This is going be a weird post. I’m going to compare Opendoor to hiring a real estate agent to sell your home the traditional way.

Opendoor as I Understand It

Opendoor is a start-up out of San Francisco that will buy your home themselves, take ownership of the house, fix it and flip it. One of the founders, Eric Wu, is from Phoenix (Ironwood High School) and metro Phoenix is where Opendoor is most active.

Opendoor is buying about 2 houses a day here right now and this is where they’re refining their business model.

How Does Opendoor Work?

Opendoor will send you an offer online to buy your house sight unseen.

You know how Zillow has an algorithm that “Zestimates” the value of your home? Opendoor has something like that but far better than Zillow’s because Opendoor will actually make you an offer to buy your home based on their algorithm.

As an economist, I would like to say, that’s a pretty bad ass algorithm if they’re willing to put their money where their math is.

The offer is only subject to an inspection of the physical condition of the house. They don’t do an appraisal, they’re trusting their algorithm to determine the value of the house.

I assume Opendoor will lower their offer price if the condition of the home turns out to be below average. (I can see this inspection step could potentially open the door, so to speak, for games to be played with the price.)

The Fees

Opendoor’s gotta make money, they can’t just pay you fair market value and expect to quickly resell it and make money. So Opendoor has fees.

Opendoor has 3 different fees, some flat, some variable. In metro Phoenix, in total the fees are 8% to 10.5% of the price of the home.

If you hire a real estate agent to sell your house, you’re likely to pay 6% so Opendoor is more expensive by 2% to 4.5% of the home’s value but there are advantages to using Opendoor.

Advantages – Opendoor

It’s fast. Opendoor can close in as little as a week!

It’s certain. About 30% of homes listed for sale by real estate agents in a normal market don’t sell. You, the home seller, can go through all that trouble and if the home doesn’t sell you have to start all over again with another agent or change your plans about selling the home.

It’s super convenient. You don’t spend time and money prepping the home for sale and you can choose the date you want to complete the sale. You want to close on a certain day so you don’t have any overlap with two mortgages, or exactly when your next home is ready, or exactly when you need to leave for your new job, no problem.

No appraisal contingency. This contingency adds stress to the traditional home sale. If the appraisal comes in lower than the price in the contract, it opens a can of worms, a stressful can of worms for the home seller.

No financing contingency. I’m ALWAYS worried when I represent a home seller that the buyer will flake out and cancel the contract (supposedly because they couldn’t get financing) at the last minute after the seller has already moved out of the house. (Or at least the buyers were able to convince their loan officer to say they couldn’t get financing so they could buy a different house.) It’s phenomenally expensive and stressful for the home seller when the buyer cancels at the last minute.

Advantage – Real Estate Agent

You might keep as much as 2% to 4.5% more of the home’s value when you use a real estate agent to sell your home.

That amount could be a large part of your equity, if you don’t have much equity.

Nutshell

  • Opendoor = More convenient
  • Real Estate Agent = Less expensive

When to Consider Opendoor

You Inherited a House. Especially if the proceeds will be split between the heirs. The higher cost of Opendoor would be split between the heirs and they would likely get their money sooner than if the executor hired a real estate agent. It may not be worth the executor’s time to maximize the return on selling the house when the executor only gets a portion of the increased proceeds. (FYI, if the inherited home is underwater or has little equity, talk to an estate attorney BEFORE you accept the bequest (you don’t have to accept a bequest), otherwise you could end up being on the hook for any shortfall.)

You’re Holding On By a Thread Emotionally. You don’t have a moment to spare with work, the kids and everything else and you’re barely holding it all together. Opendoor is more expensive but phenomenally less stressful, if you have enough equity to swing it.

You Have A Great New Challenging Job. You just want to move on and don’t want selling your house to be taking up mindshare when you need to be focusing on your new, very challenging, amazing job.

You’ve Sold Homes Before and You Hated It. You’re willing and able to pay more to avoid all that drama and to simplify your life.

Summary

Opendoor is a cool new option for selling homes that could work well for some home sellers.

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I’m not an expert on Opendoor so let me hear what you know about it in a comment below.

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