A real estate tech startup has bounded out of the shadows with $260 million in financing to turbocharge an alternative to the traditional listing brokerage.
Co-founded by a former top-producing real estate agent and closely resembling property-exchange platform Opendoor, OfferPad buys homes directly from homeowners, inviting homesellers to receive “our top purchase price within 24-hours.”
The company’s public debut underscores the momentum of property-exchange platforms, which may take a bite out of the real estate commission pie if they can lower fees and weather a market slowdown.
“I’ve been involved in thousands of transactions in dealing with homeowners, and there’s a lot of pain points there in the the traditional model,” said co-founder Brian Bair, who was once ranked the second-highest selling real estate agent in the U.S. “The idea is to empower [homesellers] to be able to move on their timeframe, and they can control the entire process.”
OfferPad uses technology, “in unison with local real estate experts,” to allow homesellers to close a sale in as little as five days and then tries to sell properties on the multiple listing service (MLS). It makes a typical offer of compensation to buyer’s agents for bringing a buyer to a sale, and it covers a seller’s title and escrow fees.
The company has been operating under the radar since 2015, quietly setting up shop in Phoenix, Las Vegas, Salt Lake City, Tampa Bay, Orlando and Los Angeles, with plans to expand nationwide in coming years.
“Lots of smart people out there are going to see how much money Opendoor has raised and will start a copycat model,” said Mike DelPrete, a real estate tech consultant who recently conducted a study on Opendoor. “I’m talking to one in Australia later today.”
The startup’s war chest comes from $30 million in equity funding and $230 million in debt financing from a single private investment management firm in Philadelphia, LL Funds, according to Forbes. The deal reportedly values OfferPad at $110 million. OfferPad will presumably use the $230 million in debt to buy properties.
OfferPad’s two co-founders boast considerable pedigree. Brian Bair was formerly the second highest-selling real estate agent in the U.S., the company said in a press release, citing rankings from Real Trends. And Jerry Coleman is a co-founder of Invitation Homes, a Blackstone company that’s bought and converted tens of thousands of formerly owner-occupied properties into single-family rental homes.
Sellers pay a service fee ranging from 6 to 13 percent of a home’s purchase price. The fee is based partly on a “risk metric score” calculated according to factors including ZIP code, location and market trends.
OfferPad’s pricing and business model closely mirror Opendoor’s. Its funding announcement comes not long after Opendoor revealed it had raised $720 million in equity and debt financing. Another player in the property-exchange space is Knock, which offers a guaranteed purchase price to homesellers.
“The competitive advantages of Opendoor are generally reproducible by competitors: access to capital, a decent [automated valuation model], and solid flip operations,” DelPrete said.
Price competition among property-exchange platforms could fuel adoption by consumers. But a crowded field would also squeeze profit margins, possibly hampering their sustainability and potential to challenge traditional brokerages, he said.
OfferPad expects to have closed one thousand transactions “over the next month or so,” Forbes reported. Opendoor currently claims 4,600 “happy customers.”
As with Opendoor, some industry observers are likely to question whether OfferPad pays market value for homes.
Opendoor claims to do this, while OfferPad assures sellers of a “fair and competitive offer.” OfferPad also promises on its website to never “try to undercut your value,” “take advantage of desperate sellers,” “make last minute changes,” “keep you in the dark” or “surprise you at closing.”
While Opendoor only makes offers on homes that fall within a mid-tier price range, OfferPad will buy homes all stripes.
“We’re very flexible with that,” Bair told Inman. “That’s where our real estate knowledge comes [in].”
Editor’s note: This story has been updated with comments from OfferPad.