Buying and selling a house can be pretty stressful. You have to deal with an awful lot of stuff (and a lot of costs) whether you are a buyer or seller:
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Repairs
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Staging
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Finding a Realtor (or advertising it yourself)
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Tours
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Open Houses
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Qualifying for a Mortgage
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Title Agents
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Inspections
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Appraisals
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Repairs from the Appraisals
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Documents to Sign
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Closing Costs
There has to be an easier way to sell your home? Or buy a home?
As real estate investors, whether we are buying or selling a house, we want to make it as easy as possible for our motivated buyer or seller. That way, they are much more likely to buy or sell with us.
A startup tech company out of San Francisco may have hit upon a way to do just that. It’s called OpenDoor. Its process for helping you buy your house is simple:
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Enter the address of the house into their website
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They send you an offer
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You accept the offer
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They buy your house
What’s the Catch?
OpenDoor says they have figured out an algorithm to come up with a market price for your house. And it must be working somewhat…
As of the writing of this lesson, OpenDoor has purchased 3,286 homes, or so they claim on their website.
That would be one heck of a track record if this was a wholesaling website!
If OpenDoor buys your house at market price, and then sells it at market price, how do they make any money?
One word: Fees.
OpenDoor tacks on fees when you sell your home that amount to anywhere from 7%-12% of the purchase price.
At first, people might wonder who would sell their house with all those fees?
As real estate investors, we understand the price of the home is not what you get for the home. Normal home sales involve a bunch of other fees deducted from your asking price:
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Realtor Commissions
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Title Fees
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Staging
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Rehab
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Buyer Concessions
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Home Warranty
These are just some of the potential fees home sellers encounter.
When you add them all up, OpenDoor’s fees might not seem so bad. Especially when you consider you may have additional mortgage, insurance and tax payments while your house sits on the market.
Since you pick the closing date with OpenDoor, you can avoid those extra payments.
If you’re thinking of selling to OpenDoor, here are the criteria for properties:
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Single-family residential real estate (including condos and townhomes that can receive traditional financing)
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Homes that are site-built (not prefabricated or mobile)
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Homes located in our service areas
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When the seller has clear ownership of the property (no double escrow)
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Homes built after 1960
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Homes that are not in age-restricted communities
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Homes where our valuation is between $125K and $500K
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Homes that sit on a maximum of half an acre of land
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Homes that are owner-occupied or vacant, not leased, at the time of closing
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Homes that are non-distressed or Real Estate Owned (REO)
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Homes that don't have any unpermitted additions or significant foundation issues
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Homes that are not in gated communities
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Homes that don't have a solar lease
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Homes that do not have polybutylene plumbing
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Homes that do not have aluminum electrical wiring
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Homes that do not have Masonite woodruff roofs
Where Do the Homes Go?
After the sale, OpenDoor needs to sell the home to realize its profit. They will come up with a rehab plan to put the home in good condition, and then put it on the market.
If you want to look at an OpenDoor home, you can see it anytime. You don’t need an agent to get you in.
You just walk up to the house, text them the code on the front door, and they will text back an access code. There are also video cameras inside monitoring potential buyers.
If you look at their fees, and subtract their costs for fix-up and marketing, OpenDoor doesn’t make a great return on each house. Especially if you add in the houses that they have to hold for a while before they sell.
It looks like they are hoping to make up for smaller margins on volume...
As of the writing of this lesson, OpenDoor is buying houses in:
They have plans to expand nationwide.
Time will tell if this business model works. If there is a big housing bust like 2008 again, OpenDoor may be stuck with a whole lot of inventory that will need to be offloaded. The downturn might be a great opportunity for Real Estate Mogul people to ‘help’ OpenDoor unload some of the inventory.
If the housing market continues to do okay, OpenDoor may be able to help a whole lot of homeowners sell their homes quickly and much less painfully than the current system.
Open to OpenDoor?
What are your thoughts about OpenDoor? Share in the comments section below.
Add a Margin of Safety – Every flipper knows project costs are always higher than estimated. Make sure you have a buffer in your budget against surprises.
Make it Easy to Sell and Buy – Sellers and buyers are going to want to do business with the person who makes their life the easiest. Is that you?
Keep Abreast of Trends – If OpenDoor grows and this model works, see how you can take advantage of it in your business.
JP Moses
is a real estate investor in Memphis, TN, with experience ranging from land lording to note buying, rehabbing, and wholesaling. However, wholesaling is the area that he enjoys most and where he bring the most experience and expertise to his students.