Opendoor?

How do you guys feel about Opendoor? Or iBuying, the automated house flipping business, proptech in general? FYI I'm not in RE but I've been interested in these topics for a while and want to know what people in the industry think.

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Comments (11)

  • Analyst 2 in RE - Res
Jan 19, 2021 - 8:16pm

For me, the greatest thing Opendoor offers is a digital platform user experience and liquidity. But I don't see that as a competitive advantage because the model is replicable and competitors will form. That's not to say they won't dominate the market. But at the end of the day being a balance sheet purchaser is not an inventive model. They still have to sell the houses at a profit.

  • Investment Analyst in PE - Other
Jan 19, 2021 - 9:04pm

In response to the above the novel product that opendoor really has is an algorithm that can accurately and repeatedly price any single family home, and many of the more knowledgeable people on this topic would tell you that between Zillow, opendoor, and Redfin that it is opendoor that has the best pricing algorithm. End of the day these companies live and die by these pricing algorithms because if they price the homes wrong and can't sell them for a profit plus the fees they're collecting well then they're fucked. I think you'll see all these platforms grow massively in the next 10 years, but backing up to the wide view the residential housing market is massive so all these companies have huge room to grow and still barely take a bit of the total pie. So as long as you believe in the model and that more people will go this route then you believe these companies will do decently. I think big question is can they grow margins, and who really knows on that maybe once we get better picture and analyst coverage of opendoor we'll understand that more thoroughly.

  • Analyst 2 in RE - Res
Jan 20, 2021 - 10:55pm

Yes, it naturally makes sense to use an algorithmic approach. But I also believe pricing is an imperfect game of crests and troughs that fluctuates with economic cycles. For example, if they're always buying at market valuations, how would they have formulated their buying strategy in a soaring market such as the run up to '08? What happens at the end of an economic cycle when they're holding assets bought at elevated valuations and asset valuations are about to drop? Also, I'm not sure about whether the accounting treatment of their assets are subject to mark to market valuations but I think they have to be very careful in their buying strategy, capital structure, and managing assets and liabilities just like any debt fund or insurer.

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  • Investment Analyst in RE - Comm
Jan 19, 2021 - 10:35pm

Opendoor, along with Zillow and other "iBuyers" are going to swallow up nearly every realtor and resi brokerage that operates in the first time home buyer and first move-up space. Not only is it fool proof to submit your home and get a cash offer through a streamlined offer-close process, but they are also all starting to build their own brokerage teams. At scale they can offer brokerage services for a flat fee that is 10x cheaper than using a traditional broker and paying 3%. Realtors quite literally add no value with the emergence of iBuyers and really just the internet in general to quickly give you a value that your home could sell for on the open market. Similarly, using a realtor is far from a guarantee that you'll have a smooth transaction. The majority of realtors only do a few transactions a year and are by no means experts in any facet of the deal and likewise they probably weren't top of their class at any level. 

IMO the luxury ($1mm+) realtors are safe for the foreseeable future as the transactions are more nuanced and the market for buyers is smaller, so iBuyers won't take on the risk and carry costs. The "rock star" realtors will likely adapt their commission structure and continue to be successful, but for 99% of realtors they're either going to work under the iBuyers umbrella or find another gig.  

Jan 21, 2021 - 4:16pm

Would be interested to hear or understand how the physical part of their business model works? Do they have contractors or employees in each city to make repairs etc to the houses? Wondering how scalable this part of the business model is?

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