With house prices teetering at record highs and buyers outbidding one another in some areas, it seems the last thing the housing market in the Twin Cities needs is more competition. But there’s a new buyer in town and it has lots of cash.
San Francisco-based Opendoor has already mailed thousands of unsolicited cash offers to homeowners across the Twin Cities.
“We’re like CarMax on steroids,” said P.J. O’Neil, a company executive who likens the Opendoor concept to the one used by companies that offer car owners tempting cash-on-the spot offers to encourage them to trade up.
Opendoor is a fast-growing national tech company that hopes to buck the traditional buying and selling process by eliminating the “stress points” in a typical transaction. The concept is meant to attract homeowners who want to forgo all the normal sale preparations including fix-up, staging and showings, and sellers set the closing date or can cancel the deal at any time.
Opendoor makes money by charging sellers a fee that ranges from 6 to 8 percent depending on how much work needs to be done. Though the company resells the houses it buys, Opendoor insists it’s not a house flipper in the traditional sense. It said it won’t buy houses that need too much work.
“We don’t buy ugly houses, we buy beautiful and not-so-beautiful ones,” said O’Neil, who has led the company’s expansion into the Twin Cities.
The company is also trying to streamline the buying process. After it acquires a house and readies it to be resold using local contractors, the houses are equipped with a security system and other technology that enables house shoppers to do self-guided showings all day, every day after downloading an app that provides instructions and details about the house. Buyers also get a 30-day money-back guarantee.
Opendoor is already in 10 major metros across the country, but the Twin Cities is its first “winter market.”
The company is one of several national “iBuyers” that are developing internal valuation models that enable them to make offers on houses sight unseen. Opendoor is the first in the Twin Cities, but several are working their way across the country. They include Knock, OfferPad, Redfin and Zillow, which announced earlier this year that it was aggressively expanding its Zillow Offers platform.
Because of the complexity of using software to value real estate in a new market, Opendoor is focused on properties in the Twin Cities that were built since 1970 and are worth $100,000 to $500,000.
In the Twin Cities, the company is appealing to people like Keith and Jessica Landgrebe, who have been itching to move but are unwilling to deal with the hassle of tricky timing and the possibility of having to move to temporary housing with two dogs, two cats and a baby.
So when an Opendoor offer recently arrived in their mailbox, they were intrigued.
It took 10 to 15 minutes to complete an online form, and within 48 hours the couple received an e-mail offer that fell smack dab between value estimates the couple had previously solicited.
“So suddenly we found ourselves house hunting,” he said.
Knowing they had a cash buyer and a flexible closing date, and the ability to cancel if they couldn’t find a home they wanted, enabled them to move forward. They recently moved into their new house, and Opendoor just put their old one on the market.
Landgrebe said he was impressed with the process, even though a friend who is a Realtor thinks the selling fee was higher than what a Realtor might charge.
“While that was true, we found the difference to absolutely be worth it for the convenience of not having to prepare our house for sale and the uncertainty of not knowing what it would sell for,” he said.
O’Neil said that while Opendoor expects to change the way houses are bought and sold, the company isn’t trying to replace traditional brokerages.
“I don’t view it as a threat, they’re just another competitor,” said Brenda Tushaus of ReMax Results.
Tushaus said that because there are so many variables in the buying and selling process, she doubts technology will ever fully replace human agents. “We’ll have to be nimble and change as a brokerage to meet the needs of the customer,” she said.
Sharry Schmid, president of Edina Realty, agrees.
“Competition is always good,” she said. “And since innovation is a key part of our culture at Edina Realty, we are always evaluating the changing needs and wants of agents and consumers and to tailor our offerings to serve them. We still believe our Realtors are the single best resource for buying or selling a home, especially in a low-inventory, competitive market like today’s.”
Matt Baker, president of Coldwell Banker Burnet, said that while the concept may be appealing for a seller, he cautions that they might be leaving money on the table.
“Sellers should be aware of the high-stakes nature of the situation,” he said. “In the end, a little time and due diligence can yield big dividends.”
In the Twin Cities and other markets, Opendoor has partnered with Lennar, which is constantly dealing with a steady supply of would-be move-up home buyers who have a house to sell before they can buy a new one. The homebuilder recently invested $100 million in Opendoor, which now has 10 employees in the Twin Cities and expects to have 30 by next year.
Bill Burgess, president of the Minnesota division for Lennar, said Opendoor is appealing because it can build a new house for a client without having to accept a home sale contingency.
“It makes those transitions a lot easier,” he said.
Laura and Jason Riviere, for example, were married in August and wanted to upgrade from a townhouse she owned to a new house in the suburbs, but they didn’t want a house sale to get in the way of planning their wedding and settling into their new life together.
Laura Riviere heard about Opendoor from a relative, and she and her fiancé submitted their valuation request. It came back higher than expected, so after agreeing to take the next step, an Opendoor assessor stopped by their townhouse to do an in-person 100-point evaluation, and they have agreed to move forward with the sale.
The worst part of the process so far, Riviere said, is contemplating what it’s going to cost to sell.
“Even though this is similar to using an agent,” she said, “it is my first time selling a home and I didn’t realize how expensive selling a home can be.”