Tag: opendoor

• Evolution of online marketplaces

  I have written a lot about Opendoor over the past few years because it is one of the most promising “proptech” startups in operation today and I am obviously very interested in the impact of tech on the real estate industry. 

  I also have a fascination with online marketplaces. From the Greek agora to today’s mobile apps, the exchange of goods and services is a fundamental human activity. Uber, Alibaba, Instacart, Airbnb, Amazon, and Kickstarter are all marketplaces. I think sometimes people forget that.

  Andrew Chen, who is a general partner with the venture firm Andreessen Horowitz, recently published an essay on the future of online marketplaces, where he argued that what’s next is a reinvention of the $10 trillion service economy.

  Andrew posits that the internet has brought about 4 eras of marketplaces. They are:

  1. The Listings Era (1990s)
  2. The Unbundled Craigslist Era (2000s)
  3. The “Uber for X” Era (2009-)
  4. The Managed Marketplace Era (Mid-2010s)

  The listing era birthed marketplaces that were essentially online versions of the things that already existed offline. Craigslist, for example, simply took the classified section and put it on the internet.

  Over time, these online marketplaces began to focus on specific verticals (the unbundling of Craiglist) and they started to introduce services and features that were native to the internet and later to mobile. Uber obviously only works when everyone has a smartphone.

  Today we are living in the era of what Andrew calls the managed marketplace. Opendoor – to get back to the first paragraph of this post – is a managed marketplace. Instead of just connecting homeowners with buyers, they take on specific steps of the value chain. They buy and fix up the homes themselves.

  So what’s next? 

  Supposedly it is regulated services (2018-?). As of 2015, it was estimated that about 26% of employed people in the US carried some sort of license. These are healthcare practitioners, architects, engineers, real estate agents, financial advisors, trades people, and so on.

  And the argument is that a lot of how we regulate services today is a result of us creating them before the internet. We needed licenses and certifications to signal to us who was qualified and who was not. But now we have technology to help us do that, which is why this could be the next great era of online marketplaces.

  2018.11.27

• The next 20 years

  

  Above is a screenshot from a presentation about the future of tech that Benedict Evans gave last week at venture capital firm a16z’s annual conference. And below is a video of the talk. If you can’t see it, click here.

  [youtube https://www.youtube.com/watch?v=RF5VIwDYIJk&w=560&h=315]

  The talk is positioned as “the end of the beginning.” In other words, here is where the internet and smartphones have taken us, but that’s just the beginning. Quote: “We used to do apartment listings [online] and now Opendoor will buy your home.”

  It’s only 24 minutes and well worth a watch.

  2018.11.17

• The rise of proptech

  

  A friend of mine flipped me this New York Times article today talking about the rapidly growing interest in proptech and about Opendoor – a topic and a company that I have written about many times before on the blog.

  Here’s a snippet about proptech:

  The hauls are part of a race by investors to pour money into technology for real estate, or what Silicon Valley now calls proptech. Having watched tech start-ups upend old-line industries like taxis and hotels, venture capitalists are casting about for the next area to be infused with software and data. Many have homed in on real estate as a big opportunity because parts of the industry — like pricing, mortgages and building management — have been slow to adopt software that could make business more efficient.

  On the Opendoor front, which is the largest/most valuable company in the proptech category, they have now raised over $1 billion. By the end of this year they plan to be in 22 cities across the United States.

  Interestingly enough, they have started experimenting with other business models, beyond just buying and flipping homes. They now circumvent agents and sell some homes directly to customers.

  But Eric Wu, the CEO of Opendoor, believes that you can’t automate proper advice and so that will remain. The role of agents is simply about to shift from “administration” to that of “advisory”.

  I have been arguing for years that the home buying and selling process is ripe for change. And what we are seeing today is really the start of that.

  According to the NY Times, real estate tech startups raised $3.4 billion in funding last year. Some firms, such as Fifth Wall Ventures, are entirely dedicated to the space.

  This is money betting on change.

  Photo by Grant Lemons on Unsplash

  2018.09.29

• Are we entering a new era of tech-driven city building?

  

  Emily Badger of the New York Times published an interesting piece yesterday talking about the tech industry’s current obsession with trying to fix cities. And there are certainly many problems to fix.

  Staying true to tech and engineering parlance, there’s lots of talk of optimization. How do you technologically optimize a city, for things such as affordable housing?

  There’s no doubt that many of you will sympathize with this statement: 

  “To planners and architects, all of this sounds like the naïveté of newcomers who are mistaking political problems for engineering puzzles.”

  But naïveté is not always a bad thing and with all of the money sloshing around in this industry, there’s also no doubt that this is likely a new era of city building.

  The article ends by quoting JD Ross, the 27-year old co-founder of Opendoor – a startup that we have discussed many times before on this blog and is now valued at over $1 billion.

  It is him saying that he wants to figure out how to put $100 million into this space as soon as he can figure out the right target to optimize for. “It’s better than buying a Bugatti.”

  Of course Sidewalk Toronto – which is mentioned a few times throughout the article – is already a perfect example of tech infiltration.

  But I think Dan Doctoroff gets it right when he posits that the real naïveté will come from disrespecting urbanist traditions.

  Photo by David Alacaraz on Unsplash

  2018.02.25

• Will Zillow’s new “Instant Offers” disrupt real estate agents?

  

  Last month Zillow.com launched a new feature called “Instant Offers.” Press real estate can be found here.

  It is:

  “…a way for homeowners to sell their homes quickly by providing them with offers from investors and a comparative market analysis (CMA) from a local real estate agent, as an estimate for what the home might fetch on the open market.

  Here is a bit more about how it works:

  “To participate in Zillow Instant Offers, verified homeowners interested in receiving investor offers confirm information about the home (number of bedrooms, square footage, etc.), highlight any updates and provide several photos of the home. From there, select investors who buy homes in the area can present their offers alongside the CMA from a local real estate agent. Any investor offers and the CMA will include an overview of fees associated with each option, to enable sellers to make an informed apples-to-apples comparison.”

  When I first saw the headline, I thought they were copying Opendoor. But it’s not the same model. They aren’t buying the homes, like Opendoor, they are simply working to coordinate an “instant” transaction. Still, I’m sure that Opendoor provided at least some of the impetus for this feature.

  Of course, the most interesting question with these online real estate platforms is: Will they disrupt real estate agents? Mike Delprete wrote a great post about this in the wake of Zillow’s announcement.

  But ultimately he concludes something that I have felt strongly for years:

  “So, while real estate sites are best positioned to disrupt the real estate industry by displacing agents, they’re also the least likely to do so, because agents are their biggest customers and source of revenue.”

  The irony.

  About 70% of Zillow’s revenue comes from real estate agents. So it seems unlikely that they – at least currently – will be the ones that turn the tables on agents. 

  Some real estate platforms have started diversifying their revenue streams for probably this exact reason. But who knows, it may be a new entrant, rather than an incumbent, who pulls this off. 

  2017.06.05

• Opendoor is now selling ~300 homes per month

  Farhad Manjoo of the New York Times published an article this morning about Opendoor – a startup that I have written about multiple times on this blog – called, The Rise of the Fat Start-Up. (His definition of “fat” is that the startup owns lots of hard assets, which considered atypical in tech.)

  Below are a couple of interesting tidbits from the article:

  • Opendoor has raised over $300 million in equity and over $500 million in debt since inception.

  • Opendoor plans to be in 10 cities by the end of this year.

  • Average commission charged on Opendoor is 7.5%, which is higher than a traditional real estate agent and higher than what was quoted before in the press. The higher % is because of certainty and convenience.

  • Opendoor offers a leaseback option if you’d like to stay in your house for a period of time after you’ve sold it.

  • Their conversion rate (offers made to closings) is about 30%.

  • Other startups are now in the market with similar models, including Offerpad and Knock. Zillow is working with Offerpad on a pilot. Someone is starting to feel threatened.

  The article also quotes a blogger and real estate analyst named Mike Delprete. Heads-up: His blog is called “Adventures in Real Estate Tech.” I’m sure this will appeal to many of you. I obviously just subscribed.

  Mike dug into MLS records in order to figure out Opendoor’s transaction volumes, since the company is not releasing this information. Here’s what he found (the chart is up to March 2017):

  

  The trend line is certainly moving in the right direction. But Mike also believes that Opendoor is only netting around $8,320 in profit per home and that much of it is driven by appreciation. There’s also substantial risk in owning so many homes – each one is usually held for a few months.

  But you can be sure they’re thinking well beyond where they are at today. Expect many more updates on this blog.

  2017.05.24

• Opendoor.com is so risky that it may just work

  

  I have been writing about the startup Opendoor.com for over 2 years now. And I continue to believe that they are the most promising disruptor in the residential real estate space. 

  Here is the first post that I wrote back in July 2014 after they raised their first round of funding. Here is the second post that I wrote after they launched in Phoenix. And here is another post that I wrote 6 months ago where I argued, once again, that they are doing something worth paying attention to. (This last post explains how the platform works.)

  Well, about a week ago it was announced that they have raised another round of funding: a $210 million Series D. In all likelihood, the company’s valuation is now over $1 billion. Here’s the Techcrunch announcement where the message was: huge ass number; risky business model.

  In response to this, Ben Thompson wrote a terrific and widely shared blog post called, Opendoor: A Startup Worth Emulating. I love his post because he says what I have firmly believed and argued for many years: Zillow and Redfin are not disruptive real estate startups.

  This is what he says about Zillow:

  “And yet, the most successful real estate startup, Zillow (which acquired its largest competitor Trulia a couple of years ago), is little more than a glorified marketing tool: the company makes most of its revenue by getting real estate agents — the ones collecting 6% of fees, split between the buying and selling agents — to pay to advertise their houses on the site. Certainly a free tool that makes it easier to find houses in a more intuitive way is valuable — Zillow has acquired the sort of userbase that allow it to build an advertising business for a reason — but at the end of the day the company is a tax on a system that hasn’t really changed in decades.”

  And though very risky, he argues that Opendoor is far better positioned to shake up the status quo. 

  Here are two of his key points:

  “Sellers are uniquely disadvantaged under the current system, which is another way of saying they are an underserved market with unmet needs.” [Sellers are the side of the market that Opendoor is specifically targeting.]

  “Opendoor has a new business model: taking advantage of a theoretical arbitrage opportunity (earning fees on houses sold at a slight mark-up) by leveraging technology in pursuit of previously impossible scale that should, in theory, ameliorate risk.”

  And here’s what that could ultimately mean for the industry:

  “Opendoor has many more reasons why it might fail than Zillow or Redfin, but its potential upside is far greater as a result. First is the immediate opportunity: sellers who can’t wait. However, as Opendoor grows its seller base, especially geographically, its risk will start to decrease thanks to diversification and sheer size; that will allow it to lower its “market risk” charge which will lead to more sellers. More sellers means both less risk and an increasingly compelling product for buyers to access, first with a real estate agent and eventually directly. More buyers will mean lower marketing costs and faster sell-through, which will lower risk further and thus lower prices, pushing the cycle forward. It’s even possible to envision a future where Opendoor actually does uproot the anachronistic real estate agent system that is a relic of the pre-Internet era, and they will have done so with realtors not only not fighting them but, on the buying side, helping them.”

  I’m with Ben on this.

  2016.12.08

• A money back guarantee on your next home

  

  I’ve written about Opendoor.com a few times. As far as I can tell, they are the furthest ahead in terms of disrupting the residential real estate market. So I like to follow them quite closely.

  They’ve recently launched some new features, so I figured it would be a good time to check-in on what they’re up to. But first – for those of you might not be familiar with Opendoor – here’s what they do.

  Opendoor offers instant liquidity to homeowners by buying homes site unseen. The fee they charge seems to amount to less than 10% of the value of the home. 

  They also say that they typically offer prices that are about 1-3% less than the market value of the home 3 months into the future. (Apparently 3 months is the average time-on-market for the cities in which they operate.)

  Once they’ve bought the home, they then make improvements and put it back on the market. As of today, they are buying about 10 homes a day in the two markets in which they operate (Phoenix and Dallas). They are spending about $75 million a month buying homes.

  To mitigate their risk, they won’t buy a home built before 1960, a home that was pre-fabricated, a home with a solar lease, and so on. They also stick to values that are between $100,000 to $600,000. But apparently this covers off about 90% of homes in the United States. (You can read their full FAQ here.)

  To accomplish all of this, they have raised about $110 million in venture capital.

  What’s fascinating about all of this is that they are starting to create a seamless marketplace. As they continue to buy more homes (and aggregate supply), more buyers are starting to come to their marketplace. They also allow people to easily find local contractors.

  Over time as they gain scale and as their algorithms improve, one could imagine their pricing becoming more competitive, them taking more of the market, and them bearing much less market risk as homes quickly trade. 

  They liken their model to car trade-ins. Apparently 60% of people who buy a new car are trading in an old one. That’s an interesting comparison that I hadn’t thought about before.

  So what’s new?

  Two things…

  First, they are offering a 30 day full refund on new home purchases. In other words, if you buy a home through their platform and, for whatever reason, you end up not liking it, they’ll buy it back (minus some transaction costs and so on).

  Second, they are providing a 180-point inspection report to buyers and if anything breaks in the first two years of ownership (presumably it is something that contravenes the inspection), they’ll come and fix it.

  These additions are helpful because it starts to target buyers, which will help them fill out the other side of their marketplace. It also promotes greater transparency because now they’re partially on the hook for the home’s performance.

  I like what they are doing and, again, I can’t think of any other company making such big bets in this space.

  2016.06.07

• SQFT launches as America’s first DIY real estate portal

  

  I am currently in Hunstville, Ontario (Muskoka region) and I have about 15 minutes before I need to head out for dinner. So this is not going to be a long post.

  I did, however, want to share with you a new real estate app that I learned about today called SQFT. (Thanks Evgeny.) They were just featured in TechCrunch and their mission is to make it easier and cheaper for people to buy and sell homes using just their smartphone. They’re calling themselves the first DIY real estate portal in America.

  As a homeowner, you create the listing yourself and then it gets syndicated out to hundreds of other websites (including the big players like MLS, Zillow, and Trulia).

  You’re still technically working with “independently operated licensed real estate agents”, but the app itself handles setting up the showings and even the offer negotiations. Their hope is that they can reduce real estate commissions to < 2%.

  This is a space that I’ve been following closely for a number of years now and seems to be really heating up. Opendoor.com is another online real estate platform that I’ve written about a few times. And in my view, they are the furthest out front.

  My realtor friends don’t like it when I say this, but I think we’re going to see a lot of changes in this space in the near future.

  2015.06.22

• Opendoor.com launches in Phoenix

  Yesterday Opendoor.com finally launched their product in Phoenix. If you’re a regular reader of Architect This City, you might remember that back in July of this year I wrote about how they had just raised $10M of funding to make selling your home as easy as a few clicks.

  Well, since then, I’ve been following them like a hawk. I had all the founders on Twitter notification (so I got notified every time they tweeted) and I was eagerly anticipating their launch.

  Now that they’ve launched, we have a much better idea of how their business model is going to work. I say “better idea” only because there’s still portions of it that are a question mark for me.

  In any event, Opendoor basically provides instant liquidity to homeowners. You go on, tell them about your home, and they then make you an offer to buy, which looks like this and lasts for 3 days. The offer they make you is calculated using comparable sales and adjustments based on your home’s unique characteristics.

  Upon accepting their offer, they then schedule a home inspection (at their cost) to confirm your home’s condition. Once this is done, you just select your move out date and Opendoor handles the rest. The fee for all this is 5.5%, which the company claims is less than the 6% that realtors typically charge (this would be high for Toronto).

  After buying your home, Opendoor plans to turn around and resell it.

  What this reminds me of is a “bought deal.” In the world of investment banking, a bought deal is when the bank itself agrees to buy the entire offering of a particular security, as opposed to going out to the market and trying to raise the money. The advantage to the company (offering the securities) is that there’s no financing risk. They know they’re going to get their money. But it usually means the company gets a lower price.

  So what I wonder, is if this is what’s going to happen here. Since Opendoor is effectively taking on the selling risk, does that mean their offers will be lower? Or are all their costs built into that 5.5% and that’s truly their core business model? I’m sure some of this will surface in the coming weeks.

  I do, however, think they are smart to be focusing on the supply-side of the marketplace and offering virtually perfect liquidity to homeowners. Real estate is a unique asset in that it’s difficult to bring supply to the market. And so if control the supply-side, I think you have a pretty good shot at controlling the market as a whole.

  2014.12.10