[wtvanhest]

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]

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]

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]

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]

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.

[psadri]

Also, real estate agents are just as incentivized to sell the property as quickly as possible. Selling a property at say $1M in one week (3k commission) > 1.05M in three weeks (only $150 more for two more weeks of work).

I wish real estate agents commissions where tiered. 1% for selling at market rate but 10% for anything over the market.

[BadCookie]

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]

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.

[amorphid]

Correction... "There's nothing inherently wrong..."

[azirbel]

Longer comment on "flipping": https://news.ycombinator.com/item?id=13835150.

> Also, I guess I don't understand where they actually make money.

Sorry for not being more clear on that. When we make an offer on a home, we present a headline price ("we think your home is worth $X"), and an upfront fee for our service (6-12% depending on our estimation of the risk, where traditional real estate fees are 6%).

We try to make the fee as transparent to our sellers as possible, so they can make a fully informed decision.

[wtvanhest]

Most house flippers are not some evil group going around tricking grandmas. Their typical pitch goes like this:

I will buy your house immediately. The way I can do it is to offer you a lower price than you can get if you wait to sell it. Here is my offer for 88% of what your house is worth.

If they wanted to change their pitch it would be...

I buy houses from people. I can close right away, but I need to charge you a 12% fee for a fast closing. That really only costs you 6% because you dont have to hire a broker.

Economically, they are the exact same pitch. There is nothing wrong with either approach. I do understand you not wanting to be associated with flippers, but the reality is hard to argue against.

[jdross]

Our average fee is below 8% total, so a 1-2% premium for selling vs a broker and we'll continue to push it lower.

If you consider holding costs of a home, prepping to sell, etc Opendoor is often at or below cost parity for a segment of sellers for a dramatically better experience.

[beachy]

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]

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.