NEW YORK, (Reuters Breakingviews) - Selling a house in America is usually lengthy, uncertain and filled with middlemen. Opendoor thinks algorithms are the answer, and a $400 million investment from Japanese tech conglomerate SoftBank announced on Thursday suggests others agree. Opendoor, and rivals Zillow, Redfin and others can streamline an inefficient process. They can’t, though, wish away balance-sheet risk if the housing market slows.
Opendoor buys homes from customers, and then sells them, taking on price risk and responsibility for upkeep in the meantime. That saves customers from having to find a realtor, show the home multiple times, and potentially end up paying two mortgages if they don’t time the sale of one house and the purchase of another properly. Buyers of homes get a 30-day money back guarantee. There’s also a bit of Silicon Valley flashiness – such as apps that open the door of homes for sale so viewers can just pop in when convenient.
The idea is to make housing more of a liquid asset. And if things go to plan the financial returns for investors look attractive. Opendoor charges sellers on average 6.5 percent – roughly in line with what buyers would pay using a traditional agent. Since homes are typically sold in 90 days, that’s an annualized return of nearly 30 percent, before costs and maintenance are factored in, even if the company sells the house for no more than it paid.
But in a good market there could be even more. These firms don’t buy fixer-uppers because of the risk, but convenience means they can make offers slightly below market price, and algorithms based on lots of data should reduce the chance of making a glaring error. There’s also the option of selling high-quality leads to realtors if a home owner wants a higher price.
Technology, though, hasn’t eliminated old-fashioned risks, such as a slowdown in the housing market. That could leave depreciating homes tying up cash on the balance sheet for a long period, or lead to actual losses. Opendoor isn’t oblivious – it vets homes it buys, and spreading nationwide reduces risk, as housing crises tend to be local. But its many innovations don’t yet include a cure for the property cycle.
- Opendoor said on Sept. 27 that SoftBank Vision Fund had invested $400 million in the firm.
- The online home-selling service also announced that it had secured more than $2 billion in debt financing. The funding round valued Opendoor’s equity at over $2 billion according to a person familiar with the investment.
- Opendoor buys properties from their owners and then sells them on, taking on responsibility for finding a buyer and maintaining the house until then. It bought over 1,000 homes in August, with an annual purchase run rate of over $3.8 billion.
(Editing by John Foley and Amanda Gomez)
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