18 ms·

Co-founder here, I'll do my best to answer questions. The number one question we get is likely "what happens in a downturn/recession?", but that's more of a blo

by jdross 10y ago

Co-founder here, I'll do my best to answer questions. The number one question we get is likely "what happens in a downturn/recession?", but that's more of a blog post than a HN answer. Anything more detailed/technical though, shoot!

wenbin 10y ago
Hello, may I ask 1) how many engineers do you have right now? 2) What kind of technical challenges are you facing?
- jdross 10y ago
  There's a lot of grey area between engineering and data science for us. To somewhat simplify, we have 17 product engineers, 5 data engineers, and 19 data scientists. We operate the company in "lanes" like Seller, Buyes, Homes, Accuracy. The "purest" technical challenges are on Accuracy where we're modeling home prices, days on market, pricing strategy, and various measures of risk. A lot of feature engineering, data viz, etc. On the product engineering side, we start and end with the customer problems, not the technology. Projects range from building a mobile app for inspectors to catch all issues and normalize the data, to building custom security hardware with Raspberry Pi's that relies on mobile SIM cards because we don't own the homes long enough to justify setting up/turning off internet. I can get more specific if helpful!
  - wenbin 10y ago
    Thanks for your answer! That's very helpful!
  - mandm0515 10y ago
    You mention 17 product engineers, 5 data engineers and 19 data scientists on board now...what was your launch team like? I assume you've had massive growth / hiring but curious what it looked like at the beginning (in boot strap mode/mvp mode)
foobarqux 10y ago
Was your last capital raise (~$100 million) equity or was it debt-like?
- jdross 10y ago
  We've now raised $320 million in equity. There are also lines of credit that get deployed into properties on acquisition. The company is just under 3 years old, so growing quickly. Let's see if anyone on the team is reading this and wants to chime in on culture :)
mooreds 10y ago
How are you going to have accurate purchase prices without a human on the ground? What is your optimal holding period? What are your primary source capital, and are they loan or equity based?
- jdross 10y ago
  Our current pricing model & offer process is more accurate than the in-home appraisals we've done with third parties. The in-home inspection we do before close catches major repair issues and other sources of adverse selection (e.g. hoarders) Targeted hold time varies by market, but optimal holding period is 0 days :) We fund a small portion of each home with equity and the rest with debt-like instruments. I can't name names though.
deleted 10y ago
[deleted]
hkmurakami 10y ago
I think I read in a separate article (maybe the Fortune one) that you're focused on mid-market homes in the $250k--$500k range, in a few metro regions across the country. Notably absent in the Bay Area. In hindsight this looks like a great move since your value add to sellers is liquidity, and you collect an illiquidity premium, so to speak. Meanwhile, the Bay Area sellers are certainly not lacking in liquidity. So 2 questions: 1) In hindsight staying away from the Bay Area looks great but I have to think there must have been a temptation to be a player in your "home market". What was the conversation like between the founding team to eschew the local market? (I think many companies default to addressing the Bay Area first without putting in much thought into it, and it is sometimes ill advised) 2) Blackstone was buying lower end homes from 2009--2014 or so. Is the transaction volume in this segment not robust enough for your business model (i.e. hard to find buyers)? Pricing model too uncertain/unpredictable? I think we had coffee once back in 2013 when you were still at Addepar. Congrats on the move; always thought this could be a tremendous business since news first broke about the company.
- jdross 10y ago
  1) We're building a business, so we do what's best for the company and customers and don't pay much attention to vanity-based things like winning our home market. SF is a hard market for this business, so we simple don't operate here :) We also haven't had much trouble hiring incredible people -- relevant to HN I think we're up to 8 former YC founders 2) We generally buy from $125K to $500K, so we do hit a lot of that low end. Below that, fixed transaction costs are quite high as a % of home value. Thanks! We all really appreciate the support, the team's working really hard to redefine a space that hasn't seen enough innovation in the past half century.
phreanix 10y ago
As a former real estate appraiser, I am very Interested in your methodology and approach in valuing homes. Lenders require appraisals, do you find that the value you place on each listing come close to the appraised value?
- jdross 10y ago
  When we compared to third party appraisals we got on our homes vs final sales prices, we were more accurate than the appraisers
CptJamesCook 10y ago
I have tried to use the site a handful of times and every time the offer has been uncompetitive, the site has been buggy, or the employee responses have been confused and wrong. It's actually laughable. What gives? Or perhaps a better question is: Is this a common experience? Are these growing pains that you are aware of? I've rarely had a worse experience with a startup.
- jdross 10y ago
  I'm really sorry, if you email me I'll look into it. Jd@opendoor.com Can't say it's common, but pricing every home perfectly is hard. From what I can measure, our NPS is 70 and we track complaints pretty closely. For offer competitiveness, we track metrics like the final selling prices of homes we buy vs our offers and for homes that get offers and sell later on the market. I'm confident we're competitive in aggregate, but individual cases can vary. We buy hundreds of homes per month, so not very small "n" anymore either
jdenning 10y ago
What is your agency relationship with the home seller? If the seller is working with you directly (i.e. not using a separate listing agent), is this essentially a FSBO transaction?
- jdross 10y ago
  Yes, we don't represent the Seller, though they're welcome to use an agent to sell to us if they want (they'll need to pay them though)
  - jdenning 10y ago
    Full disclosure: I'm a licensed real estate agent, although I haven't practiced in years - I've handled around $200M in RE sales. FWIW, I was mostly a buyer's agent; the few listings that I took on were only for valued, returning clients and some REO's (mostly because it was a great way to meet potential buyers). (EDIT: I mention this because I'd never claim that everyone should use a listing agent, or that paying a listing agent 3% is necessarily good value for the service they perform) I don't mean to sound overly negative here, but 6-12% seems like a pretty big cut. I understand the argument that the seller may be able to sell the house more quickly than via a traditional listing, but they are also taking on a fair bit of risk and headache as well (no guidance on making disclosures, no access to the standard forms, no unbiased opinion about true market value, etc). It's not really an apples-to-apples comparison to say "you would have paid 6% anyways", because if they had paid 6% (or 4-5%) to a listing agent they'd get all the guidance/forms/advice I mentioned above, as well as someone actively marketing their property, MLS listing (thereby reaching a much larger market of potential buyers). From your website, it also seems like there is essentially no room for negotiations on adjustments for repairs. Honestly, this seems like a variant of "we buy houses for cash", except "on the web" (admittedly, most of those folks try to buy properties at 30% below market value - but I'd wager that you're probably trying for around 15% below market in some cases). In most markets, if someone lists their house for 5% below true market value, they're likely to get several offers rather quickly. I'd also guess that you have your own contract, as opposed to standard Realtor contracts which limit your risk in terms of earnest money deposit, contingency removal time periods, etc. It really seems to me that the only people who would go for this are people who are rather ignorant about how to sell their real estate and therefore at a pretty big disadvantage when dealing with a very experienced buyer, such as Opendoor. Also, it's kind of silly to give as much emphasis to the home warranty you give buyers - that's a pretty cheap & easy thing to obtain; most agents I know give them to their buyer as standard practice. Again, I hope this doesn't come off as too negative - I think there's a lot of room for innovation in real estate; this just doesn't seem like it's actually advantageous for most sellers in my opinion, and therefore not particularly scalable once people start doing the math. Just my $.02. Please tell me if I'm missing something..I do wish you the best of luck with this!
CN7R 10y ago
> Second, Opendoor explicitly charges sellers for having replaced total uncertainty with a bank wire: not just the same 6% that typically goes for buyer and seller agent fees, but also an additional 0-6% for “market risk” — i.e. dealing with the uncertainty of actually showing and selling the house — along with the aforementioned repair costs. So basically, the seller is guaranteed to lose 6-12% (on average 8%) of the value of their home even before receiving a paycheck. Why can't OpenDoor start low, instead of starting high and waiting for economies of scale? I just don't see the marginal benefits worth the extra costs, and am not sure how OpenDoor can stay competitive enough with those rates. > To succeed, it has to price the homes it buys accurately, without seeing them, and it has to sell them quickly to minimize the costs of carrying them. I feel like if the people behind OpenDoor can do this, then they can do day-trading or at least an index fund. (Yeah I know, stocks are more volatile and housing is pretty much guaranteed to rise.) > for too long too much money and talent has been poured into low-risk digital-only businesses What? Isn't there hardware startups? Ok overall, I think I'm being a bit too critical on this company because all I see is house-flipping disguised as "theoretical arbitrage opportunity". I'd rather see a new company solve the housing crisis in San Francisco and New York.
- pbreit 10y ago
  Why would you say "lose 6-12%"? The first 6 is normal real estate fee. Above that it's a normal arbitrage of house flipping (buyer thinks can spiff it up and sell it for more a short time later).
  - brianwawok 10y ago
    Not everyone pays 6, You can get 5 or lower depending on your market.
    - jdross 10y ago
      Nat'l avg is 5.5% and trending up. In most tier 2 markets, the vast majority pay 6%.
      - 10y ago
simonebrunozzi 10y ago
Hi JD, How could I get hold of your email? I would like to drop you a few lines. simone.brunozzi a..t gmail thanks!
johnlbevan2 10y ago
Have you considered offering a "chain breaker" service? What is a chain? (provided in case this is a UK specific term) A common problem with buying & selling property. In order to buy a new house you first want to know that your current one will be successfully sold. As such, you may have a queue of buyers all waiting for someone down the line to get a buyer for their property; as if they fail to get a buyer they drop out causing the next person in the chain to have to find a new buyer before they can buy. Equally sometimes people waiting in a chain are "gazumped" (another buyer makes a better offer to the current buyer), thus pushing out the current buyer and impacting the buyer's chain from the other end). You could provide a service whereby buyer and seller have already met, but are stuck in a chain. You'd be able to buy the seller's property and hold it for the buyer until they're ready. - If they're able to sell their property they can then pay you the price of the new property plus the "holding fee" before moving in. - If they're unable to sell their property they have the option to sell their current property to you and take the new property as described in the previous step; or to remain where they are simply paying you the holding fee for having held the original property for them, with the new property then entering your portfolio of properties to do up and sell on to the highest bidder. - These holding fees could be charged monthly up front should that prove simpler than lump sum amounts at the point of decision. Your service already avoids the need for a chain; but this alternate offering allows you to capture a part of the market of those people not interested in your full service, by having the potential buyers ask that the property be purchased by you instead of the sellers coming to you.
- brianwawok 10y ago
  That is taking a pretty big risk. Wonder what kind of price the market would pay? I myself was able to chain break when I bought my current house, by doubling up on my mortgage (keeping old until after I had moved and it sold). Cost me maybe 5k in interest on the period of double mortgage? But because I could offer to buy my new house with a clean offer, I saved 5-10k in cost (as I would beat out a 10k offer that had a * on requiring a sale to go through first). of course my strategy only worked because I buy cheap houses not the 40% of my income houses that the bank wants me to buy...
- xherberta 10y ago
fastball 10y ago
What is the turnaround time you guys typically aim for? When considering what small improvements to make, does your algorithm factor in estimated time to complete various renovations, or is it purely an ROI calculation?
- jdross 10y ago
  Ideally, 0 days. In practice, getting 4 turns per year would be a great tablestakes place to end up. We price for annualized ROE, which takes all of that into account.
supster 10y ago
Since you buy the house upfront for cash and hold 10% on the corporate balance sheet, isn't that a significant price & liquidity risk taken (in addition to the usual startup risks)? Because the time at which that house is eventually sold and at what price is somewhat unknowable, how do you mitigate that risk? Overall, I think what you guys are doing is very cool - wish you the best of luck.
baus 10y ago
Do you use AVMs for your pricing models?
- jdross 10y ago
  Our pricing model is (mostly) an AVM we built. Internally it's called Opendoor Valuation Model (OVM) and it has a number of variants.
eloff 10y ago
What immediately occurs to me (and I apologize if it's been asked already) is that you likely have to offer slightly below market prices to be able to make a decent profit and mitigate the risks. So someone in a neighborhood with a better than average home will not be enticed by the lower price and will likely sell through conventional means. Someone with a below average fixer-upper, will see the price as very attractive and sell through you. So anything that's just predicated on expecting homes listed on your service to be centered around the average value will not work. How do you account for this sort of thing if you don't see the house? Also in a forclosure situation the owner needs to make a quick sale - your service would look very attractive (a killer niche of the market for you guys.)
- jdross 10y ago
  Getting to the "range" for a home isn't too too hard, it's figuring out where in that range that matters. We use upgrade data and other smarter heuristics to accurately place a home vs its comps so we can try to avoid that adverse selection you're describing.

by jdross 10y ago

wenbin 10y ago

Hello, may I ask 1) how many engineers do you have right now? 2) What kind of technical challenges are you facing?

jdross 10y ago
There's a lot of grey area between engineering and data science for us. To somewhat simplify, we have 17 product engineers, 5 data engineers, and 19 data scientists. We operate the company in "lanes" like Seller, Buyes, Homes, Accuracy. The "purest" technical challenges are on Accuracy where we're modeling home prices, days on market, pricing strategy, and various measures of risk. A lot of feature engineering, data viz, etc. On the product engineering side, we start and end with the customer problems, not the technology. Projects range from building a mobile app for inspectors to catch all issues and normalize the data, to building custom security hardware with Raspberry Pi's that relies on mobile SIM cards because we don't own the homes long enough to justify setting up/turning off internet. I can get more specific if helpful!
- wenbin 10y ago
  Thanks for your answer! That's very helpful!
- mandm0515 10y ago
  You mention 17 product engineers, 5 data engineers and 19 data scientists on board now...what was your launch team like? I assume you've had massive growth / hiring but curious what it looked like at the beginning (in boot strap mode/mvp mode)

foobarqux 10y ago

Was your last capital raise (~$100 million) equity or was it debt-like?

jdross 10y ago
We've now raised $320 million in equity. There are also lines of credit that get deployed into properties on acquisition. The company is just under 3 years old, so growing quickly. Let's see if anyone on the team is reading this and wants to chime in on culture :)

mooreds 10y ago

How are you going to have accurate purchase prices without a human on the ground? What is your optimal holding period? What are your primary source capital, and are they loan or equity based?

jdross 10y ago
Our current pricing model & offer process is more accurate than the in-home appraisals we've done with third parties. The in-home inspection we do before close catches major repair issues and other sources of adverse selection (e.g. hoarders) Targeted hold time varies by market, but optimal holding period is 0 days :) We fund a small portion of each home with equity and the rest with debt-like instruments. I can't name names though.

deleted 10y ago

[deleted]

hkmurakami 10y ago

I think I read in a separate article (maybe the Fortune one) that you're focused on mid-market homes in the $250k--$500k range, in a few metro regions across the country. Notably absent in the Bay Area. In hindsight this looks like a great move since your value add to sellers is liquidity, and you collect an illiquidity premium, so to speak. Meanwhile, the Bay Area sellers are certainly not lacking in liquidity. So 2 questions: 1) In hindsight staying away from the Bay Area looks great but I have to think there must have been a temptation to be a player in your "home market". What was the conversation like between the founding team to eschew the local market? (I think many companies default to addressing the Bay Area first without putting in much thought into it, and it is sometimes ill advised) 2) Blackstone was buying lower end homes from 2009--2014 or so. Is the transaction volume in this segment not robust enough for your business model (i.e. hard to find buyers)? Pricing model too uncertain/unpredictable? I think we had coffee once back in 2013 when you were still at Addepar. Congrats on the move; always thought this could be a tremendous business since news first broke about the company.

jdross 10y ago
1) We're building a business, so we do what's best for the company and customers and don't pay much attention to vanity-based things like winning our home market. SF is a hard market for this business, so we simple don't operate here :) We also haven't had much trouble hiring incredible people -- relevant to HN I think we're up to 8 former YC founders 2) We generally buy from $125K to $500K, so we do hit a lot of that low end. Below that, fixed transaction costs are quite high as a % of home value. Thanks! We all really appreciate the support, the team's working really hard to redefine a space that hasn't seen enough innovation in the past half century.

phreanix 10y ago

As a former real estate appraiser, I am very Interested in your methodology and approach in valuing homes. Lenders require appraisals, do you find that the value you place on each listing come close to the appraised value?

jdross 10y ago
When we compared to third party appraisals we got on our homes vs final sales prices, we were more accurate than the appraisers

CptJamesCook 10y ago

I have tried to use the site a handful of times and every time the offer has been uncompetitive, the site has been buggy, or the employee responses have been confused and wrong. It's actually laughable. What gives? Or perhaps a better question is: Is this a common experience? Are these growing pains that you are aware of? I've rarely had a worse experience with a startup.

jdross 10y ago
I'm really sorry, if you email me I'll look into it. Jd@opendoor.com Can't say it's common, but pricing every home perfectly is hard. From what I can measure, our NPS is 70 and we track complaints pretty closely. For offer competitiveness, we track metrics like the final selling prices of homes we buy vs our offers and for homes that get offers and sell later on the market. I'm confident we're competitive in aggregate, but individual cases can vary. We buy hundreds of homes per month, so not very small "n" anymore either

jdenning 10y ago

What is your agency relationship with the home seller? If the seller is working with you directly (i.e. not using a separate listing agent), is this essentially a FSBO transaction?

jdross 10y ago
Yes, we don't represent the Seller, though they're welcome to use an agent to sell to us if they want (they'll need to pay them though)
- jdenning 10y ago
  Full disclosure: I'm a licensed real estate agent, although I haven't practiced in years - I've handled around $200M in RE sales. FWIW, I was mostly a buyer's agent; the few listings that I took on were only for valued, returning clients and some REO's (mostly because it was a great way to meet potential buyers). (EDIT: I mention this because I'd never claim that everyone should use a listing agent, or that paying a listing agent 3% is necessarily good value for the service they perform) I don't mean to sound overly negative here, but 6-12% seems like a pretty big cut. I understand the argument that the seller may be able to sell the house more quickly than via a traditional listing, but they are also taking on a fair bit of risk and headache as well (no guidance on making disclosures, no access to the standard forms, no unbiased opinion about true market value, etc). It's not really an apples-to-apples comparison to say "you would have paid 6% anyways", because if they had paid 6% (or 4-5%) to a listing agent they'd get all the guidance/forms/advice I mentioned above, as well as someone actively marketing their property, MLS listing (thereby reaching a much larger market of potential buyers). From your website, it also seems like there is essentially no room for negotiations on adjustments for repairs. Honestly, this seems like a variant of "we buy houses for cash", except "on the web" (admittedly, most of those folks try to buy properties at 30% below market value - but I'd wager that you're probably trying for around 15% below market in some cases). In most markets, if someone lists their house for 5% below true market value, they're likely to get several offers rather quickly. I'd also guess that you have your own contract, as opposed to standard Realtor contracts which limit your risk in terms of earnest money deposit, contingency removal time periods, etc. It really seems to me that the only people who would go for this are people who are rather ignorant about how to sell their real estate and therefore at a pretty big disadvantage when dealing with a very experienced buyer, such as Opendoor. Also, it's kind of silly to give as much emphasis to the home warranty you give buyers - that's a pretty cheap & easy thing to obtain; most agents I know give them to their buyer as standard practice. Again, I hope this doesn't come off as too negative - I think there's a lot of room for innovation in real estate; this just doesn't seem like it's actually advantageous for most sellers in my opinion, and therefore not particularly scalable once people start doing the math. Just my $.02. Please tell me if I'm missing something..I do wish you the best of luck with this!

CN7R 10y ago

> Second, Opendoor explicitly charges sellers for having replaced total uncertainty with a bank wire: not just the same 6% that typically goes for buyer and seller agent fees, but also an additional 0-6% for “market risk” — i.e. dealing with the uncertainty of actually showing and selling the house — along with the aforementioned repair costs. So basically, the seller is guaranteed to lose 6-12% (on average 8%) of the value of their home even before receiving a paycheck. Why can't OpenDoor start low, instead of starting high and waiting for economies of scale? I just don't see the marginal benefits worth the extra costs, and am not sure how OpenDoor can stay competitive enough with those rates. > To succeed, it has to price the homes it buys accurately, without seeing them, and it has to sell them quickly to minimize the costs of carrying them. I feel like if the people behind OpenDoor can do this, then they can do day-trading or at least an index fund. (Yeah I know, stocks are more volatile and housing is pretty much guaranteed to rise.) > for too long too much money and talent has been poured into low-risk digital-only businesses What? Isn't there hardware startups? Ok overall, I think I'm being a bit too critical on this company because all I see is house-flipping disguised as "theoretical arbitrage opportunity". I'd rather see a new company solve the housing crisis in San Francisco and New York.

pbreit 10y ago
Why would you say "lose 6-12%"? The first 6 is normal real estate fee. Above that it's a normal arbitrage of house flipping (buyer thinks can spiff it up and sell it for more a short time later).
- brianwawok 10y ago
  Not everyone pays 6, You can get 5 or lower depending on your market.
  - jdross 10y ago
    Nat'l avg is 5.5% and trending up. In most tier 2 markets, the vast majority pay 6%.
    - 10y ago

simonebrunozzi 10y ago

Hi JD, How could I get hold of your email? I would like to drop you a few lines. simone.brunozzi a..t gmail thanks!

johnlbevan2 10y ago

Have you considered offering a "chain breaker" service? What is a chain? (provided in case this is a UK specific term) A common problem with buying & selling property. In order to buy a new house you first want to know that your current one will be successfully sold. As such, you may have a queue of buyers all waiting for someone down the line to get a buyer for their property; as if they fail to get a buyer they drop out causing the next person in the chain to have to find a new buyer before they can buy. Equally sometimes people waiting in a chain are "gazumped" (another buyer makes a better offer to the current buyer), thus pushing out the current buyer and impacting the buyer's chain from the other end). You could provide a service whereby buyer and seller have already met, but are stuck in a chain. You'd be able to buy the seller's property and hold it for the buyer until they're ready. - If they're able to sell their property they can then pay you the price of the new property plus the "holding fee" before moving in. - If they're unable to sell their property they have the option to sell their current property to you and take the new property as described in the previous step; or to remain where they are simply paying you the holding fee for having held the original property for them, with the new property then entering your portfolio of properties to do up and sell on to the highest bidder. - These holding fees could be charged monthly up front should that prove simpler than lump sum amounts at the point of decision. Your service already avoids the need for a chain; but this alternate offering allows you to capture a part of the market of those people not interested in your full service, by having the potential buyers ask that the property be purchased by you instead of the sellers coming to you.

brianwawok 10y ago
That is taking a pretty big risk. Wonder what kind of price the market would pay? I myself was able to chain break when I bought my current house, by doubling up on my mortgage (keeping old until after I had moved and it sold). Cost me maybe 5k in interest on the period of double mortgage? But because I could offer to buy my new house with a clean offer, I saved 5-10k in cost (as I would beat out a 10k offer that had a * on requiring a sale to go through first). of course my strategy only worked because I buy cheap houses not the 40% of my income houses that the bank wants me to buy...
xherberta 10y ago

fastball 10y ago

What is the turnaround time you guys typically aim for? When considering what small improvements to make, does your algorithm factor in estimated time to complete various renovations, or is it purely an ROI calculation?

jdross 10y ago
Ideally, 0 days. In practice, getting 4 turns per year would be a great tablestakes place to end up. We price for annualized ROE, which takes all of that into account.

supster 10y ago

Since you buy the house upfront for cash and hold 10% on the corporate balance sheet, isn't that a significant price & liquidity risk taken (in addition to the usual startup risks)? Because the time at which that house is eventually sold and at what price is somewhat unknowable, how do you mitigate that risk? Overall, I think what you guys are doing is very cool - wish you the best of luck.

baus 10y ago

Do you use AVMs for your pricing models?

jdross 10y ago
Our pricing model is (mostly) an AVM we built. Internally it's called Opendoor Valuation Model (OVM) and it has a number of variants.

eloff 10y ago

What immediately occurs to me (and I apologize if it's been asked already) is that you likely have to offer slightly below market prices to be able to make a decent profit and mitigate the risks. So someone in a neighborhood with a better than average home will not be enticed by the lower price and will likely sell through conventional means. Someone with a below average fixer-upper, will see the price as very attractive and sell through you. So anything that's just predicated on expecting homes listed on your service to be centered around the average value will not work. How do you account for this sort of thing if you don't see the house? Also in a forclosure situation the owner needs to make a quick sale - your service would look very attractive (a killer niche of the market for you guys.)

jdross 10y ago
Getting to the "range" for a home isn't too too hard, it's figuring out where in that range that matters. We use upgrade data and other smarter heuristics to accurately place a home vs its comps so we can try to avoid that adverse selection you're describing.