VentureBeat reports this week that the covert OpenDoor, a $9 million startup, plans to bring real estate sales to the Internet age. While details are vague on just how the company will do this, and insight comes only from OpenDoor’s website and the VentureBeat story.
OpenDoor’s website is just a landing page now, but the header makes the bold claim: “Liquidity for residential real estate: Allowing owners to sell their home in a few clicks.” The page announces a July 2014 launch date.
OpenDoor lists three adjectives: simple (transparent), certain (full certainty on price and close date) and fast (receive an instant offer online and funding in as soon as three days). Anyone who’s sold a property in the past few years knows that the traditional sale is none of those things. It’s a rare transaction that is certain on price and close date, and only in the simplest cash deals is the process fast.
Is this really groundbreaking? How will they do this?
VentureBeat says one of the firm’s investors, Keith Rabois, “teased us with his fascinating plans to help people sell homes fast with the help of the Internet. But he wouldn’t give us the details.” Rabois told VentureBeat in April: “My belief is that if you added a frictionless, convenient, simple process, more people would sell their homes.” That’s not groundbreaking news to any real estate professional, or to a frustrated seller in today’s market.
So how will OpenDoor deliver these three seemingly impossible promises to sellers? All the facts and figures that are now gathered by big data companies could be used to value someone’s house instantly. No need to send out an agent to do a BPO or a certified appraiser. Just as Zillow allows sellers to plug in their address and get a Zestimate, a similar valuation model could be used to value a home and make the decision on the spot whether or not to purchase the seller’s home.
Picture this scenario. Joe Seller creates an account, inputs his address and property details, and enters the price he wants to sell his house for. On the back end a valuation model compares what the system thinks the house is worth, vs. what Joe wants. A negotiator steps in and emails Joe, or calls him to discuss the deal. They come to an acceptable price. OpenDoor agrees to purchase the home using their own pool of cash.
Serial entrepreneur Eric Wu (founder of real estate startup, Movity which was acquired by Trulia where he worked as head of geo/social products for two and a half years) filed documents with the U.S. Securities and Exchange Commission last week looking to raise $6 to $9 million – and there’s your cash to start the ball rolling.
Real estate is “unaffected by the Internet”
Rabois says he’s been working on this idea for over a decade, and that the residential real estate industry is “the largest part of the economy unaffected by the Internet.” That statement is not true – not by a longshot. Real estate’s last decade has been tremendously affected by the Internet – from the death of printed MLS books to IDX to online transaction management systems.
I could go on and on with technology that has revolutionized real estate, but Rabois is correct in the fact that the process of actually plugging in an asking price and instantly having someone “buy” your home online is a game changing idea.
While OpenDoor sounds interesting and will appeal to a certain segment of sellers, it is not revolutionary and is certainly not the first attempt at this very model. It is basically “I Buy Houses Fast” on steroids. It’s premised on the idea that a distressed seller will jump on the opportunity to have cash in hand, fast.
Brokers are sidestepped, not cut out…
Step two of the OpenDoor program, Rabois told VentureBeat, will be to hire “local partners to rehab, maintain, and improve our portfolio of properties.” The plan will be to fix and flip. They will list with local agents on the MLS, so OpenDoor is not cutting real estate brokers out of the process completely – just sidestepping them in the purchase.
The program will only work if OpenDoor buys the sellers out at a discount, puts minimal cost and effort in pre-marketing efforts, and is able to sell the properties at market value. It’s the same premise fix-and-flip investors have been doing for ages. The difference is the magnitude of the operation.
It’ll be interesting to see how this plays out.