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Good question. > In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on
by trts 4y ago
Good question.
> In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because [1]the company’s offers have been below market value on average and [2]its costs have been higher than what consumers typically pay when using a traditional realtor.
My understanding of Opendoor is that their product specifically targets homes in the low to mid range of the price distribution, making it easier for them to have a high-quality prediction on whether acquiring a home can be profitable to them.
for [1] this almost surely means they will be below market on average, since the upper-bound is unconstrained. Home prices follow a log-normal distribution.
[2] sounds worse. A typical agent-driven transaction is between 4.5% and 6% of the sale price. For Opendoor to be pocketing _more_ than this is a pretty bad value prop. However, even granting that this is the case -- there is some premium that certain home sellers may place on just washing their hands of the whole process, handing their keys to Opendoor and getting a check next week. That seems fine to me, but not if Opendoor are claiming otherwise.
- jacquesm 4y ago> A typical agent-driven transaction is between 4.5% and 6% of the sale price. Which is completely ridiculous.
- Apocryphon 4y agoAnd Opendoor is pocketing more than that!
- happyopossum 4y agoIt may sound ridiculous to you, but those numbers aren’t codified by law, and anyone who wants to change that is more than able to try. There have been tons of efforts to do so - some very heavily capitalized, but none of those companies have ever really taken off.
- TedDoesntTalk 4y agoThey are ridiculous when the value of the home is large. A $2m home has $100,000 realtor fees but a $500,000 home has a $25,000 fee. Do you think the realtor for the $2m home really does anywhere near $100,000 worth of work? Fees should instead be a fixed amount relative to the cost of marketing the home, holding open houses, and all the other legwork to sell a home. No other job has this kind of royalty payment except publishing (books, music, etc).
- 121789 4y agoHow is this different from commission at any normal sales job?
- TedDoesntTalk 4y agoDon’t some sales commissions have caps / limits?
- iav 4y agoThe reason they have to bid below market is because they face adverse selection bias - if they bid low, nothing happens but every time they bid high they will lose money.
- treis 4y ago>Lost thousands of dollars There are plenty of markets that averaged monthly price increases in that order of magnitude. My city, as an example, is up 71% over 5 years. So a 300k house became a 510k one over 60 months. An average of 3.5k per month. Couple of those years saw 20% growth. It's been well known that this was the only thing keeping the iBuyers alive. They weren't great at pricing but it didn't really matter much. If they were off 5%, well wait 3 months and now you're right. It also matches the anecdotal data. Plenty of people reported getting offers from Opendoor for more than what agents were telling them they could sell for. Obviously these people sold to Opendoor while those that got lowballed declined. If you only count the latter and ignore the overpayments then yes obviously it looks like Opendoor was consistently low balling people.