Should I sell my home with Opendoor?
Full disclosure; I am a Real Estate Broker with Berkshire Hathaway HomeServices and have been licensed in the Portland OR market since 1991. The following is my summary of the cost of selling with Opendoor. All links provided are to the Opendoor website. As an experienced Realtor, I look at their statements a bit differently than you might.
This is a link to the ‘Pricing Page’ on the Opendoor website. Following is my interpretation.
Offer Price: First off, let’s understand that Opendoor is a ‘for-profit’ corporation. They are in business to make money. The basic model is that they buy a home directly from the owner at a price they estimate to be the market value. In my world, that estimate is significantly lower than what a Broker would suggest. Opendoor’s website states that they calculate the value of your home based on your input of the condition and improvements, along with their proprietary computer algorithm. They do not physically view the home until after they have made an offer and are inspecting for condition and repairs. After this visit, the offer price is often adjusted down.
After closing, Opendoor immediately lists the house for sale with the intention of making a profit. They can offer a 2-week close to an owner, and turnaround and put the house back on the market four weeks later at a higher price. Do you really think the value of your home, went up enough in those four weeks for them to make a profit? Did the market value really increase? No, the only way Opendoor makes a profit is to buy the house below market value (10-30% below) and then resell at market value. Opendoor’s profit is based on the difference between the purchase price and the final resale price.
Service Charge vs Commission: Opendoor’s website says they add an approximate 8.1% service fee. The small print next to the * discloses a range from 6-13% (more than the standard commission). In addition to the service fee, they will ask the homeowner to either make any repairs found by their inspector or give them a credit in the amount they estimate the repairs will cost (similar to a Broker assisted sale).
So let’s look at their pricing page: the chart makes the assumption that the price they offer you is the same price you can expect to get from a Broker assisted sale. Opendoor sells the homes it purchases immediately after closing for a profit. Remember, if they don’t make a profit they won’t stay in business. Therefore, in reality, they are offering to pay an amount that is significantly less than what a Broker assisted sale would bring. The second number I noticed is the percentage of costs number. I know for a fact that the rule of thumb in my market is a selling cost of 7%, assuming a sales commission of 6% (a 5% commission would drop the total selling cost to 6%), with the additional 1% representing the typical seller costs such as title and escrow fees, transfer taxes, recording fees and such. Since these are third party fees, the Seller will still pay them with an Opendoor purchase . Opendoor is stating their service charge is 8.1% which is much higher than the 7%. Don’t forget the * which states the actual fee is between 6-13%. Using these numbers, a Broker assisted sale would net you 1-2% more assuming the offer price is the same.
The Selling process, this is where Opendoor does add value. They take the unknown out of the timing and the final net proceeds. Their approach also removes the hassle of preparing a home to sell and keeping it in showing condition. The cost of repairs is not removed, other than to offer you a reduced sales price to make the repairs themselves after closing (traditional Brokers do this also). With Opendoor you are also in control of the close date. A Broker assisted sale requires the Buyer and Seller to agree upon a close date and a possession date within the sales agreement. Any changes must be mutually agreed upon. Opendoor has more flexibility to meet your timing needs. But at a cost. If time is your number one consideration and price is second, this option may work for you.
Transaction Costs: the service charge of 8.1% is their starting point. A real estate commission of 6% is typical but so is 5%. Estimated seller concessions. This refers to repair costs (which are still paid with Opendoor); Seller paid closing costs which are negotiated and not required, therefore a Seller can reject or add the requested closing cost amount onto the sales price, keeping the net proceeds to Seller unchanged. I would say the 2% ‘Seller Concessions’ is a fabricated cost to make the numbers favor Opendoor. Next, you have the 1% ‘Overlap’ estimate. This assumes the Seller closes on their purchase prior to closing on their sale which rarely happens. We do see this happen when a Seller moves out prior to selling due to a relocation. In this situation, Opendoor might be worth looking at depending on the numbers. Would it be cheaper to pay $4,000 in rent or reduce the sales price of your home by $25,000-$50,000 for a quick sale? And yes, I have seen offers that are up to $100,000 below a Broker assisted offer.
You might ask how I know this? Realtors are really good at networking, Recently one of us signed up for an Opendoor offer, and then shared it on Facebook, along with a very recent appraisal (from a refinance). The Opendoor Offer was clearly $100,000 below the appraised value, I consider that to be fact not hearsay.
For reviews, I went to the Better Business Bureau, and not their website. Remember to always do your own research.