Any concerns about adverse selection?
I'd want to use OpenDoor if their pricing model came in above what I could reasonably get in the market, and would be more likely to wait it out if they came in low.
I'd want to use OpenDoor if their pricing model came in above what I could reasonably get in the market, and would be more likely to wait it out if they came in low.
I don't know if OpenDoor is "the answer," but it bothers me that homeowners are often punished by having to work locally, where their skills are unlikely to remain ideal for the area over many years, or work remotely, which not every career allows and not every personality is suited. Being able to sell a home so quickly is even better than having a month-to-month lease. Presumably OpenDoor's higher fees are something employers could start to pay for as part of relocation (and large employers might negotiate volume rates.)
1. Every time we improve our valuation model, we limit the scope of adverse selection. A more accurate model means there is less tail in the error distribution, which means we are less like to acquire a home we have mistakenly overvalued. As we improve our model accuracy over time through feature modifications and training on more data, the adverse selection problem will partially self-correct.
2. Every time we reduce our fees, we limit the scope of adverse selection. Improvements to our operational efficiency mean we face lower costs, which over time will allow us to offer fees more on par with or below current market norms. When we offer high fees we run the risk that the only ones accepting those offers are those where we've missed something important about the home. Fee reductions help us limit the scope of this problem, and buy more typical homes.
3. Adverse selection is only possible in the context of asymmetric information. Anything we can do to reduce information asymmetries (i.e. better data collection and vetting up front) will reduce the possibility of adverse selection. We're working on this.
4. Adverse selection isn't a problem limited to institutional buyers like ourselves. Any time someone makes an offer on a home, and that offer is accepted, the buyer risks adverse selection. See for instance the "winner's curse." We can do better than the average buyer at solving this problem so long as we are better at information collection and valuation.
5. Lastly, the main economic prediction of adverse selection is that buyers will take adverse selection risk into account by bidding low, which means that a certain amount of otherwise mutually beneficial trade will fail to occur because buyers bid below their true valuations. To the extent we can reduce information asymmetries and help solve adverse selection, we can truly be a market maker by enabling additional mutual beneficial trade than would happen without us.