Like you , I have been hearing ads on the radio for Opendoor, seeing their signs in neighborhoods all over the place, and been curious about their 24/7 open houses. Unlike you, (unless you’re an agent like me), I have also been seeing their name on all sorts of non-MLS sales when I pull comps in neighborhoods that I either have a client wanted to buy or sell in. For the last several months it seems that I haven’t pulled comps once without Opendoor owning at least one of the houses. I have been nothing short of shocked about how many people are choosing to sell their homes this way…and the seeming unlimited funds this start up company appears to have.
I am a reader. I read novels, news reports, articles…so I saw the reports about Opendoor before I even heard they chose Arizona as the state to get their feet wet. I heard about the massive amount of money they had managed to collect from investors, and about young Eric Wu, who has already proven himself in the world of real estate. I admit I was impressed with the start up, interested to see how they thought they could do it better. I know young minds think differently and sometimes see things we old fogies might be blind to. Initially my interest was merely wondering what made Eric Wu veer off the beaten path…did he have challenges growing up? How can I make my son not actually morph completely into a slug before he is 16…and get him to use his genius IQ for anything other than video games?
I started seeing Opendoor’s signs for the 24/7 open houses…wondered how they could just let people walk through the houses any time of the day or night. Then I thought about what would have happened to a house like this when I was a teenager. House party for sure! I also started seeing Opendoor sales in the MLS when I pulled comps for a buyer or a seller…and when I would dig further into comps I saw they owned even more houses that had not hit the MLS yet. Since I was currently pulling comps I usually had a pretty good idea of the home’s value that they had bought…and I wondered if they were going to keep some of these homes as rentals because how could they buy them that close to market value if they need work plus they would have selling costs to resell the property. But it was a passing thought…we are pretty low on rental properties in Chandler and Gilbert, so I thought that would be good.
It didn’t take long for agents to start posting about their experiences with Opendoor online. The reviews seemed fairly mixed…but initially people discussed their experiences when their clients wanted to buy an Opendoor listing since Opendoor allows buyers to have an agent. Overall I was hearing small issues, nothing dramatic. I kept waiting to hear about the house parties…thinking about that football player’s house in New York. I was glad that Opendoor paid a normal commission to buyer’s agents and that they seemed to have no problem with buyers being represented by agents. Often investors offer less commission to buyer’s agents to pad their bottom line. But Opendoor seemed to always offer 3% commission, I just was perplexed about how Opendoor was making any money. I drove by one house close to my own all the time and it was just not selling. Not surprising as it backed a busy road with a fairly small lot…but I wondered about Opendoor’s holding costs and big picture goals.
I then started hearing about what agents were learning when people they knew, past clients, or current clients, friends, had sold their homes to Opendoor. Things started to make more sense. We see the number that they paid for the property on tax records, but we don’t see the settlement sheet. That number that is recorded for public knowledge is not really the number the property sold for. Let’s say I own a house that if I listed with a real estate agent would probably sell for $300,000. An offer from Opendoor might look something like $288,000, or 96% of current market value. They will say it is market value, but I assure it is certainly not the best your home could do on the market. The convenience they offer of closing whenever you want within 60 days, and not having to have your house on the market while you are living in it. Maybe worth 96% of market value? But really that $288,000 sale’s price is very misleading. Why? Let me break it down:
- Opendoor charges the fee they will pay to sell the house, or 6% for commissions, even though the listing agent is their employee. They call this fee the “experience” fee. Some real estate agents charge 6%, others will charge less, especially if you also buy your next house from them.
- Opendoor also charges for “market risk.” This amount can vary greatly depending on what they consider their risk. Opendoor says this charge can be zero to 6%. Agents have reported as high as 9%, but the fees may be labelled as something different. They may adjust the price they pay you for your house after inspection…or charge an extra fee for marketability issues. I think these issues might look like something ugly…like my Corian counter tops with a BLUE stripe along the edge. Sure I had disclosed the Corian, but the blue stripe, that’s an issue.
- The home owner pays all of the fees associated with the HOA. These are mostly negotiable traditionally. Also, part of listing your house on MLS includes talking to the HOA and finding out exactly what these fees are so you know up front. HOAs vary greatly, even in just Chandler and Gilbert. Some HOAs collect large capital improvement fees at closing.
- Opendoor will require the home owner to pay for necessary repairs to their property after they do their inspection. Again, the non warranted repairs are negotiable in a traditional sale. They also don’t allow you to shop around for the least expensive contractor to do these repairs, they just charge you THEIR price to do the repairs…whatever that is.
So the property will sell for $288,000 rather than $300,000 if listed on the market, but what the seller will NET is the $288,000 minus the 6-12% in fees, and all of the HOA fees, marketability issues fee, and any repair charges they deem necessary. As a seller in a traditional sale you will pay realtor fees, and you might get stuck with all of the HOA fees and repair costs. So, if you just take into account the 96% of market value and the potentially increased cost of another 6% in fees, that is $30,000 LESS in the seller’s pocket. YOUR pocket! $30,000 is a LOT of money I am going to guess, for all of us. Why would anyone choose this? Just so they don’t have to clean their home and show it while they live there? I know it SUCKS to sell your house while you live in it, but doesn’t the $30,000 more in your pocket make that suckiness worth it?
If you are considering taking an offer from Opendoor, call me for a FREE market analysis. I will go over MY numbers with you. You should at LEAST know the full picture, all of your options. Then you can make an educated decision, with a full picture. Every challenge you are worried about has a solution…that is why real estate agents are also known as super heroes. We take your challenges, and we SOLVE them…all in YOUR best interest! Leave your information below if you want your free market analysis from me!
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