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My Best Guess at OpenDoor’s Strategy to Buy and Sell Homes Online

opendoorThere’s been much talk and hype about the latest entrant in real estate OpenDoor, which just closed $9.5 million.

While they have publicly stated they aim to enable home owners to sell their home online in 3 days. They have not publicly said how they plan to deliver on that.

My guess?

Nope, it won’t be with some crazy AVM magic.

This is a marketplace play. A sort of Zillow Mortgage Marketplace, but for homes instead of mortgages.

The use case will be home owners come to the site, submit their home details, and receive bids back from real estate investors. They will select a bid, and then be given an option to close online with the investor of their choice (lots of work behind the scenes to allow that to happen). I don’t know the investing space that well, but from my understanding, the majority of investors have a very specific formula they follow — and if any home & price combo fits their formula they will buy the house no questions asked because they know they can flip it for more than that (if that assumption is not the case, please leave a comment).

Once they have early critical mass of investors submitting bids, they will open it up to individual buyers who want to bid on homes (maybe w/ the help of their agent).

The only other option I see is OpenDoor buying homes with their own capital. If that were the route they were taking, they’d have to raise a heck of a lot more than $9.5 million to serve even several local areas.

They will have to attract a heavy investor crowd to fill the demand side of the equation. If this is indeed the case, it’s a good sign for Josh and BiggerPockets. If real estate investors are as big a part of this model as I think they are, then OpenDoor may be well served to acquire BiggerPockets.

Auctions have been tried. eBay for instance. And way back in 2005, Zillow played around with enabling owners to auction their homes off. But they scrapped that after several months validating whether it would work, and came up with the Zestimate — and the rest is history.

What do you think? How will OpenDoor enable owners to sell a home in 3 days online?

About Drew Meyers

Founder of Geek Estate Blog / Geek Estate Labs. Zillow Alum. Travel addict & co-founder of Horizon. Social entrepreneurship & microfinance advocate. Fan of Red Hot Chili Peppers and Kiva.

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  • JimWhatley

    Anything is possible. It will be like a pawnshop for homes. They can even do a reality show around it.

  • I read they are going to buy the homes. So for people who don’t want to deal with the hassle it will be like taking your car to the dealer. They will give you what they feel is fair price and you have no headaches of trying to sell it.

    If you need cash fast for another purchase or for any other reason, the idea of selling your home in 3 days would be attractive.

    Then like any investor they will fix it up and resell it.

    Most sellers are not that rushed to sell their home and if it means waiting another few days or even a week to get A LOT more money they will go for the money vs. the time savings.

    However, if Open Door pays really close to what you would get going through a Realtor, then they might be buying up a lot of homes. I think their success will be based on their reputation of paying a fair price.

    If sellers believe they are getting market price or very close to it, then why not use them. If they feel they are leaving a lot of money on the table by selling to Open Door then they won’t use them.

    • “I read they are going to buy the homes.”

      So, a real estate investment firm with a very deep technology focus?

      If that is the case, I’m not that bullish on the opportunity. It’s a niche opportunity then… unless they flip the switch down the line and build a marketplace for buyers/sellers to close deals using technology. But no one has figured out how to actually do that…and many many have tried.

      • If they buy them at or near market value, then they either need a ready to go list of waiting and able buyers to minimize holding costs or they need to hold for the long term for a rising market, i.e. speculate. I flip houses and you don’t buy near market value if you flip in most (or all) scenarios — too many project costs just to break even much less earn a fair profit. Of course, if they were capitalizing on the mortgages then there may be another profit stream.

        • Tyler Weinrich

          couldn’t they wholesale the homes instead of fix/flipping them? Get em under contract from the owner for $X and resell to investors or even public buyers for $X+$5,000.

          • Savvy investors don’t buy at or near market value — speculators do. If that’s their buyers list, then great for them – they can operate on thin equity margins. If they’re getting their properties for a significant amount under market value, then that’s a different story.

  • I saw the interview with I think it was Galen on
    Bloomberg last week talking about Opendoor. The way he explain that it would
    work seem like it’s a trusting alternative to local investors. I can see
    homeowner trusting these Silicon Valley Company over a slick
    looking guy come over to buy your home.

    As a Realtor in Connecticut, I welcome new ideas that will give home owner more choices and this will always real estate agent to grow or die.

  • very useful info you share about Real estate
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