Opendoor.com is making a clear play on people in a financial pickle, or who don’t know enough to understand the numbers. Give em credit, it’s brilliant, but it’s terrible in the same breath. Here is an explanation of Opendoor’s business model and look at some of the numbers when selling your home with them.
It all started when I noticed a home in my area selling for 447k via Opendoor. I remembered this property had been previously sitting on the market for a while and I walked through it during an open house. After a little research, I found it was purchased by Opendoor only a few weeks previous for 367k. Little to no rehab to the property was done by Opendoor before it was put back on the market for a whopping 447k. So how did it magically gain nearly 80k in value within 3-4 weeks? I decided to dig into the Opendoor.com experience and find out.
When Opendoor quotes your home you will notice a few interesting item lines. Opendoor Experience 6% and Market Risk Charge 5.5% (which they say could be 0-6% based on conditions). In this example Opendoor offered 5.5% because they are fishing for dummies like a used car salesman. But I bet in very few cases this goes under 3%. This is a huge red flag from the jump.
Opendoor is essentially cutting out two real estate agents, but then charging a 6% Opendoor Experience Fee. FYI: 6% would cover both the buyer and seller’s real estate agent costs in most US home transactions. In addition Opendoor is charging a 5.5% Market Risk Fee in case the market crashes. Where in the world does any consumer get a market risk guarantee on any major asset purchase? This is the red flag folks. This is fireworks. This is the part when your brain say…Ripoff!
So let’s play out a scenario and say Opendoor buys your house for 400k. Their offer will ALWAYS be a low ball offer, bet on that. These guys are buying and selling (flipping), so they can’t afford to pay market price. What is one of the rules of flipping? Find profit. We’ve all watched Flip or Flop on HGTV once or twice, so you think we would know the game. Here are a look at the difference in the numbers based on a sample quote.
Opendoor.com
Opendoor’s Purchase Price of Your Home $400,000
6% Open Door Experience Fee ($24,000)
5.5% Market Risk Fee ($22,000)
Normal Closing Fees ($3,000+)
Seller gets: $351,000
Traditional Way of Selling Home (Let’s pretend that you’re dumb enough to sell at Opendoor’s lowball buying price)
Selling at: $400,000
3% Real Estate Fee to Buyer’s Agent ($12,000)
3% Real Estate Fee to Seller’s Agent ($12,000)
Normal Closing Fees ($3,000+)
Seller gets: $373,000
Traditional Way of Selling Home Pt2 (Now let’s pretend you have some common sense when selling)
Selling at: $425,000
3% Real Estate Fee to Buyer’s Agent ($12,750)
3% Real Estate Fee to Seller’s Agent ($12,750)
Normal Closing Fees ($3,000+)
Seller gets: $396,500
If Opendoor is willing to buy your home for 400k, you best believe you can sell it for at least that price. Because they still have to turn a profit on a 400k purchase. And the fees you are paying would usually be profit in the home seller’s pocket. Therefore in this scenario you need to ask yourself, am I willing to give up at minimum an additional $22,000 on the sale of my home for the convenience of not using real estate agents? Also consider you are most likely going to take a low ball offer. My guess is that a home that would sell for at least $425k would be purchased by Opendoor for about $400k. So in our example above you are giving up $23,500 ADDITIONAL off the top with the 6% of real estate agents factored in. After you sell to Opendoor, best believe your home will go up for sale in 2-4 weeks. And its price tag will make you want to open your door and run into oncoming traffic.
This company is selling convenience and you are paying a hefty toll for it. Here are the only scenarios that I felt warranted using Opendoor.com
- Your moving out of state and you feel that paying the Market Risk Fee is worth the time saved.
- You have terrible neighbors or the house doesn’t show well and Opendoor doesn’t have a clue.
- Your home is a lemon and you want to try and dump it on someone.
- You bought another home and can’t sell your current home and it’s becoming a financial burden.
- You can’t sell your home and the time invested is not worth it anymore.
- You would pay a lot to skip the home selling process.
- The sale of the home in a specific year will off set your taxes enough to make the loss worth it.
What does Opendoor.com do to the housing market in Phoenix in my opinion? It over inflates homes, because we have a company purchasing them in bulk and jacking up the price. On top of that they are padding their sale via impatient consumers with a Market Risk Fee. That means they can sit on them longer. What happens if they become a major player in neighborhoods and can start to swing the prices of homes because they own a large percentage of them? They have the capital to do it.
Opendoor has a ton of capital raised because investors know it’s a winner. It’s a large corporation trying own the homes that were once owned by people. Essentially a hedge fund for housing. Housing is changing from a place to reside into something a corporation is using for maximize profits. This beyond a terrible idea for the average home owner.
https://techcrunch.com/2015/02/26/opendoor-20-million/
My advice: Don’t sell or buy from this company because they are nothing more than a “We Buy Homes For Cash” sign with a pretty website.
