But it basically is flipping isn't it? Maybe they can work out how to flip a little cheaper with technology but this model only works because flipping is so hot right now.
http://www.housingwire.com/articles/39523-home-flipping-hits...
http://www.housingwire.com/articles/39523-home-flipping-hits...
House flipping is about finding underpriced houses (either by having a sharp eye, or by buying distressed houses), and then optimizing the amount of money invested vs. the return.
Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones. We typically don't spend very long renovating our homes. We'd rather reinvent the buying and selling experience itself, and do a larger number of transactions.
More info: https://www.opendoor.com/blog/flipping-the-real-estate-indus...
Flippers traditionally do benefit from a rising market because of longer hold times.
There are many types of 'house flipping' and most of the differences are just various shades of grey.
For illustration purposes:
At one extreme: Focus on buying dramatically undervalued assets, putting in minimum work and reselling. (Do this using lots of people labor in looking for deals.) - IMO, this is the only way to make money consistently flipping
At the other extreme: Buy houses, put dollars in to them and acheive an ROI (lots of people labor in rehab). This is what you see on "house flippers" or other TV based flipping shows. Typically these systems work when the market is appreciating, but the value the 'flipper' puts in is really questionable vs the market appreciation. Most of the people that do this strategy eventually end up getting hammered in a downturn.
Opendoor is basically disrupting the first group. They are using a quantitative process (automated valuation models), then overlaying a fundamental process on top (having someone look at the data to make sure it makes sense.) That is how they make sure they are buying undervalued assets.
The disruption happens because they are eliminating the huge amount of man hours it takes to find undervalued deals, by paying slightly more, and building a good brand and well as fine tuning their marketing channel.
At the end of the day, a certain percentage of people need to sell their house very, very quickly and OpenDoor will be able to pay more than flippers in the first extreme so they will gain a ridiculous amount of market share.
Downside risk: The risk is that they need to scale their operation so large to get economies of scale that when a downturn happens, they are too top heavy and end up getting financial destroyed. Many people may also assume that they could systematically missprice houses (pay too much), but I doubt that is a real risk.
>Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones.
So do you think that this response is being a bit coy and they are in fact buying deeply discounted homes?
Also, I guess I don't understand where they actually make money. If someone is unable to sell a home for a long period of time and then sells it to OpenDoor, why are they able to then turn around and sell it for more? In this very thread they attest that they're not flippers because they're not adding much real value to the home.
Opendoor: Targets sellers that want to sell quickly without any hassle.
Flippers: Targets sellers that want to sell quickly without any hassle. Some of them are distressed. Some of them are just in a hurry.
There really is no real distinction. How they make money is clearly laid out on their website. They buy for low, sell for higher than the bought. I believe they also cut out realtors.
I'm all for paying $2 for convenience if coffee on the run. Not sure I would pay $20k to save a few hours work around selling a house.
If getting an agent on your own cost 5%-6%, and opendoor is charging 12%... you are losing 6-7% by using opendoor. That is a LOT of money.
I wish real estate agents commissions where tiered. 1% for selling at market rate but 10% for anything over the market.
> Also, I guess I don't understand where they actually make money.
Sorry for not being more clear on that. When we make an offer on a home, we present a headline price ("we think your home is worth $X"), and an upfront fee for our service (6-12% depending on our estimation of the risk, where traditional real estate fees are 6%).
We try to make the fee as transparent to our sellers as possible, so they can make a fully informed decision.
I will buy your house immediately. The way I can do it is to offer you a lower price than you can get if you wait to sell it. Here is my offer for 88% of what your house is worth.
If they wanted to change their pitch it would be...
I buy houses from people. I can close right away, but I need to charge you a 12% fee for a fast closing. That really only costs you 6% because you dont have to hire a broker.
Economically, they are the exact same pitch. There is nothing wrong with either approach. I do understand you not wanting to be associated with flippers, but the reality is hard to argue against.
If you consider holding costs of a home, prepping to sell, etc Opendoor is often at or below cost parity for a segment of sellers for a dramatically better experience.
> We typically don't spend very long renovating our homes. We'd rather reinvent the buying and selling experience itself, and do a larger number of transactions.
I think we're getting a bit hung up on definitions in this thread. We do flip houses, in that we buy them and then resell them right away. But in real estate, the connotation of a "flipper" is someone who's either (1) really good at identifying underpriced houses, or (2) really good at getting return on investment (ROI) through renovations. One of the best ways to identify underpriced houses is to take advantage of people who are down on their luck and need to sell fast, so many people also think of "flippers" very negatively.
Opendoor's model isn't based on finding underpriced houses or renovation ROI. We charge a fee (transparently and upfront) for the service of buying your home and taking on the risk of selling it. Our goal is to make that fee as small as possible, and to provide our services to as many people as possible.
We're not trying to make huge amounts of money on every transaction. We're trying to do a lot of transactions, at a fair price.