Opendoor, a year-old, San Francisco-based company, is on a mission to make residential real estate liquid by making it simple to buy and sell it online.
Investors are buying what it’s selling. This morning, the company is announcing $20 million in fresh funding led by GGV Capital, a round that brings the company’s total outside funding to $30 million.
Consumers are also buying Opendoor’s pitch. The 20-person company is now buying one house per day – sight unseen — in its test market of Phoenix. Home owners need merely give it their address and some basic details, and using public market information about historical home sales and Opendoor’s own proprietary data about market conditions, the company arrives at an offer price that’s just one to three points below what the seller might fetch on the open market roughly three months into the future. (That’s the average time, it says, required to sell a home in the U.S.)
The big question now is whether the whole operation is sustainable. Certainly, the risk and reward associated with what it’s trying to pull off is enormous.
Consider: After Opendoor acquires each home, it must ensure the home is up to code in order to resell it. The repairs alone can likely get complicated, as any homeowner can attest. But each home is also given numerous cosmetic upgrades that will give it so-called curb appeal. Think everything from new kitchen cabinets to light landscaping.
Opendoor can (and surely intends) to sell its homes at a premium, based on those upgrades. But it’s a lot of work, the kind that involves contractors and lawn maintenance workers, in addition to Opendoor’s growing team of developers. More, hanging on to that inventory in the meantime is a huge risk. Though the company’s equity certainly helps, as does a partnership with a bank that gives it debt to use, the housing market is highly sensitive to interest rates and other macroeconomic factors. In Phoenix, for example, where Opendoor has been testing out its service for the last several months, up to a quarter of the homes that are listed for sale are eventually taken back off the market.
CEO Eric Wu — a serial entrepreneur who cofounded Opendoor last year with investor-operator Keith Rabois — acknowledges the challenges, but he seems convinced that none are insurmountable. Partly, that owes to the progress Opendoor has made as a software company, whose platform can now (Wu says) seamlessly address everything from property assessments to quickly presenting offers to potential customers to handling the payment of the house to overseeing the infrastructure involved with holding and reselling it.
Wu also knows that there’s tremendous pain associated with home buying today, and where there is pain, there is opportunity.
In fact, Wu is already envisioning the day that Opendoor both buys homes, then resells others it owns to those same customers, creating one of those virtuous cycles that the digerati like to talk about.
“Longer term,” says Wu, “we’d love to have a path where we transact 5 to 35 percent of all homes. Once that occurs, this business really starts to evolve into us solving pain points for homeowners, from [allowing them to easily sell their homes] to helping them [purchase] another with high-quality renovations. We definitely think we can touch both buyers and sellers.”
The company could even get into the financing business eventually, Wu suggests. There’s “lot of headache and stress in securing mortgages today,” he notes. Opendoor has enough work ahead of it right now, but it’s “something we’ll look at down the road,” he says.