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I'm going to speak for OpenDoor here so someone from them can probably jump in, but the company I started and shut down was around financing house flippers and

I'm going to speak for OpenDoor here so someone from them can probably jump in, but the company I started and shut down was around financing house flippers and I have a background in both capital raising and real estate. There are many types of 'house flipping' and most of the differences are just various shades of grey. For illustration purposes: At one extreme: Focus on buying dramatically undervalued assets, putting in minimum work and reselling. (Do this using lots of people labor in looking for deals.) - IMO, this is the only way to make money consistently flipping At the other extreme: Buy houses, put dollars in to them and acheive an ROI (lots of people labor in rehab). This is what you see on "house flippers" or other TV based flipping shows. Typically these systems work when the market is appreciating, but the value the 'flipper' puts in is really questionable vs the market appreciation. Most of the people that do this strategy eventually end up getting hammered in a downturn. Opendoor is basically disrupting the first group. They are using a quantitative process (automated valuation models), then overlaying a fundamental process on top (having someone look at the data to make sure it makes sense.) That is how they make sure they are buying undervalued assets. The disruption happens because they are eliminating the huge amount of man hours it takes to find undervalued deals, by paying slightly more, and building a good brand and well as fine tuning their marketing channel. At the end of the day, a certain percentage of people need to sell their house very, very quickly and OpenDoor will be able to pay more than flippers in the first extreme so they will gain a ridiculous amount of market share. Downside risk: The risk is that they need to scale their operation so large to get economies of scale that when a downturn happens, they are too top heavy and end up getting financial destroyed. Many people may also assume that they could systematically missprice houses (pay too much), but I doubt that is a real risk.

frgtpsswrdlame 10y ago
It seems to me that they actually disagree with you, see the comment further up this thread. >Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones. So do you think that this response is being a bit coy and they are in fact buying deeply discounted homes? Also, I guess I don't understand where they actually make money. If someone is unable to sell a home for a long period of time and then sells it to OpenDoor, why are they able to then turn around and sell it for more? In this very thread they attest that they're not flippers because they're not adding much real value to the home.
- wtvanhest 10y ago
  It is a nuance. Opendoor: Targets sellers that want to sell quickly without any hassle. Flippers: Targets sellers that want to sell quickly without any hassle. Some of them are distressed. Some of them are just in a hurry. There really is no real distinction. How they make money is clearly laid out on their website. They buy for low, sell for higher than the bought. I believe they also cut out realtors.
  - amorphid 10y ago
    There's inherently wrong with wanting to sell quickly. If grandma died, leaving me her house 3,000 miles away from where I live, the last thing I'd want to be saddled with is trying to sell it. I know nothing about selling (or owning) a house, the real estate market in that area, etc. A fair enough price ASAP is what I'd be looking for.
    - brianwawok 10y ago
      Why not make one call to a local agent and have it sold for 5% more money? I'm all for paying $2 for convenience if coffee on the run. Not sure I would pay $20k to save a few hours work around selling a house.
      - deleted 10y ago
        [deleted]
      - BadCookie 10y ago
        Agents are not free! Around where I live, you can expect to pay 3% to each of the two agents involved. Selling the house for 5% more doesn't help you if you have to give 6% of the sales price to the agents. I wonder how much of what Opendoor is trying to achieve involves removing or reducing the agent involvement.
        brianwawok 10y ago
        I never said they were free. If getting an agent on your own cost 5%-6%, and opendoor is charging 12%... you are losing 6-7% by using opendoor. That is a LOT of money.
abraae 10y ago
Ah the beauty of the corporation. Make money while the sun shines, then when the downturn comes, wind up the company and move on to the next big idea. Preferably something counter cyclical to the housing market.
sjg007 10y ago
I mean you get appraisal A (original house), then you know what additional profit and features to add to get appraisal B. There is a lot of slack in the remodel business and economies of scale to exploit so you can probably guarantee a nice return. Especially if you can guarantee a pool of work to contractors (start with having them bid on it and then maybe get a few in house contractors). You can probably get exclusives on materials as well.

frgtpsswrdlame 10y ago

It seems to me that they actually disagree with you, see the comment further up this thread. >Opendoor is much more focused on the customer experience, trying to give fair offers to every home - everyday homes, not distressed ones. So do you think that this response is being a bit coy and they are in fact buying deeply discounted homes? Also, I guess I don't understand where they actually make money. If someone is unable to sell a home for a long period of time and then sells it to OpenDoor, why are they able to then turn around and sell it for more? In this very thread they attest that they're not flippers because they're not adding much real value to the home.

wtvanhest 10y ago
It is a nuance. Opendoor: Targets sellers that want to sell quickly without any hassle. Flippers: Targets sellers that want to sell quickly without any hassle. Some of them are distressed. Some of them are just in a hurry. There really is no real distinction. How they make money is clearly laid out on their website. They buy for low, sell for higher than the bought. I believe they also cut out realtors.
- amorphid 10y ago
  There's inherently wrong with wanting to sell quickly. If grandma died, leaving me her house 3,000 miles away from where I live, the last thing I'd want to be saddled with is trying to sell it. I know nothing about selling (or owning) a house, the real estate market in that area, etc. A fair enough price ASAP is what I'd be looking for.
  - brianwawok 10y ago
    Why not make one call to a local agent and have it sold for 5% more money? I'm all for paying $2 for convenience if coffee on the run. Not sure I would pay $20k to save a few hours work around selling a house.
    - deleted 10y ago
      [deleted]
    - BadCookie 10y ago
      Agents are not free! Around where I live, you can expect to pay 3% to each of the two agents involved. Selling the house for 5% more doesn't help you if you have to give 6% of the sales price to the agents. I wonder how much of what Opendoor is trying to achieve involves removing or reducing the agent involvement.
      - brianwawok 10y ago
        I never said they were free. If getting an agent on your own cost 5%-6%, and opendoor is charging 12%... you are losing 6-7% by using opendoor. That is a LOT of money.

abraae 10y ago

Ah the beauty of the corporation. Make money while the sun shines, then when the downturn comes, wind up the company and move on to the next big idea. Preferably something counter cyclical to the housing market.

sjg007 10y ago

I mean you get appraisal A (original house), then you know what additional profit and features to add to get appraisal B. There is a lot of slack in the remodel business and economies of scale to exploit so you can probably guarantee a nice return. Especially if you can guarantee a pool of work to contractors (start with having them bid on it and then maybe get a few in house contractors). You can probably get exclusives on materials as well.