Agents beware of Opendoor’s business model.

10 ways the startup could change the game for agents and brokers.Key Takeaways

by Teke Wiggin Staff Writer  INMAN

Opendoor’s deployment of $320 million in equity funding and $400 million in debt will send shockwaves across the industry.

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Property-exchange platform Opendoor just bagged what is probably the largest funding round ever for a real estate tech startup, with a reported valuation of at least $1 billion only two years after launch.

The startup is overhauling the traditional real estate business model in a fundamental way. It buys and sells homes itself, giving it unprecedented flexibility to improve speed, convenience and customer experience.

Opendoor’s deployment of $320 million in equity funding and $400 million in debt will send shockwaves across the industry, perhaps most by popularizing new technology and business practices.

“If we can innovate in the space and have other people mimic or reproduce that innovation, that’s a huge win for the consumer and that’s what customers are going to demand,” said Opendoor CEO Eric Wu.

Here are 10 ways Opendoor could impact the industry in the next year or two.

1. Expansion

Opendoor only operates in Phoenix, Dallas and Las Vegas but plans to expand to 10 cities in 2017. By 2018, it wants to be in 30 cities, according to Forbes.

Wu wouldn’t confirm the reported 2018 target, declining to provide more details on expansion plans.

2. New opportunities for agents

Opendoor sells properties through a brokerage subsidiary, but it also lists some inventory with agents at other real estate firms.

For example, Jake Shuler, an agent at Plano, Texas-based Keller Williams Realty Plano, is a member of the Opendoor team, according to Opendoor’s Zillow profile.

Enterprising agents may be able to win new listings when the startup lands in their market.

It also will offer opportunities to buyer’s agents.

Its keyless-access technology eliminates the need for agents to accompany clients on visits to Opendoor listings if they’re tied up. And the startup could theoretically generate more inventory, nudging some would-be sellers off the fence.

Opendoor pays agents the going rate for bringing a buyer to a sale. And it offers a 1 percent discount to consumers who agree to sell their home to Opendoor and purchase their next one using an Opendoor “partner agent.”

Two Opendoor customers say the ‘discount for buying direct,’ clear communication and simplicity were what they liked most about the startup.

3. New competition for agents

That said, Opendoor is an alternative to listing with a brokerage.

Homeowners can sell directly to the startup and close in as little as three days, rather than sell through an agent and close at an unknown time — if at all. And although it currently works with buyer’s agents, it’s building machinery that can encourage buyers who purchase its homes to work without agents.

Opendoor offers a discount to consumers who “buy direct” from the startup.

But Opendoor’s goal “isn’t to displace Realtors,” Wu said. “It’s to build the best possible customer experience.”

“There’s also a world where we help work with agents to build the best experience,” he added.

4. Lower fees

More funding may help Opendoor reduce its service fee, which ranges from 6 to 12 percent, allowing it to edge closer to competing on price.

In fulfilling its mission of the best possible experience, “part of that is how much customers have to pay,” Wu said.

But Opendoor is focused, first and foremost, on investing further in the automated valuation models (AVMs) it uses to make fast offers on properties.

“We want to first use that capital to improve accuracy, building a world-class pricing model so that people get a fair market price,” he said.

‘Coming soon’ listing on opendoor.com

5. Imitators

Opendoor’s success has not gone unnoticed in Silicon Valley. Knock has launched a similar business model in Atlanta, and Opendoor’s latest cash haul may spur others to follow suit.

Venture-capital firms that weren’t able to participate in Opendoor’s latest funding round will hunt for imitators.

“I’m sure there’s going to be competition at some point,” Wu said.

Opendoor mailer

6. More showings without real estate agents

Some agents don’t think buyers should be able to access listings without agents present.

But Opendoor lets buyers visit its listings anytime from 6 a.m. to 9 p.m., seven days a week. The startup’s keyless-access technology has delighted consumers and helps the startup purportedly attract three times as many visits as the typical listing.

Not wanting to be outdone, more listing agents may adopt similar technology. Some options offer a custodial role to agents, including Toor and Prempoint, which was unveiled at a recent National Association of Realtors (NAR) conference.

MLSs may need to loosen their rules to accommodate agent-free showings.

7. Growth of home-sale guarantees

Some agents promise to sell a listing for free if they don’t sell it within a certain timeframe.

“I’m leaning toward Opendoor because it guarantees a sale at a fair price,” a consumer might tell an agent.

Agents with guaranteed-sale programs could respond: “So do I, but for a lower fee.”

8. Foster streamlined underwriting

Buyers who use Opendoor’s “preferred lender” can close faster and for a lower fee (they get 1 percent off closing costs if they work with the preferred lender) than they can by working with many traditional lenders.

The startup will continue to look for ways to streamline the underwriting and closing process, innovating with lenders or perhaps even offering seller financing.

This will put pressure on the mortgage industry to up its game.

9. More mortgage financing by private equity and hedge funds

Opendoor can snap up homes so quickly, in part, by drawing on a line of credit from at least one private-equity firm.

The payoff of this arrangement for both Opendoor and its financier might prompt more non-bank financial firms — such as private-equity companies and hedge funds — to wade further into the mortgage space.

Such companies have already been increasingly funding mortgages through online lenders and real estate crowdfunders.

Buyers might be able to more easily qualify and close on such mortgages than traditional home loans. Opendoor’s growth could catalyze acceleration in this arena.

10. Simplified title services

Opendoor uses Fidelity National Title to facilitate a majority of its transactions.

The two companies are presumably collaborating to simplify title transfer, insurance issuance and escrow services.

Other title companies would try to replicate successful innovations. Blockchaintechnology could help drive this, such as by undergirding e-signing.

Email Teke Wiggin.

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