Take-away: Opendoor is a tech company with artificial intelligence hard at work behind the scenes, so they are learning in real time from every bit of data input, every listing, every sale
A presentation by Dallas Opendoor was one of the most anticipated presentations at last weeks’ annual RAC (Relocation Appraisers & Consultants) industry conference at the Westin Stonebriar. The RAC is a group of active appraisers, recognized professionals in evaluating complex residential properties for relocation, litigation support, testimony and reviews. Jonathan Miller of Miller Samuel Inc. is current president. They are the folks who banks and individuals rely on before they mortgage a property or move across the country. They are the go-to’s for lawyers disproving an ex-husband’s claim they are penniless (when they own tens of millions in real estate). Founded in 1990, RAC members are the go-to people for complex real estate appraisals in the US and even abroad.
First, it was an introduction and explanation of Opendoor: Opendoor (OD) buys real estate in the $125,000 to $500,000 price range in a few select markets quickly, rapidly: pack your bags and go. The company uses technology to flip homes and streamline the agent’s role. In fact, Opendoor employs salaried listing agents to market its properties, and forks over a 3 percent commission to buyer’s agents who come through the MLS should they bring a buyer. The company has garnered roughly $320 million in equity from investors, including its biggest shareholder, venture capital giant Khosla Ventures. The company has raised $575 million in debt. Their ads are all over the Metroplex, aimed at consumers.
OD charges 1.5 percent more than traditional agents, using a proprietary automated valuation system to appraise and corroborate value. But you don’t have to mess with the cumbersome home selling process. It made for a fascinating session with an audience of the folks who have been earning a living by appraising real estate for the last 50 years. Might they feel the pinch of displacement by the San Francisco-based company’s artificial intelligence approach to taking the entire buying process on line, knocking out as many paid human hands as possible?
This group was not afraid. In fact, they were impressed. One appraiser said, beaming, “They are the Carmax of Real Estate”
Opendoor shared some (but not all) of their secret appraisal sauce menu, such as how their AVM (called an OVM) credits properties for various amenities and, well, appraises. Take a look:
Bedroom and bath count, garage count, year built, swimming pools and fences.
Seasonality and appreciation are one of the most difficult adjustments, but their model incorporates zip code granularity, seasonality for slower periods, and macro economic events.
Lot size and difference: $1 to $2 psf above 1,000 sf and below 10,000 sf
Corner and cul de sacs: +$5000
Golf course view: +$5,000 to $10,000 depending on price point
Water views: $0 to +$10,000
Green belt: $5000
Busy streets: varies by lane count and speed limit
Power lines: $0 to +$10,000, depending on price point and power line type (say what?)
Appliances: $0 for black/white, $1000 to $2000 for stainless steel, more for higher end appliances
Countertops Formica: $0
Countertops tile: +$500 to $1,000
Countertops Corian +$1500 to $2000
Granite: +$3000 to $5000
Bathroom vanity cabinet (nice): +$5000
Granite bathroom countertop: +$500 to $1000
Upgraded bath: $0 to +$2500 per bath
Tile: .50 to $1.00 psf
Laminate: .50 to 1.00 depend on material
Concrete, polished or otherwise: $0
Question from the audience: When buying houses online, how do you know about major issues the house may have had in the past, such as foundation cracks, that are not mentioned in the copy?
Answer: Each OD contract has an option period for due diligence. Visual inspectors are sent to the property.
Question: How do you know you are not undervaluing a home for the seller?
Answer: OD doesn’t deal in properties over $500,000, and they ask sellers to manually list any upgrades
“Last safeguard: we go to each property and map out the entire house infield for size verification, once house is under option there is a subsequent inspection.”
Question: Does OD buy any other data?
Answer: The company is creating an in-house data bank that tags properties bought and sold, all info is derived from public records.
Homes are listed through OD’s own brokerage and popped into MLS to co op the listing with other brokers.
“I’d love to have a process where we don’t have to mess with anything in selling my house,” said one appraiser from Ohio. “When are you coming to my state?”
Right now, Opendoor is dispelling myths within the local agent community that it does not intend to “take over” real estate. In fact, they admit, “we are not for every home seller.”
How about the security of showing homes without the agent, using OD’s security cameras and lockboxes? OD says thus far their biggest headache has been teenagers trying to get inside a house to party.
OD also says the company has undergone an evolutionary process in the assumptions they first made about the end buyer: new home buyers have two vastly different wishes, upgrade the home or pay the closing costs.
Conversion rate? For every 100 customers on the site, 10 are serious sellers and one-third of those end up using Opendoor.
What’s next? Opendoor mortgages.
This was, to me, the biggest and best take-away because it is telling us the future: Opendoor is a tech company with artificial intelligence hard at work behind the scenes, so they are learning in real time from every bit of data input, every listing, every sale, says Derek Schairer, Director of Homebuilder partnerships, Opendoor. They learned by example their first week in DFW, with a 980-square-foot home in Arlington with an addition — missed the actual value and lost a little money on the deal. But that AI gets sharper with every transaction.
The appraisers take-away:
Opendoor will work best in homogeneous markets where homes are more cookie-cutter, with few variances, such as subdivisions. Won’t work in most urban or rural locations, no way for the luxury market. The concept will work well in a healthy real estate market, not a bubbly.
“They buy safe, plain vanilla homes, that’s how they operate,” one appraiser told me. “They will be operating in the lower end of the market.”
“They are not making a huge amount of valuation gain: margins are based on volume and the agents’ 6%,” said another.
“It’s a great opportunity to sell your home without having to mess with it,” said another. “And it has a definite relocation feel to it.”