Opendoor will buy a home at a price that is below market value due to necessary repairs, renovation, and other factors. After Opendoor buys the home, it renovates and resells it for a profit to other buyers or companies that rent homes to qualified tenants. With low offer price, comes a convenience of an all-cash closing when selling a home.
Opendoor claims to provide convenience, speed, and certainty of a fast sale. Dubbed as an iBuyer, Opendoor makes an offer on a house within days or hours, but this offer is highly conditional. Each offer Opendoor makes is just an estimate until it makes a home inspection.
At the inspection, Opendoor will often find reasons to lower its original offer when it finds items that need repair or if it has made a mistake in its original valuation.
When the company is unable to make an offer, it simply
redirects consumers to a random real estate agent in exchange for an undisclosed referral fee.
Opendoor offers fast home sales, but these are typically accompanied by higher fees (starting at 6% and rising to 12% for more risky properties.)
Opendoor only makes offers to select homes in select regions. Opendoor claims that it provides market offers, but we find this not be true.
Search for past Opendoor transactions makes it clear that
company also makes money with home appreciation difference
(typical appreciation of 5.5% to 12.5%) between what it buys houses for and what it sells them for in addition to service fees.
The main disadvantage of using Opendoor is high losses in homeowners' equity.
Opendoor is a "heavy" model, backed by a large amount of VC capital ready to buy homes in all-cash transactions.
As any real estate investor, Opendoor is susceptible to losing money in any given transaction.
This model is susceptible to a number of risk factors, high operational costs and a continued need for higher-than-average Return on Investment (ROI) with each flip.
Opendoor is not legally bound to represent consumers, its main legal obligation is to its shareholders.
Opendoor's fast transaction and easy move-out experience typically come at an extremely high price
because this model incurs "double" transaction costs during the purchase, holding period, rehab work and final sale that includes real estate agent fees.
Opendoor pays real estate agent commissions like any other buyer and seller of real estate, so these costs must be accounted for in the company's fee structure. The facts continue to point against Opendoor’s claims that it offers fair value for the houses it buys.
Moreover, because most homes in the United States are financed, homeowners own only partial net equity in their home.
Banks receive the same amount of the remaining mortgage sum regardless of how any given home is sold, whereas only homeowners' net equity is lost in transaction fees paid to Opendoor.
Typically Opendoor uses the following factors when determining the offer: existing condition of the home including repairs needed, time it will take to finish needed repairs, value of a home compared to other comparable homes in the area, real estate commission required to resell, costs associated with maintaining a home during repairs, including taxes, payments, insurance, utilities and homeowner dues.
Today, there are a number of highly qualified real estate agents who offer competitive listing rates and flat fee listings across the United States. Unless a situation absolutely requires a quick sale, HomeOpenly recommends that consumers first consider using a licensed real estate agent working on competitive terms to properly list their homes on the open market before turning to Opendoor option.
Some real estate agents are now offering Concierge services that include painting, landscaping, and other services that help consumers place their home on the open market without upfront costs and high loss to home equity.
Conflicting Incentives for Consumers
Opendoor, when it acts as a real estate investor, further offers 1% of the purchase price back at closing to work with an Opendoor Home Advisor to buy an Opendoor home. According to the company, Opendoor must not be obligated to pay any buyer's agent commissions for this promotion to apply. Having to require such terms limits consumer's ability to use an independent buyer's agent in a transaction. In effect, Opendoor offers a buyer an incentive to forgo independent representation in exchange for a 1% discount. Consumers should never be financially incentivized by a real estate investor to limit their representation when buying real estate from them.
In contradiction to this incentive, Opendoor Terms of Service directly state that: "in making you an Opendoor Offer, Opendoor is not acting as your real estate agent or broker. Opendoor is merely acting as, or on behalf of, a purchaser of real estate. As a seller, you have the right, and it is your responsibility, to independently evaluate and decide whether to accept the Opendoor Offer."
Company further states: "Buyer represents that she has had ample opportunity to obtain legal and other professional counsel of its choosing and that it is relying solely on its own independent judgment and that of its own professional consultants, if any, in entering into the purchase contract and purchasing the property."
From one side, Opendoor offers consumers an incentive in an exchange for "not being obligated to pay any buyer's agent commissions," but from another, requires buyers to "represent that they have had an ample opportunity to obtain legal and other professional counsel." These two propositions contradict each other.
Conflicting Incentives for Listing Agents
Further, Opendoor improperly offers financial incentives to listing agents to help convince consumers to take lower-priced offers from the company, instead of listing homes on the open market. iBuyer offers, accounting for fees and reduced market value, are systematically the most expensive way to transfer ownership.
In this scheme, a listing agent is offered a financial incentive from Opendoor to bring their client to the company for a pre-market offer. No real estate investor (iBuyer) should be able to offer any financial incentive to a third-party representative to persuade consumers to accept their low offers. By offering a fixed financial incentive (currently set as 1% fee of the whole transaction) to listing agents upon acceptance of an Opendoor offer, the company acts to create a conflict of interest between a listing agent and their (present, or potential) client.
A listing agent, in this case, has to choose between having to properly represent a consumer to sell thier home in the open market subject to a competitively negotiated commission, or getting a quick pre-fixed "incentive cash" for handing them off to Opendoor.
Opendoor can change this incentive amount at any time. Today, the company offers 1% incentive of the entire home sale to the listing agent, tomorrow, the company decides to set this incentive at 2%, 3%, 4%, 5% or some other pre-fixed amount, as it likes.
Such incentives are a form of price-fixing and directly affect listing agents' ability to work with their clients on fair terms. Further, these incentives remove listing agents' and consumers' abilities to negotiate home sale representation fees (listing commissions) in a competitive setting.
Opendoor is a parent company of Opendoor Brokerage, but they are two distinctly different legal propositions. Opendoor is a real estate investor (iBuyer) and Opendoor Brokerage is a licensed real estate broker. For this reason, HomeOpenly maintains two separate reviews for these entities. All user reviews and the editor's review for Opendoor Brokerage are located here.