With Opendoor announcing last month that it will be going public via reverse merger with Social Capital Hedosophia Holdings Corp II (NYSE: IPOB), a special purpose acquisition company organized by Chamath Palihapitiya, let’s take a look at a new category of technology enabled real estate services and see how they compare.
The real estate market can be intimidating for homeowners, especially when selling a property. Just thinking about cleaning, decluttering, making repairs, and getting the house ready for showings can be exhausting, not to mention the subsequent negotiations and all the paperwork.
Even if owners do everything right and hire a good real estate agent, there is a chance the home will not get sold as quickly as one would hope or expect. No one wants to get stuck with a property, especially with markets in turmoil and all of life’s other responsibilities that can’t be put on hold.
To address these traditional home sale drawbacks, new options that seek to deliver transaction speed and convenience have emerged. “iBuying”, a mashup of the phrase “instant buying”, is a new industry that uses technology and a streamlined transaction flow to innovate the real estate market and benefit both sellers and buyers. Most of these alternatives skip the hassle of house showings and negotiations, giving easy access to a reliable buyer and attractive terms.
An overview of Opendor
Opendoor is an iBuying company dedicated to buy, sell, and trade-in properties in 20 different markets. Homeowners can contact this company through their website or app, where they have a form they can fill out with all the property information. This form avoids the traditional sales process by letting owners upload all the relevant information about their home, including square footage, age, bedrooms, bathrooms, amenities, etc. to be reviewed by one of Opendoor’s agents.
Opendoor will review the home information and look for price references in the neighborhood to come back with an all-cash offer within 24 hours, this offer is valid for five days.
Homeowners are not compelled to accept this offer; however, if they think it is convenient and wish to proceed with the sale, they will receive a visit from an Opendoor Home Advisor. At this stage, they will discuss Opendoor’s service fees which as of September 30, 2020 are fixed at 5% (previously 7% on average and as high as 14%), plus a 1-2% closing fee.
Once the offer is accepted, the Opendoor team will schedule a home assessment to determine the property’s condition. In case the house needs repairs, owners can leave it in the hands of Opendoor, and the expenses will be reduced from the final offer. Opendoor also gives the right to choose the closing date within a period of 14 to 60 days after accepting the offer.
Opendoor resold 7,000 houses in 2018. Buying and selling in large quantities even at minimal profits per transaction makes for a lucrative business model. Since Opendoor has many houses for sale, they can accept your home as part of the payment for another of their properties. This trade-in process has many advantages compared to traditional selling. If homeowners can’t afford two mortgages and would like to avoid any other housing overlap cost, they need to sell their house before purchasing a new one, forcing them to rush the sale and have the risk of losing their dream house to another buyer.
One important detail about Opendoor is that not all properties are approved. They usually purchase homes, condos, or duplex with prices ranging from $100k-$500k. The property must be less than 1 acre and a single-family home.
Opendoor is one of the leading companies in iBuying. However, it is not the only one of its kind.
Top 5 Opendoor competitors
- Offerpad
- Zillow Offers
- RedfinNow
- Offermarket
An overview of Offerpad
With Offerpad, like Opendoor and most iBuyers, homeowners can request an instant offer on the company’s website or app. Offerpad has a smaller market as it is only available in 12 cities. Once you upload your home information and get approved, Offerpad will send an all-cash offer within 24 hours. Offerpad closing times are usually quite fast. They can close the sale in 10 or 15 days minimum. Their service fees are approximately 7.5 % plus additional closing fees.
If the property needs repairs, Offerpad can carry them out and subtract the price from the final offer. They also give owners the option to make the repairs themselves. Offerpad also provides free moving services within a 50-mile radius.
An overview of Zillow Offers
Zillow Offers has a form on its website in which homeowners can upload the property details. Unlike other iBuyers, Zillow Offers encourages owners to upload pictures of their home. Once approved, Zillow Offers will contact the seller with their offer within 48 hours; this all-cash offer is only available for three days. If owners let the offer pass, they must re-submit the offer . If accepted, owners will receive a visit from Zillow Offers executives to evaluate the house and discuss more details.
Zillow Offers operates in 24 cities; however, they tend to buy relatively new properties. Like the aforementioned ibuyers, the Zillow Offers service fee is around 7.5%. If the house needs repairs, they will reflect it in the final offer.
Their closing times are flexible, from 7 to 90 days after signing the sale contract. The property owners cover any additional closing or transfer costs.
An overview of RedfinNow
As of the publication of this article, Redfin’s RedfinNow instant offer service is available in 10 cities in 4 states (California, Colorado, Nevada, and Texas). Owners can upload all the basic details and pictures of their property through the RedfinNow website. As soon as the information is uploaded on the website, the page will show an “offer range” based on your area’s recent sales.
If you accept the first preliminary offer, you will receive a quick visit of approximately 30 minutes by one of RedfinNow’s agents. After this initial assessment, the company will proceed with a formal cash offer within the next 48 hours. This offer expires after a week.
Once you decide to proceed with the sale, a general visit will be scheduled to determine if the property needs repairs. If necessary, RedfinNow will adjust the offer according to repair expenses, or it will let owners carry out the repairs on their own. If neither of these options seems feasible, you can cancel the sales contract. RedfinNow closing dates range from 7 to 60 days after you sign the contract of sale. Their service fee is usually around 7.5%, and not including additional closing and transfer fees.
An overview of OfferMarket
OfferMarket stands out from other iBuyers because it does not charge sellers any service fee or make sellers pay for repairs. Property owners don’t need to pay any additional percentage to sell their home with OfferMarket. They don’t have to worry about repair expenses, since OfferMarket sells every property as is.
After filling out OfferMarket’s risk-free offer request form, owners will be contacted by one of their representatives within 24 hours to evaluate and discuss additional details about the property and its price. If the seller agrees to continue with the selling process, OfferMarket will create a marketing campaign and launch the property to thousands of qualified buyers.
Within 2 to 30 days, a safe and exclusive open house will be carried with the prospective buyers. Once all the offers are collected, the property owner has the last word to accept an offer and go to closing. The closing timeframe is usually from 15 to 45 days with the seller splitting transfer taxes and recordation fees.
More about how Opendoor compares to OfferMarket.
iBuying as an alternative on pandemic times
Selling a home the traditional way might be difficult under normal conditions, now imaging adding a global pandemic in between. Real estate transactions are complex and can take a long time, while the estimated time to sell a home from listing to closing can be at least 60 days, iBuyers can close the deal in as soon as 15 days.
Open houses are a thing of the past for most iBuyers; forget about investing time, money, and energy in decluttering your home and keeping it ready for showings. Most iBuyers make an all-cash offer even before they see the house, which will prevent owners from having many strangers around your property, putting their health at risk.
In these uncertain times, companies who are willing to pay in cash for homes can help homeowners who need to sell their house quickly and move.
iBuyers vs. Traditional Home Sales
The COVID-19 pandemic has affected the economy in every aspect; real estate is no exception. Many home owners are afraid to sell their homes the traditional way — with countless strangers walking through the home. iBuyers offer a straight-forward alternative, beneficial for both owners and prospective buyers.
Traditional real estate agents and brokers typically charge 5 to 6% of the final price and the buyer may renegotiate their offer after the home inspection leading to expensive seller concessions and repairs. Ultimately traditional real estate sales cost the seller 7-10% once you factor in concessions and closing costs.
Unlike traditional agencies, iBuyers either deliver speed and convenience. Only OfferMarket delivers extensive savings.
Closing thoughts
If you’re selling your home, whether you work with Opendoor, or Opendoor competitors, you’ll benefit from speed and convenience relative to the traditional real estate agent home sale process.
Please share your questions and comments, we will continue updating this article to keep up with the industry’s rapid evolution.
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