Co-founder here, I'll do my best to answer questions. The number one question we get is likely "what happens in a downturn/recession?", but that's more of a blog post than a HN answer. Anything more detailed/technical though, shoot!
Notably absent in the Bay Area. In hindsight this looks like a great move since your value add to sellers is liquidity, and you collect an illiquidity premium, so to speak. Meanwhile, the Bay Area sellers are certainly not lacking in liquidity.
So 2 questions:
1) In hindsight staying away from the Bay Area looks great but I have to think there must have been a temptation to be a player in your "home market". What was the conversation like between the founding team to eschew the local market? (I think many companies default to addressing the Bay Area first without putting in much thought into it, and it is sometimes ill advised)
2) Blackstone was buying lower end homes from 2009--2014 or so. Is the transaction volume in this segment not robust enough for your business model (i.e. hard to find buyers)? Pricing model too uncertain/unpredictable?
I think we had coffee once back in 2013 when you were still at Addepar. Congrats on the move; always thought this could be a tremendous business since news first broke about the company.
2) We generally buy from $125K to $500K, so we do hit a lot of that low end. Below that, fixed transaction costs are quite high as a % of home value.
Thanks! We all really appreciate the support, the team's working really hard to redefine a space that hasn't seen enough innovation in the past half century.
So basically, the seller is guaranteed to lose 6-12% (on average 8%) of the value of their home even before receiving a paycheck. Why can't OpenDoor start low, instead of starting high and waiting for economies of scale? I just don't see the marginal benefits worth the extra costs, and am not sure how OpenDoor can stay competitive enough with those rates.
> To succeed, it has to price the homes it buys accurately, without seeing them, and it has to sell them quickly to minimize the costs of carrying them.
I feel like if the people behind OpenDoor can do this, then they can do day-trading or at least an index fund. (Yeah I know, stocks are more volatile and housing is pretty much guaranteed to rise.)
> for too long too much money and talent has been poured into low-risk digital-only businesses
What? Isn't there hardware startups?
Ok overall, I think I'm being a bit too critical on this company because all I see is house-flipping disguised as "theoretical arbitrage opportunity". I'd rather see a new company solve the housing crisis in San Francisco and New York.
We operate the company in "lanes" like Seller, Buyes, Homes, Accuracy. The "purest" technical challenges are on Accuracy where we're modeling home prices, days on market, pricing strategy, and various measures of risk. A lot of feature engineering, data viz, etc.
On the product engineering side, we start and end with the customer problems, not the technology. Projects range from building a mobile app for inspectors to catch all issues and normalize the data, to building custom security hardware with Raspberry Pi's that relies on mobile SIM cards because we don't own the homes long enough to justify setting up/turning off internet.
I can get more specific if helpful!
What is a chain? (provided in case this is a UK specific term) A common problem with buying & selling property. In order to buy a new house you first want to know that your current one will be successfully sold. As such, you may have a queue of buyers all waiting for someone down the line to get a buyer for their property; as if they fail to get a buyer they drop out causing the next person in the chain to have to find a new buyer before they can buy. Equally sometimes people waiting in a chain are "gazumped" (another buyer makes a better offer to the current buyer), thus pushing out the current buyer and impacting the buyer's chain from the other end).
You could provide a service whereby buyer and seller have already met, but are stuck in a chain. You'd be able to buy the seller's property and hold it for the buyer until they're ready. - If they're able to sell their property they can then pay you the price of the new property plus the "holding fee" before moving in. - If they're unable to sell their property they have the option to sell their current property to you and take the new property as described in the previous step; or to remain where they are simply paying you the holding fee for having held the original property for them, with the new property then entering your portfolio of properties to do up and sell on to the highest bidder. - These holding fees could be charged monthly up front should that prove simpler than lump sum amounts at the point of decision.
Your service already avoids the need for a chain; but this alternate offering allows you to capture a part of the market of those people not interested in your full service, by having the potential buyers ask that the property be purchased by you instead of the sellers coming to you.
I myself was able to chain break when I bought my current house, by doubling up on my mortgage (keeping old until after I had moved and it sold). Cost me maybe 5k in interest on the period of double mortgage? But because I could offer to buy my new house with a clean offer, I saved 5-10k in cost (as I would beat out a 10k offer that had a * on requiring a sale to go through first).
of course my strategy only worked because I buy cheap houses not the 40% of my income houses that the bank wants me to buy...
Some economists noticed a few cases where would-be kidney donors who weren't compatible with their family member who needed a kidney were able to find another incompatible donor-recipient pair, and were able to swap so that each donor was able to gave to the other donor's loved one.
Of course, this only works if the medical compatibility works out between the pairs. To facilitate more transplants, economists created a donor-matching network that could handle cases where three incompatible donor-recipient pairs (or even thirty!) could work out an exchange allowing all of the recipients to get a suitable kidney. Naturally, laws prevent money from changing hands for kidneys, everywhere on earth except in Iran.
Heard about this here: http://www.econtalk.org/archives/2015/07/alvin_roth_on_m.htm...
What gives? Or perhaps a better question is: Is this a common experience? Are these growing pains that you are aware of? I've rarely had a worse experience with a startup.
Can't say it's common, but pricing every home perfectly is hard. From what I can measure, our NPS is 70 and we track complaints pretty closely. For offer competitiveness, we track metrics like the final selling prices of homes we buy vs our offers and for homes that get offers and sell later on the market. I'm confident we're competitive in aggregate, but individual cases can vary.
We buy hundreds of homes per month, so not very small "n" anymore either
Also in a forclosure situation the owner needs to make a quick sale - your service would look very attractive (a killer niche of the market for you guys.)
What is your optimal holding period?
What are your primary source capital, and are they loan or equity based?
Targeted hold time varies by market, but optimal holding period is 0 days :)
We fund a small portion of each home with equity and the rest with debt-like instruments. I can't name names though.
There are also lines of credit that get deployed into properties on acquisition.
The company is just under 3 years old, so growing quickly. Let's see if anyone on the team is reading this and wants to chime in on culture :)
We price for annualized ROE, which takes all of that into account.
I don't mean to sound overly negative here, but 6-12% seems like a pretty big cut. I understand the argument that the seller may be able to sell the house more quickly than via a traditional listing, but they are also taking on a fair bit of risk and headache as well (no guidance on making disclosures, no access to the standard forms, no unbiased opinion about true market value, etc).
It's not really an apples-to-apples comparison to say "you would have paid 6% anyways", because if they had paid 6% (or 4-5%) to a listing agent they'd get all the guidance/forms/advice I mentioned above, as well as someone actively marketing their property, MLS listing (thereby reaching a much larger market of potential buyers). From your website, it also seems like there is essentially no room for negotiations on adjustments for repairs.
Honestly, this seems like a variant of "we buy houses for cash", except "on the web" (admittedly, most of those folks try to buy properties at 30% below market value - but I'd wager that you're probably trying for around 15% below market in some cases). In most markets, if someone lists their house for 5% below true market value, they're likely to get several offers rather quickly. I'd also guess that you have your own contract, as opposed to standard Realtor contracts which limit your risk in terms of earnest money deposit, contingency removal time periods, etc. It really seems to me that the only people who would go for this are people who are rather ignorant about how to sell their real estate and therefore at a pretty big disadvantage when dealing with a very experienced buyer, such as Opendoor.
Also, it's kind of silly to give as much emphasis to the home warranty you give buyers - that's a pretty cheap & easy thing to obtain; most agents I know give them to their buyer as standard practice.
Again, I hope this doesn't come off as too negative - I think there's a lot of room for innovation in real estate; this just doesn't seem like it's actually advantageous for most sellers in my opinion, and therefore not particularly scalable once people start doing the math. Just my $.02. Please tell me if I'm missing something..I do wish you the best of luck with this!
- Our cut is not 15%, it's 0-6% below market depending on home risk & projected holding costs. We make the fee pretty transparent. Without opening our books, you sort of have to trust me here for now unfortunately.
- We use the standard MLS contract in every market, along with those protections. We give sellers a large sum of earnest money when we make a mistake and need to withdraw from the contract. Long term, that's just good business.
- Imagine you're a contingent buyer, and need to sell before you can buy. The cost of selling, moving into a rental, buying, moving into your new home etc is very high! Most people can't afford two mortgages. We make it a single move, and we'll even let you do a "late checkout" from your home after you sell so it's even easier.