I'd say the main direct effects were (1) we were able to iterate very fast on our internal tools, which are used by internal operators to manage each transaction; and (2) our data science setup has allowed us to price homes incredibly accurately. Many companies have estimates of a home's value, but Opendoor puts its money where its mouth is ;)
I am actually building a business on real estate appraisal in Argentina (reva.com.ar), building many of the tools you mention to get the most accurate representation of values of homes. Im quite surprised you got it so well that can build a business around buying thehomes yourselves.
Would you be willing to share an email so i can ask you a couple of questions if appropiate?
It looks similar, but we're actually very different than flippers.
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.
That's defining it a bit narrowly isn't it? You guys buy homes, do a (little) work on them and then sell them for more, all in a short time frame. Maybe your innovation is in doing lots of small flips but it still seems like flipping to me.
I'm going to speak for OpenDoor here so someone from them can probably jump in, but the company I started and shut down was around financing house flippers and I have a background in both capital raising and real estate.
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.
It seems to me that they actually disagree with you, see the comment further up this thread.
>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.
There's inherently wrong with wanting to sell quickly. If grandma died, leaving me her house 3,000 miles away from where I live, the last thing I'd want to be saddled with is trying to sell it. I know nothing about selling (or owning) a house, the real estate market in that area, etc. A fair enough price ASAP is what I'd be looking for.
Also, real estate agents are just as incentivized to sell the property as quickly as possible. Selling a property at say $1M in one week (3k commission) > 1.05M in three weeks (only $150 more for two more weeks of work).
I wish real estate agents commissions where tiered. 1% for selling at market rate but 10% for anything over the market.
Agents are not free! Around where I live, you can expect to pay 3% to each of the two agents involved. Selling the house for 5% more doesn't help you if you have to give 6% of the sales price to the agents. I wonder how much of what Opendoor is trying to achieve involves removing or reducing the agent involvement.
> 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.
Most house flippers are not some evil group going around tricking grandmas. Their typical pitch goes like this:
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.
Our average fee is below 8% total, so a 1-2% premium for selling vs a broker and we'll continue to push it lower.
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.
Ah the beauty of the corporation. Make money while the sun shines, then when the downturn comes, wind up the company and move on to the next big idea. Preferably something counter cyclical to the housing market.
I mean you get appraisal A (original house), then you know what additional profit and features to add to get appraisal B. There is a lot of slack in the remodel business and economies of scale to exploit so you can probably guarantee a nice return. Especially if you can guarantee a pool of work to contractors (start with having them bid on it and then maybe get a few in house contractors). You can probably get exclusives on materials as well.
Perhaps another way of thinking about it is in terms of being a market maker versus a speculator. I think of Opendoor as more like the former, where traditionally a flipper refers to the latter.
isn't being "[...] much more focused on the customer experience, trying to give fair offers to every home [...]" just a layer on top of the business model - which seems to be indistinguishable from flipping houses?
That's fair - the customer experience is a layer on top of the business model. The second part of my comment is more relevant:
> 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.
Very true on the financing, and how it connects to our business. There have been plenty of companies in the past whose business model is to buy distressed houses and flip them; Opendoor is coming from a very different angle. We'd like to buy and sell houses at normal prices, do a lot more volume, and make smaller margins on each transaction than the traditional "flipping" business.
Because of that model, it's very important that we (1) have access to a lot of capital, and (2) renovate and resell the property quickly, so we can put the money to use again.
Sad to hear this news, but also excited to hear that Sandstorm is continuing as an open source project.
I'm mainly excited because Sandstorm makes indie web apps viable. I've been amazed to see how quickly members of the Sandstorm community can spin up sophisticated apps like collaborative editing or file sharing. If you have a framework like Meteor to handle sync, and Sandstorm handles authentication and sharing, then you can make a serious multi-user app in a weekend.
Even better, once you've made your app, you don't have to worry about security or scaling. So a junior developer could make an app which stores my sensitive financial information, and I'd still try it because I trust Sandstorm to keep my data safe even if the app is poorly written.
Sandstorm's foundation is solid, and I think a few UI and developer-happiness improvements will make this a reality. Wishing the team all the best!
Happy to answer any more questions about it.