Flipping homes for no profit, just to make money the fees? And VC money jumping at the chance to back him, in hopes of making billions before the market turns? Could they provide enough market support to avoid a downturn?
Eric Wu is a house flipper, but unlike other real estate investors, he says he isn’t trying to land a profit by selling for more than he paid.
The windfall, he said, will come from transaction fees.
Opendoor wants to come out even on its deals. “We try to have the average be exactly zero,” Wu said in an interview last week at Planet Hollywood Resort while attending a National Association of Real Estate Editors conference.
He said the goal isn’t to buy and sell quickly, although Opendoor does just that. And, as he indicated, the price spread on its transactions can be thin.
Opendoor bought a two-story house in North Las Vegas in February for $263,000, property records show, and sold it three months later for just $3,000 more.
The key to making money, he said, is lowering transaction costs.
Opendoor’s fee for sellers is reportedly 1 to 1.5 percent above a typical real estate agent’s. According to Wu, its fee currently mirrors its transaction costs — “We don’t make a profit today on customers,” he said — but he eventually wants to slash his expenses while maintaining the fee.
“That becomes our profit,” he said.
The company is under contract to buy more than 100 homes in Las Vegas and has 60 on the market to sell, according to spokeswoman Cristin Culver. Nationwide each month, it buys around 1,300 to 1,400 homes and sells almost 1,000, Wu said.
He said the company has raised $645 million in equity investments and another $1.5 billion in debt.Link to Full Article
Fees. The hidden costs of buying. Title insurance,home warranty,inspections,escrow and others keep folks employed. How is the HELOC situation in your area?
Jim, your thoughts on this?
This is the beginning of the end of realtors, and at this rate, I’ll be selling insurance or mowing lawns in about 18 months.
I always thought that no matter how disrupted this business got, the worst-case scenario for me would be to open up a real estate advisory company and give people help with buying and selling homes on an hourly wage.
But people don’t want help.
It’s our own fault too.
Between HGTV and the big realtor teams who just want to hurry you into the processing plant, we have dumbed down this business to where it’s robotic, and these ibuyers are the final step.
Looking at Opendoor’s numbers, I would consider them hugely successful already. Everyone complains about realtors charging too much, but with Opendoor the sellers are gladly paying 8% to 12% in fees just for the convenience? You gotta be kidding me?
But it will continue, especially if the ibuyers mount an advertising campaign with sexy images that bash realtors and tout selling your home with the push of a button.
Nobody on the realtor side is putting up a fight. The industry doesn’t have a leader, and we just expect to survive because we always have. But these outsiders are changing the game with their millions in advertising, and leading the consumer down the brainless trail.
In Phoenix, they have hundreds of ibuyer-owned listings for sale. Sure, you can have a buyer-agent help you, or you can create an account with the ibuyers and they will give you the password to enter the houses for a self-tour. You walk around and see the usual flipper-grade ‘improvements’ and ask your wife if she likes it. She says yes, and you push the button on your phone to initiate the purchase. You jump around and say you’re excited, and then move in a couple of weeks later.
With it being so automated, we might never have another downturn.
The N.A.R. constantly reminds us of how little they are doing for us too.
Here’s a video being promoted by N.A.R. that has our CEO talking with other CEOs about disruption. The big takeaway is that he is investing in the disrupters and other companies that might help us.
No talk about what exactly they will do to help us, or what this investment solves. He just wants us to know that he’s spending our dues like a VC bigshot, hoping that something good comes out of it some day.
What he should be talking about is what he’s going to do about ibuyers, ethics, coming-soons, pocket listings, and the future of the MLS (which is bleak).
He NEVER talks about any of those.
People don’t want help because they sure don’t see anyone offering it. They don’t know that they need help, and if they did, they wouldn’t know where to go to get it.
When I started this blog twelve years ago, I thought I better hurry up before every other realtor got in on this fantastic way of demonstrating our expertise for free.
Hmmmm….do you see any other realtor blogs where they are educating the consumers every day? Or any day?
I am flabbergasted at the result, and the realtor industry has been exposed. We don’t have anything to offer, and just want to process your order before you ask too many questions.
Redfin is the #1 overall leader of the dumbing down of real estate.
Call me old-school or a dinosaur, but I believe that if you buy the wrong house or pay the wrong price, it could have a major impact on your life.
You better get good help to ensure that doesn’t happen, right?
But Redfin’s model sends out the least experienced agents to meet buyers. Their only job is to open the door, and they get $50 every time they do it. If the buyers ask questions or need help, they have to get assistance from an agent back at the office who has never seen the house.
How can that be the best way to serve consumers, and protect their best interests?
But they have a sexy website, and the realtor industry offers NOTHING else that can compete with it, so consumers go for it.
There should be different levels of realtors, or some way to tell the difference between us.
To think that the $50 girl and I are both called the same name (‘realtors’) is a shame. Glenn Kelman was smart to take advantage of it.
How am I doing George? 🙂
Hmmm. If I ever sell one of my houses I will definitely want top dollar! I will select whichever method of selling that will achieve that so if JTR can bring in the most money (sans commission of course – nett not gross in other words) estate agents will get my business. If on the other hand other sales methods bring in the best results (again nett not gross)………
The advertising is what’s going to make the difference in this battle.
The disrupters all insist that selling with a realtor is stressful and costly.
But my clients aren’t stressed – they make informed and calculated decisions every step of the way. And I charge half of what Opendoor charges.
But will sellers give me a chance? Or just go the easy route and take the fast cash, without investigating the other alternatives (me).
If you want to sell your house quick, and pinpoint the exact date you want to move, no problem with me.
Over the last 12 months, my median days-on-market is 8 days, and if you want/need to sell your house today, I’ll do it, and still get you more money than Opendoor.
Jim, you’ve nailed it, in so many directions, and I REALLY appreciate your taking the time to lay it out. Unfortunately, much if not most of what you said would go right over the heads of nearly all REALTORS and all “association professionals.”
Not sure if it’s “dumbed down consumers,” or just another sign of the brain-dead times that we are living. I thought that after 2008 the financial IQ of the home-buying public would improve dramatically, but the opposite seems to have happened.
If it’s any consolation, you are not alone. There are many of us out there shaking their heads at this crap.
I thought that after 2008 the financial IQ of the home-buying public would improve dramatically, but the opposite seems to have happened.
We’ve been Amazon-ed.
…waiting for Kayla to chime in here…
What you said Jim makes a lot of sense. I also feel the public believes (and I agree with them) that a lot of agents do not add enough value to justify their commission. Half the agents don’t have enough one transaction side per year. Bad agents hurt the profession’s credibility and makes the life of great agents tough. The disrupters get this and so their offer to cut agents out is welcomed by the public. Unfortunately it is too difficult for the general public or even seasoned folks in some cases to discern who is good and most people have not developed a Rolodex of people who can provide an array of great agents for them to choose from since they’re only buying or selling at most a handful of times in entire life. I personally would not use tech companies to represent me. Why pay “Mor for less.” Is the next stop “robo-rep?” If it is, the price has to be real sharp, not 8 to 12%.
The problem is I think educating the public will be very expensive. Unless someone’s got a good Rolodex of options already, I seriously hope they will strongly consider retaining someone like you.
Thanks Native San Diegan.
Bad agents hurt the profession’s credibility and makes the life of great agents tough.
You would think there would be some demands from great agents to weed out the rest, but we’re all independent contractors and just worry about ourselves. Besides, they’re harmless, aren’t they?
But keep an eye on the disrupters and their message. Almost all of them cite the lousy experience they had with a realtor as the reason why they got into the disrupting business.
Currently in a transaction where I represent the buyer. The listing side is a huge team and from the time when I was writing the offer to now being in escrow, I’ve talked to 10+ different people on the team! And the main guy who they all represent, I’ve NEVER even talked to! The service in realtors isn’t much better than what it used to be but unfortunately this is where it’s going. Don’t even get me started on the assistant who has a huge ego and gives me so much attitude on every little thing …. she’s clearly uneducated on where the current market is heading but once that happens, she will hopefully become more humble.
Realtor’s sole business model has long been “we are The Keeper’s Of The MLS” and their mission statement, “consumers have no choice, so f**k em!”. Even though those days are long gone, they’ve adapted not at all. So, someone else will provide a better alternative.
So, someone else will provide a better alternative.
Here’s an alternative that we probably didn’t see coming.
Every man for himself, or single agency.
We’re pretty much there anyway with the Coming Soons and Sold Before Processings.
Agents who get a quality listing don’t need the MLS to sell it – they can find their own buyer. Let’s cancel the Code of Ethics (it’s a joke anyway with no enforcement) and use the MLS like Loopnet to share the OPTs and dogs with the lousy agents and the suckers.
It sets up an interesting situation for Redfin and Zillow, because they’ve been living off the MLS. But one big difference – Zillow is agent-friendly, where Redfin is not.
Zillow could easily go back to each agent having manual listing inputs, and become the national MLS by default. Redfin would soldier on with their discounted listings, but how long can they keep losing $30 million per year? And they are overdue for some serious agent turnover, because if they have to represent every buyer too, they will be exhausted.
I’m having lunch with one of the more successful Redfin agents tomorrow, and I told him I’m bringing every camera I got!