How does Opendoor make money?

Steven Loeb · February 15, 2019 · Short URL: https://vator.tv/n/4d43

Opendoor makes money from fees from buyers and sellers, eliminating real estate brokers and agents

While venture investing into the real estate space tripled from 2016 to 2017, with a total of $12.6 billion invested, and while there have been some successful IPOs in the space, including RealPage and Zillow, not many companies have actually made it onto the public market so far.

That might change in 2019, a year that is shaping up to be near historic in the size of some of the companies that will be making their public debuts this year. With the revitalization of the IPO market, there are a number of real estate companies that could be ready as well, including Opendoor, a company that allows people to buy and sell properties directly, without the need for a real estate agent or broker.

"Buying and selling a home marks the start of a new chapter in life. At Opendoor we believe in a dramatically simplified experience, delivering confidence and peace of mind at every step. If you’re selling, sell your home to us to eliminate the hassles of showings and months of uncertainty. If you’re buying, we make it incredibly easy to tour hundreds of Opendoor homes so you can find the perfect one," the company writes.

The Opendoor process starts with a seller requesting an offer, after which a home expert prepares to make them an offer to buy their house. Opendoor provides a free home assessment and, if repairs are needed, Opendoor can deduct the costs from the proceeds of the sale. Buyers, meanwhile, can use the Opendoor app to schedule visits to listed homes. They can make the offer through the app and Opendoor gives them a 30-day satisfaction guarantee.

Opendoor makes its money from the service fees it charges both to buy and sell the houses on its platform.

For buyers, there is no service charge to purchase a home with Opendoor, but they will likely pay between 1.5 and 2 percent of the total purchase price in closing costs, which can include things like loan processing and lender fees, title and escrow company charges, local recording fees, inspection and appraisal fees and property insurance and taxes. If the buyer pays in cash, the closing costs will be lower do to the lack of loan processing fees.

For sellers, Opendoor charges them a service charge that is typically between 6 to 7 percent, but which it says never goes higher than 13 percent.

"The amount varies based on an estimate of how long it will take us to resell your home. We assume all the risk of the home’s resale and holding costs so you can have the certainty of a competitive offer and move on your own timeline," according to Opendoor.

Since Opendoor is buying and then selling those houses, it will also make a profit for any house sold for more than what it purchased it for. The company is said to be on pace to spend $2.5 billion on home purchases this year, buying them for an average price of $250,000 apiece, but there is no indication on how much money it has made through its sales.

The company, which was founded in 2014, has raised $1 billion, including a $325 million round in June of last year, followed by a $400 million round in September, valuing it at over $2 billion.

On Friday, Opendoor filed paperwork to raise another $200 million, which would give the company a valuation of $3.7 billion.

(Image source: opendoor.com)