How Does Opendoor Work
What is Opendoor
Opendoor is an iBuyer. A real estate company that buys properties from home sellers in cash and then sells them to buyers. This means that sellers never work directly with a buyer. In a nutshell, it operates sort of like a retailer for houses or a used car dealership for homes.
Instead of going through the lengthy home selling process which includes finding a buyer, negotiating a deal, and waiting for the buyer to secure financing, homeowners can quickly sell their home to Opendoor for an immediate cash payment. They can get offers on their homes within 24 hours and can close in as little as 10-60 days.
However, while there are advantages to Opendoor’s expedited sales process, sellers need to be aware that the convenience comes at a price: Opendoor has been known to make offers that are slightly below fair market value, and they charge service fees between 6-14%.
How does Opendoor work?
Selling a home with Opendoor can be broken down into a few steps:
- Request an Opendoor online appraisal: Go online and request an offer from Opendoor. Within 24 hours, it will return with a cash offer. At this point, you can accept the offer and move forward, or decline and stop all further proceedings. If you think the price isn’t fair, you can request a re-assessment, but there isn’t any room for traditional negotiations.
- Have Opendoor asses your home: If you decide to accept their offer, it will perform an on-site assessment. If they find anything that needs to be fixed, they’ll deduct the repair costs from your sale’s proceeds or allow you to repair them yourself.
- Close on the home: Once it has finished their assessment, you can set your closing date. When you close is up to you, and you can set the date anywhere from 10 to 60 days in the future.
How Does Opendoor Make Money?
Opendoor has two ways of generating revenue:
- Service fees
- Buying homes, fixing them up, and selling them for a higher price
- Ancillary partnerships with third-parties through Opendoor Mortgage and Opendoor Title
Opendoor’s service fees operate much like traditional commission fees. For every purchase that Opendoor makes, they charge 6-14% of the closing price in service fees. On a home valued at the 2019 US median of $227,700, Opendoor will charge between $13,662 and $31,878.
However, it makes most of their money in a process that’s akin to house flipping. While Opendoor isn’t a traditional house flipper in that they don’t specifically look for rundown properties to fix up, Opendoor borrows many of the same principles and employs them on a larger scale than any individual investor can. By offering the convenience of an expedited sales process, the company is able to buy homes in good condition for a low price, fix them up, and then sell them for more.
As such, it’s in Opendoor’s best interest to give sellers a low-ball offer (often 10% or more below fair market value) to maximize their profit margin. When you add both the high service fees and large profit margin together, you can see how each sale generates a sizable profit for Opendoor.
Opendoor also generates revenue by operating as a mortgage broker and insurance provider through Opendoor Mortgage and Opendoor Title. These services promise to bring Opendoor’s famed expediency to the mortgage and title insurance process. Buyers applying for an Opendoor mortgage can get pre-qualified within 30 minutes.
Also Read: Questions to Ask When Buying a Home Checklist
Should I sell with Opendoor?
There are two cases in which selling with Opendoor makes sense:
- You need to sell your home immediately
- You don’t want to go through the typical home selling process and are willing to pay a hefty premium for expedited service and convenience
Opendoor, along with other iBuyers, is arguably the fastest way to sell a home. If you need to close on your home within 10 days, and you live in one of the 20 metro areas that Opendoor services, selling with It can be a good option. However, an experienced real estate agent selling in a hot market like many of the ones it covers can often find an interested buyer in just a few days as well.
Even if you don’t need an uber-quick turnaround, sellers that simply want to get their home off their hands with as little stress as possible may want to look into Opendoor. The company allows sellers to skip over much of the traditional real estate process, leading to a quick and easy home sale. Of course, sellers must remember to weigh the costs of a potentially lower offer and higher service fees against this convenience.
What fees does Opendoor charge?
Instead of a commission fee, it charges a service fee. The average service fee is 7.1%, but it can range from 6-14%. That’s between $13,662 and $31,878 for a home valued at $227,700 the US median.
For comparison, commission for a traditional real estate agent generally tops out at 3%. This means sellers generally pay at most 6% after paying both the buyer’s and seller’s agents. Generally, the highest fee a traditional realtor will charge is the lowest fee that Opendoor charges. It’s also possible to find traditional full-service realtors who will charge as little as 1% or a low flat fee.
Working with a discount realtor can bring fees down to 4% or less. Working with a realtor can save you up to $22,770 on a home of the same price.
Does It Pay Market Value?
It claims that they pay the fair market value on all the homes they purchase. However, all appraisals and assessments are done by Opendoor staff, not third-party appraisers. That means that the appraisers Opendoor uses have it in their best interest to make an offer below market value. The offer is often 10% lower or more as it will generate a higher profit for the company upon resale.
Does It Negotiate?
It doesn’t engage in traditional negotiations. However, they’re open to reassessing your home if you present them with new information that they may have overlooked. That said, the phrasing in their FAQ makes it clear that their offer isn’t going to change unless you present something that they truly missed in their assessment — they’re not going to agree to a higher price just because you said you won’t sell for the price they’re offering. It is a data-driven business. They need to keep their assessments within a certain range to minimize risk and continue making a profit.
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