Brian Westerman, a 38-year-old app developer for the live events industry, took a pay cut last year as music shows and other events came to standstill during the pandemic.
Then in October, tenants at his rental property, a four-bedroom, three-bath, 2,400-square-foot home in Mount Juliet, Tennessee, decided to move out, and for months, he had no luck renting it.
Facing financial uncertainty, Westerman decided to put the house on the market in January.
One thing he was confident about was the price his 2005-built investment property would fetch.
“It’s kind of a cookie-cutter neighborhood and three houses with my exact floor plan sold in the last six months,” Westerman says. “So it was very easy to get the comps,” or price comparisons between the houses.
Hoping for a quick sale, he decided to give Opendoor Technologies, a real estate tech company that makes instant offers on homes, a try.
He entered some basic information about his house online, uploaded a few photos and conducted a video tour with an Opendoor associate. An inspector checked out the exterior a day later.
Within less than 48 hours, he had an offer from Opendoor.
The $335,000 proposed by the company, which bills itself as a “digital one-stop-shop,” was in line with what he had expected after factoring in some repairs. He closed on his house two weeks later.
“I didn’t have to hire a realtor, do repairs, or get ready for showings,” says Westerman, who’s bought three homes and sold two in the past.
Two weeks after that, Opendoor listed the house for $355,000. It sold for $348,000 last month.
“They made some money, but they also put in new carpeting and painted the house cheaper than I could have,” he says. “There was also some roof repair that had to be done.”
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Founded in 2014, San Francisco-based Opendoor has been viewed as a disruptive force in the $1.6 trillion U.S. residential real estate market, creating a new category of house hunter called an iBuyer or instant buyer.
The company, which prices homes using an algorithm, has also inspired competitors like Zillow, Offerpad and Redfin to offer similar services.
While iBuyers still only account for under 1% of all real-estate transactions in the country, it is expanding nationally at a fast clip.
Opendoor, which went public in a deal where it was valued at $4.8 billion — is the leader of the pack. With 50% of the iBuyer market share and close to twice the transactions of its closest competitors, the company has bought and sold, or just sold, more than 90,000 homes online since 2014.
For home sellers, Opendoor promises to eliminate the hassle of preparing a home for sale and the uncertainty around how long a property might sit on the market. In other words, you don’t have to worry about picking up the kids’ toys, fixing the peeling paint, neutralizing cooking odors, or making yourself scarce every time there’s a showing.
As part of the transaction, the company charges a service fee. In years past, it has been as high as 14% of the home pricein some markets, but now the company is offering a 5% fee for most transactions. The company attributed the decrease in fees to becoming more operationally efficient. In a traditional sale, a 5% to 6% agent’s commission is common. If it’s a strong seller’s market, those numbers can go even lower.
In the initial years, Opendoor’s business model was based on the service fee and the profit they made by selling homes they’d acquired. In 2019, the company also started offering adjacent services such as escrow and title services and home loans.
The average price point for the homes the company buys and sells is tightly clustered around $260,000, says Mike DelPrete, an industry analyst and real estate scholar-in-residence at the University of Colorado, Boulder.
“Their target home is what I call a turnkey home. These are houses that are in pretty good shape, where they can go in and do that new coat of paint, new carpet, and then sell it again,” says DelPrete, adding that their business model “revolves around buying and selling as many homes as possible.”
Indeed, the company plans to double its reach from 21 iBuyer markets at the beginning of this year to 42 by the end of the 2021. Currently they are in 30 markets, including Atlanta, Dallas, Orlando,Phoenix, Dallas and Raleigh.
In 2020, the two largest iBuyers, Opendoor and Zillow, lost a total of $607 million buying and selling houses. That’s a loss of about $40,000 on each home bought and resold, says DelPrete.
Like other iBuyers, Opendoor suspended homebuying in March as the pandemic upended the market. In it’s first earnings call as a public company in March, Opendoor reported a 45% drop in revenue to $2.6 million compared with $4.7 million for 2019, due to a pause in home buying in the early months of the pandemic. It sold 9,913 homes in 2020 compared with 18,799 in 2019.
While the pandemic severely hurt their business model with iBuyers’ market share plummeting by more than 60% from 2019 to 2020, experts believe instant buyers are here to stay.
“Technology has really revolutionized how people watch TV and movies at home. It’s changed how people order groceries, and it’s starting to change other aspects of society, so it’s going to change houses too,” DelPrete says.
Dennise Cacho, a human resources benefits counselor from Dallas, Georgia,watched over the last five years as homes in her subdivision rose in value. So in February, she decided to test the market for her four-bedroom, 3.5-bath home, which she bought for $200,000 in 2015. A local realtor gave her an estimate of $270,000.
Then she decided to see what Opendoor would offer after seeing the online company’s signs pop up all over her neighborhood. She got an estimate for $289,000.
“I had always wanted to move into a neighborhood with a bigger yard and more privacy,” Cacho, 43, says. She was also worried about home prices going up and wanted to get out before a crash.
Given that it was a hot market, Opendoor offered to lower her service fee to 3.5% and waive the closing fee.
One month later, Opendoor sold it for $313,570.
She has no regrets.
The last time she’d sold her house, a relator had charged her more than 6%.
“Yes, they offered us less than what they sold for. But at the end of the day it would have cost the same amount between the realtor, the closing costs and repairs,” she says. “They did all that in a very quick, very fast process. And we didn’t have to go through all the trouble.”