Will OpenDoor Make Real Estate Brokers Obsolete?

Need to move quickly? Turning to a real estate broker to sell your house can take time – time you may not have. So what is a seller to do? Turning to internet startup companies like OpenDoor Labs Inc. to do the selling for them is what some have found quick, convenient and successful.

OpenDoor pays cash for homes and sells those homes, sometimes in as little as a month, for a profit. The company is armed with data scientists and software that believe they can identify the right prices on homes. After a seller fills out an online form, OpenDoor performs a quick market analysis and makes an offer. If accepted, the company sends an inspector to verify the home’s condition. The company may request repairs at the expense of the seller, who can still back out of the deal. The seller selects the closing date and receives cash for the house with OpenDoor charging 7% to 12% in fees.

Phoenix resident Luke Dalien was able to sell his home to OpenDoor in just two weeks. The house sold for $290,161 in August and OpenDoor pocketed an 8.5% fee, paying him roughly $265,000. Dalien estimates he would have paid 6% of the sales price to brokers anyway had he sold the house himself.

OpenDoor flipped the house a month later for $300,000, but likely collected closer to $285,000 after factoring in various selling costs, according to property records and the company. Dalien said he could have made more money selling his house himself, but the convenience of setting the closing date while not dealing with open houses or buyer mortgage approvals made the cost worth it. He recommended the service to two friends who have since sold their houses to OpenDoor.

OpenDoor’s unique approach includes 24-hour self-guided open houses, made possible by special door locks that people can open by texting the company, and cameras inside the home to monitor visitors.

“To make [selling] seamless and convenient like that, I think it’s the future of real estate,” Dalien said.

OpenDoor owns all the homes it lists for sale, instead of solely running a marketplace that matches buyers and sellers. As a result, OpenDoor’s strategy is very risky, potentially backfiring if the economy takes a downturn.

Through mid-December, OpenDoor had bought and sold just over 200 homes. It paid an average $230,000, reselling them within 90 days for an average of $245,000. The company made an average estimated profit of between $10,000 and $15,000 on these homes, when including the 9% in fees it earns from the seller, and subtracting costs to resell the home, such as renovation costs and broker commissions.

“We’re introducing liquidity to a marketplace that doesn’t have any,” said the company’s co-founder, Keith Rabois, a venture capitalist. Rabois co-founded OpenDoor in March 2014 with three others including Chief Executive Eric Wu, who sold a prior startup to real-estate portal Trulia Inc. in 2010. Their plan to use technology to flip homes drew the attention of venture-capital firms and more than two dozen Silicon Valley angel investors like PayPal co-founder Max Levchin and Yelp Inc. CEO Jeremy Stoppelman.

However, records show OpenDoor also owned about 30 homes as of mid-December that it had failed to resell for at least six months. Real estate experts say OpenDoor could face steep losses in an economic downturn because its equity would fall and it could get stuck holding too many homes. Mr. Wu countered that by saying OpenDoor may be protected from a downturn because sellers will be eager to unload their properties, and the company could charge them higher fees. Also, diversifying across cities will limit the risk.

If OpenDoor expands to California, could you be out of a job? With services like this, sellers may not need the assistance of a real estate agent. What do you think? Can sellers benefit from the service OpenDoor is providing?

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