One reason Mike Nonhof recently wound up buying a home from the real estate tech startup Opendoor is that the San Francisco-firm promised to buy back the property it would sell to Nonhof if he and his wife didn’t like the home, for any reason at all.
Opendoor — an exceptionally well-funded startup that makes “instant offers” on homes and then flips the properties of sellers who accept the offers — introduced a “money-back” guarantee today that promises homebuyers who purchase a home owned by Opendoor that they can return the home to Opendoor for virtually a full refund if they discover they don’t like the property within a month of purchasing it.
‘No buyer’s remorse’
Mike Nonhof and his wife
“There was no buyer’s remorse because we know if something pops up … in a month from now, we still have the option” to sell the home back to Opendoor, said Nonhof, who said he sold his old home and purchased his new one on June 3, a closing date he purposefully scheduled to be the day after he married his wife.
The offer marks the latest first-of-a-kind product unveiled by the startup, whose deep pockets have empowered the firm to mint technology and services that arguably no other real estate player has the resources to develop. Opendoor — which covers Phoenix and Dallas and claims to have “transacted” over 1,000 homes since launching in 2014 — has raised over $110 million in funding since launching in 2014.
Other innovative services offered by Opendoor include “24/7 open houses” that let prospective buyers visit Opendoor listings at any hour, and the startup’s “Trade-In” program, which lets consumers sell their current home to Opendoor and buy a new one simultaneously.
Nonhof said those two services are what attracted him most to Opendoor, with the new “Opendoor Guarantee” serving as “icing on the cake.”
The guarantee allows “buyers to be able to purchase with peace of mind,” said Opendoor CEO Eric Wu.
If a homebuyer returns an Opendoor home, Opendoor plans to try to persuade that buyer’s real estate broker to refund the commission the broker received from Opendoor for representing the buyer in the purchase of that property, or represent that buyer free of charge in the purchase of another home.
The latest bid
The guarantee is the latest bid by Opendoor, which originally launched as a service primarily for homesellers, to improve the homebuying experience.
Opendoor uses automated valuation models (AVMs) to make “instant offers” on homes to sellers who ask for them, buys properties from sellers who accept those offers in a matter of days, spruces them up and then sells them.
Opendoor charges anywhere from a six percent to 12 percent commission to sellers for this service, depending on how much the startup thinks it will cost to hold and sell the home it’s offering to buy.
Opendoor doesn’t consider its fee to be a commission, but rather a “charge” because Opendoor does not act on behalf of a seller as a real estate licensee; it just buys the seller’s home, and it charges a fee for doing it quickly.
Buyers can purchase homes from Opendoor with representation by a buyer’s agent, in which case the buyer’s agent will receive a 3 percent commission from Opendoor — or they can snap up the home directly from Opendoor without representation.
Wu said Opendoor paid over $1.5 million in commissions to buyer’s brokers in 2015 and expects to shell out ten times that number in 2016 — apparently harboring plans to sell a much higher number of properties this year.
By offering a money-back guarantee, Opendoor may be able to tip the scales in its favor when buyers are choosing between an Opendoor listing and another comparable property.
[Tweet “Opendoor now offering money-back guarantee on homes”]
The guarantee
If someone who buys an Opendoor listing doesn’t like the neighbors, noise level, commute time or anything else about the home, they have up to 30 days after the closing date to trade the home back in for a refund, Wu said.
Fortifying that guarantee, Opendoor provides an 180-point inspection report on its listings, certifies their condition “to ensure there are no hidden surprises” and offers a two-year warranty that “goes above and beyond what is typically covered” by a home warranty plan, according to Opendoor.
Homebuyers who sell their home back to Opendoor receive the “net price of the home,” minus the commission that Opendoor previously paid to the buyer’s agent (if the buyer used an agent), along with “fees of escrow,” title insurance and possible Homeowners Association (HOA) “demand,” said Opendoor spokeswoman Erica Domm.
Aaron Dean with his wife. Dean purchased a home from Opendoor.
Can Opendoor persuade agents to potentially refund commissions?
If a buyer elects to return a home purchased from Opendoor, Opendoor plans to try to persuade the broker that represented the buyer in the purchase of that home to refund the commission the agent previously collected from the transaction, or to represent the buyer free of charge in the purchase of another home.
Opendoor only plans to bring this up with agents after a buyer has returned a home to Opendoor. It won’t try to persuade an agent to promise a refund or rebate to buyers if they choose to return an Opendoor home before they actually purchase the home, Wu said.
“If the home does need to be returned for any reason then the Realtor can service the buyer again as opposed to taking the commission,” Wu said, explaining the hoped-for scenario.
“They want to ensure the buyer is confident in the condition” of the home, Wu added, explaining why buyer’s agents might choose to sacrifice a commission if their client returns a home to Opendoor. “If you place someone in a home that they don’t love you’ve done a disservice to that buyer.”
‘Yes, I’d be very interested in that’
Nonhof’s experience working with Opendoor offers a window into the benefits that Opendoor can offer to both buyers and sellers.
After Nonhof found an Opendoor listing on Zillow in Fountain Hills, Arizona, he learned that he could visit the property at anytime by texting a phone number for the access code to a lock on the front door of the listing. His wife liked the home after jetting over to it during her lunch hour, so they both visited the property later that night.
After they were in the home for 20 minutes that evening, they received a call from Owen Boochever, according to Nonhof. Boochever is described as working in “operations” at Opendoor and responsible for helping “customers acquire their dream homes” on Opendoor’s website. He is not one of the six licensed agents or brokers registered as employees of Opendoor by the Arizona Department of Real Estate.
Nonhof told the Opendoor employee that he and his wife liked the home but were really just “window-shopping” because they needed to sell their current home in nearby Surprise, Arizona before moving ahead with a purchase of a new home.
Then Boochever explained Opendoor’s “Trade-In” program, a potentially groundbreaking product unveiled by Opendoor in March, Nonhof said.
It lets homeowners sell their current home to Opendoor and buy a new home simultaneously. Sellers can pick a date when they can both close on the sale of their home to Opendoor and complete the purchase of a new one.
“Yes, I’d be very interested in that,” Nonhof said he told Boochever.
Working both sides of the transaction
That night, Nonhof and his wife requested an online offer from Opendoor on their current home. The offer was in the “ballpark” of what the couple expected to sell their home for.
Following some negotiations, as well as home inspections of both his current home and the property he wanted to purchase from Opendoor, the two parties came to a preliminary price agreement.
Nonhof would lower his sales price by $2,000 due to some wear and tear of his home’s pool, a toilet and cabinet, and Opendoor, Nonhof said, would slash the price he’d have to pay for its home by $15,000, in recognition of the home’s old roof and air conditioner.
But that’s not where the mixture of cooperation and negotiation with Boochever ended, according to Nonhof. Nonhof said he was $10,000 to $15,000 short of what he’d need for a 20 percent down payment to buy the home without mortgage insurance.
Nonhof said Boochever came up with a solution: Opendoor would pay $15,000 more for Nonhof’s home if Nonhof paid $15,000 more for Opendoor’s home.
The extra $15,000 in proceeds from the sale of Nonhof’s home to Opendoor would give him enough money to muster a down payment for a mortgage insurance-free home loan. The $15,000 extra he paid for Opendoor’s home was added to his mortgage balance — and will be paid off over the term of the loan.
“We wouldn’t have been able to make the purchase of this new home if we hadn’t done this purchase through Opendoor,” Nonhof said. “That made it possible — the fact that they were working both sides of the transaction.”
Opendoor founders Ian Wong, Eric Wu and JD Ross (left to right).
‘More room for flexibility’
Nonhof, who said he’s purchased six homes in his life, had considered using a Realtor who is friends with his wife to buy and sell a home. But after discovering the Opendoor listing, “we just felt that we had enough information and experience to this ourselves, so that’s why we decided not to.”
“She was sad that she didn’t get our business,” he said about the Realtor.
Nonhof said that Boochever mentioned during negotiations that “he had a little bit more of room for flexibility” in negotiating the sales price of Opendoor’s home because Nonhof wasn’t using an agent to buy the home. Nonhof said this didn’t play a role in his decision not to use a buyer’s agent.
The wiggle room that Nonhof said was referenced by Boochever presumably existed because, if Nonhof bought without a buyer’s agent, Opendoor wouldn’t have to pay the 3 percent commission that the startup offers to buyer’s brokers for bringing a buyer to a sale.
Confidence in guarantees
Aaron Dean, another consumer who recently bought a home from Opendoor (but did not sell a home to Opendoor), said he found his home on Trulia.
He had recently rented a home under a lease-to-buy program only to learn from his agent shortly after he moved in that buying the home would require funds he couldn’t cobble together.
Dean originally visited, and ultimately purchased, a home from Opendoor, he said, because: the price seemed reasonable; he didn’t have to use an agent; and to a lesser extent, Opendoor’s money-back guarantee and warranty inspired confidence.
“There’s definitely no buyer’s remorse, but it’s nice to know it’s there,” he said of the guarantee.
“I distrust Realtors,” he later added. “It’s kind of a bad thing to say, but I have a lot of skepticism for very good reasons.”
‘They put out a great product’
But to conclude that Opendoor habitually entices homebuyers to buy without the help of agents would be a mistake. In fact, the vast majority of buyers who purchase homes with Opendoor use agents.
Ninety-five percent of the 249 Opendoor properties marked as sold by Jacqueline Moore — one of six sales associates or brokers licensed with Opendoor — in the Arizona Regional Multiple Listing Service this year were purchased by buyers working with agents at outside brokerages, according to Blair Ballin, an agent at Gilbert, Arizona-based Conway Real Estate.
In addition to using employed, salaried listing agents to sell the homes it buys, Opendoor sometimes also works with agents at outside brokerages to offload its inventory. (When asked for details on Opendoor’s partnerships with third-party listing agents, Opendoor didn’t immediately respond.)
“I’ve lost a listing to them, but when I have a buyer, I enjoy working with them and think they put out a great product,” Ballin said of Opendoor.
That’s because Opendoor’s homes are always move-in ready, involve “no emotions on the seller side” and “when repairs pop up they do them.” He said he also likes that, when acting as a listing agent, he can guarantee sellers a cash offer within 24 hours by requesting one from Opendoor.
If one of his seller clients accepted an offer from Opendoor, the client would pay a commission to both Ballin and Opendoor, “but cash and no headaches is key to some,” he said.
Ballin said one of his seller clients who hadn’t managed to sell a home after a few months received an offer from Opendoor and closed a transaction shortly after.
“They got what they wanted and it all worked out,” Ballin said about that client. “I was happy to take a reduced commission and allow my clients to still accomplish their goals. That’s what this business is about.”
Opendoor also pays real estate agents somewhere from $25 to $35 a pop for home value estimates known as “broker price opinions.”
Ballin said he’s provided around 20 broker price opinions to Opendoor, which the startup presumably is using to refine offers it sends prospective sellers that are otherwise based only on data.
They “provide a great source of additional income,” Ballin said about the broker price opinions.
Editor’s note: This story has been updated to clarify that Opendoor will wait to suggest buyer’s brokers offer to refund a commission or provide their services free of charge until after an Opendoor home has been returned by a buyer. A previous version of this story incorrectly stated that Opendoor plans to try to persuade brokers to make this offer before a buyer has purchased a home from Opendoor.
