referral relationships with agents that any agent can receive a 1 percent referral fee if the agent does not collect a listing commission from the seller who sells to Opendoor. Inman wasn’t able to get more clarity around the issue.
Opendoor markets its service as typically more affordable than using a traditional real estate agent. But Wu acknowledged that Redfin would present its discount listing service as cheaper than selling to Opendoor.
Selling with Redfin is a great option for sellers comfortable with open houses and uncertainty, while Opendoor is a great option for sellers who crave certainty and convenience, he said.
“You can take a Lyft Line, you can take a regular Lyft, you can take a Lyft SUV,” Wu said. “All of those options come with different tradeoffs. One can be more streamlined at a higher cost, and one can be lower cost but slightly more inconvenient.”
Kelman said he didn’t know generally how much cheaper it would be for sellers to list their homes with Redfin on the open market than to sell to Opendoor.
“That’s one of the things we’re going to learn through the partnership,” he said.
He did, however, say that the spread between selling on the open market with Redfin and selling to Redfin’s own iBuyer, RedfinNow, was usually “at least five percent in net proceeds.”
The partnership also includes special marketing of Opendoor listings through Redfin. Both Opendoor and Redfin were light on details, and Redfin’s Ptaszynski said that the marketing element of the partnership wouldn’t roll out for a few weeks.
But at a minimum, Opendoor’s listing pages on Redfin will include a “Tour Instantly” button. The button will tout “self-guided instant access” for Opendoor listings, noting that buyers can visit Opendoor listings from 6 a.m. to 9 p.m. everyday. (Opendoor is able to offer self-showings using mobile device-activated smart locks and motion sensors.)
Ptaszynski said the promotion wouldn’t include preferred placement in Redfin’s listing search results, where Redfin listings appear up top.
Opendoor continues to co-list some of the homes it buys with agents at other brokerages who send business their way. Wu said the iBuyer was “excited to expand those partnerships.”
He wouldn’t say whether that would include selling some of its homes using Redfin agents. But he did offer that, “we’ll explore other ways to deepen the partnership,” if the partnership announced today is successful.
The partnership looks like a bid to more closely match, or even exceed, the breadth of Zillow Group’s offerings to homesellers.
Zillow has been able to offer homeowners the option to either sell to its iBuyer service, Zillow Offers, or to list their home on the MLS through a partner agent who is also a paying member of Zillow’s Premier Agent online advertising program.
The company’s enormously popular listing search site, capacity to raise capital and legacy advertising business for agents have allowed it to rapidly expand Zillow Offers.
It has made up significant ground on Opendoor as measured by listing inventory, and its listing count appears to even exceed that of Opendoor’s in at least one market. In Denver, for example, Zillow’s MLS listings had nearly doubled in a little less than a month to 107 yesterday, while Opendoor’s had inched up to 63 from 59, according to Opendoor’s mobile app.
But by prompting prospective sellers to request offers on the most popular brokerage website, Opendoor’s collaboration with Redfin helps reduce Zillow Offers’ immense marketing advantage.
And it gives Redfin the ability to provide many more prospective clients with the option to quickly sell their homes. While Redfin has its own iBuyer service, Redfin Now, it hasn’t been purchasing homes at anywhere near the scale of Opendoor and Zillow Offers.
Kelman said Redfin and Opendoor aren’t teaming up for “defensive reasons,” when Inman asked how the partnership could help the two better compete with Zillow.
“The reason I’m sure of that is Opendoor approached us about this a long time ago, and we’ve just taken some time to integrate the online experience and figure out how the service is going to work in a customer’s living room,” he said.
But, Kelman added, “obviously Opendoor gets a channel to reach a large number of homeowners who may want an offer” and “they get a channel for liquidating their assets once they buy a house.”
Meanwhile, “Redfin can offer more consumers the [iBuyer] choice.”
While Redfin is expanding its own iBuyer, Redfin Now, as quickly as it can, the brokerage is “not about to have Redfin Now available in 80 markets,” he said.
The partnership demonstrates striking synergies between Opendoor and Redfin that a merger could fully consummate.
Opendoor CEO Eric Wu had kind words for Redfin and wouldn’t rule out a future marriage.
“What I can share is that I’ve known Glenn for years, and I have a great deal of respect for him, and from my perspective, I’m a fan of the product, use the product that’s built, and so in this chapter, we’re focused on the success of this partnership, and we’ll look for ways to deepen our relationship if it’s successful,” he said.
Kelman, asked about a potential future merger, said he was obligated to say “never say never.” But he said that he doubted merging was in the cards.
“I just think both companies are too ambitious for that,” he said. “Redfin wants to beat the real estate industry. Opendoor does, too. We each think we have a shot at the title. Each of us is going to do our own thing, and when we can help each other out, we will.”
While Zillow Group has seen major stock gains as investors embrace newly re-installed CEO Rich Barton and his push to aggressively expand Zillow Offers, not all is well in the land of the iBuyers: Opendoor recently announced a major staffing relocation effort that saw at least 50 layoffs as the company consolidated its workforce from around the country into its hot iBuyer market of Phoenix, Arizona.
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