Why a top agent started OfferPad, an Opendoor competitor

Brian Bair, once ranked the second highest-selling agent in the U.S., and Jerry Coleman — a co-founder of Invitation Homes, Blackstone’s single-family rental investment arm — are the co-founders of OfferPad, a property-exchange platform and Opendoor competitor that just announced $260 million in funding. The following is an edited and condensed version of Inman’s interview with the two. 

How does OfferPad work?

Bair: The number one thing we try to do is basically empower homeowners. We try to give complete control to homeowners, and with my background in traditional real estate, I’ve been involved in thousands of transactions in dealing with homeowners, and there’s a lot of pain points there in the traditional model.

The idea is to have homesellers come to our website, upload their home and tell us about their home’s amenities, and then we give them an offer within 24 hours, and we let them close on their schedule.

How is OfferPad different from property-exchange platform Opendoor, if at all?

Bair: We feel like one of the things that we have is our vast real estate experience with Jerry Coleman, one of the co-founders of Invitation Homes, and what they’ve done, and my background in traditional real estate — but also teams that we’ve assembled across the country. We’ve been heavily involved in the traditional home experience and acquiring homes.

What’s the story behind OfferPad?

Bair: For years, we have had a concierge circle. What we would provide when I listed a home would be 24/7 concierge service. We would handle their lawn care, their pool service. We’d prep homes before showings. We’d have handyman services.

The whole goal of that was trying to make the process as simple as possible, and with that model, there were some things I still couldn’t do. I still couldn’t tell them exactly when their home was going to close. I still couldn’t prevent the property from falling out of escrow 10 days before closing because the buyer’s financing fell through.

The more successful we were with trying to show their property, the more inconvenient we made it for the homeowner [such as having to remove pets from a home].

One of the other things that we did — we’d go in there and if I felt that we could list their home for $10,000 more by putting $2,500 of granite in there, we could increase their listing price. I would advance them that $2,500 and then they would pay back at closing to try to maximize the value.

But it still left a lot of uncertainty to the home-sale model.

Jerry [Coleman] stepped away from Invitation Homes, and he and I have been partners for 10 years in different models for real estate. From 2007 to 2010, we bought and sold about 1,400 residential properties, distressed properties in one of the toughest downturns.

Brian, as a former real estate agent, do you think some in the industry will consider you a traitor?

Bair: I hope not. I’m working with agents everyday. I have lots of really close friends, a lot of people I’ve dealt with for years in the real estate community. One of our core values is embracing the partnership mentality. I want agents to use their networks to help us acquire these homes and help us sell these homes.

To me the whole industry is about the homeowner, and how can we empower the homeowner for a better experience, and this was the next thing I felt that could empower the homeowner. That’s really where my dedication has been.

At the moment, what share of homeowners do you think should use a traditional real estate agent and should not use a property-exchange platform like OfferPad?

Bair: That’s a tough question to answer. I think specifically, as you get into that with the platform compared to a traditional model. Each homeowner has decisions that they have to make and each one of them … [to] sell the home is such an emotional experience, and they all have different things that they’re trying to accomplish.

I think the platform is going to be available to everyone, and it’s going to depend on their specific needs and what they’re trying to accomplish.

Does OfferPad promise to pay market value for homes?

Bair: We don’t promise full market value because market value is kind of a moving target. The idea is trying to gather as much information as we can on a home.

We want to try to pay the homeowner as much as we can on this end … so it’s a win-win for each side. Fair market value is always up to opinion as well.

OK, does OfferPad promise to buy a home for the same price that the average real estate agent could sell that home for?

Bair: That’s a tough question. I think the way we’d answer that..

Coleman: We’re using technology to bring as much information as we can on here, and we layer in local market expertise. That’s a key differentiator.

We have local markets experts that have done thousands of transactions … with their real estate expertise in that market, we can make as strong an offer as possible.

If a homeowner asked, ‘Will I have to sell my home at a discount price to OfferPad?’, what would you say?

Coleman: We’ve seen it both ways. There are some times they got more from going the traditional route, and then there’s been several examples where they would have made more selling to OfferPad.

What I would tell the homeowner is we’re trying to use every data point that we can in our local market. We want to try to pay as much as we can for that home to make sense for both parties.

We average right about what the consumer would net in a more traditional transaction.

Bair: Other competitors in the past try to offer a lower offer with the platform. We don’t know what their situation or goal is. We try to offer the best price we can with every opportunity that comes to our website [so] that we can try to provide the homeowner with the best experience. That’s one thing I feel very passionately about.

[Bair later said in an email statement: “We don’t make a claim about delivering market value, because we believe there’s not a true consensus on market value – it’s a moving target. Our model is designed to offer the most competitive offer possible.”]

How does OfferPad’s pricing work?

Bair: The 6 percent fee — that’s similar to a real estate agent’s commission. And then then there’s a service fee that’s anywhere from 1 to 7 percent.

It’s roughly anywhere from 8 to 9 percent [the total fee] in there. We’ll make adjustments for the property from the monthly inventory supply of the home. The ease of once we own that home to sell it, the condition of that home … power lines or railroad tracks … we’ll analyze the property, and we’ll give the homeowner a score in each one of the the categories.

When we make an offer on a home and people don’t feel like the offer was strong enough, they’re able to upload pictures on our site. By Monday, it’ll be video capability, so we can go in there and adjust our offer if we have more information on the home.

Once we have our inspection and our consultant at the home, our goal is to not adjust that [offer].

Coleman: If something major about the home is not disclosed then there’s the possibility that there can be an addendum to the contract, but as long as they answer the questions correctly… I’ll stress that because we’ve done this 100,000 times, we’re used to the repairs.

We know what to expect. We’ve got a good sense of what needs to be done.

We do not adjust our purchase price unless it’s something drastic. We feel very, very strongly about not adjusting that offer.

Bair: The only thing that we’d adjust for is repairs.

We would never go to somebody and say, “Hey, we didn’t realize there was a power line, we’re going to adjust your pice by X amount of dollars.”

How do you value properties?

Bair: We don’t have the drive-by before you submit the offer … in Arizona, for instance, we’ve acquired thousands of homes. We know the areas very, very well. We’ll take the condition that they’ve uploaded on the platform when they explain their home with the new features of pictures and video. We want to be right.

Do you think property-exchange platforms will eventually charge the same fee as a typical real estate agent — as they refine the business model?

Bair: That’s the goal: reducing the fees and making the fees very similar to the traditional game. As we scale this model … the more aggressive we can get … with or without competition.

OfferPad has been in business since 2015 and operates in six markets. Why is this the first time we’ve heard of OfferPad?

Bair: We’ve kept a low profile, and we self-funded for the first year, and then this [funding] round, we actually negotiated this round the middle of last year, but we’re just announcing now. We wanted to make sure we built our system and processes and [got] everything up and running.

Where does OfferPad have the most traction? 

Bair: Phoenix.

That’s also Opendoor’s biggest market. So Opendoor has known about you at least, right?

We’ve had multiple conversations with [Opendoor CEO] Eric Wu, and we’re certainly aware of each other.

How do you partner with real estate agents?

Bair: We’ll notify them of new and upcoming homes that are under renovation, and that we’ll release at certain times that they can show their buyers … Also, we have agents who call us all the time who want us to buy a home they’re having trouble [selling].

I am one [a real estate agent], and so I want to embrace those partnerships, and I’m open to all relationships with the real estate community.

We want to scale very quickly, but even in a lot of these markets, with us accomplishing our goals, there’s still a lot of marketshare to go around.

Do you sell homes through the MLS?

Bair: Right now, currently we sell a lot of our homes on the MLS, so most of them are sold and agents are paid co-broker commissions. Timing is very important with our model and the more people that are marketing and trying to sell the home, it’s better for OfferPad.

We actually pay 3 percent for them to bring the buyer, so we do that. It depends on the market, but in the markets where we are right now, it’s 3 percent of what we’re paying. You know there’s other companies that will list at 2.5 … but being on the other side of it.

But you would make more money if you could sell a home at market value without paying a buyer’s agent. Will you design a way for buyers to easily purchase homes directly from OfferPad?

Bair: Yes, we are. We’ll eventually have that option, but right now, it’s all MLS.

Will you offer a discounted price to unrepresented buyers, like Opendoor does?

We haven’t figured that out yet. We’re not that far along with that model, so I don’t know the answer to that yet.

Coleman: We certainly expect that there will be some shifts in the model like there always have been. We’ve seen quite a few shifts…

Like what?

Coleman: One of the major shifts that we participated in was the institutionalization of single-family rental homes. We entered that market.

When we started doing this back in 2009, 2010, there were no institutional single-family landlords. We partnered with Blackstone and formed Invitation Homes and a handful of other groups did the same, and now there’s a whole industry associated with that.

Will you buy homes from institutional investors?

Bair: We’ve had discussions with them in terms of … what we buy could work as a good rental home, then they might buy it from us. We keep those conversations open, but we’re not currently doing any major volume with any of those groups.

Will you rent out any of the homes you buy?

No. Currently, the model is to sell everything we buy.

Would you rent out some of your homes if the market turns south?

Bair: We’ve operated this model in the worst downturn that we’ve seen since the Great Depression, in 2008, 2009. We were buying and renovating homes. We don’t anticipate that we’ll need to shift to that in response to a market downturn.

Then how will OfferPad cope with a slowdown?

Bair: Our strategy is to stay disciplined on how we look at it. Again, we buy and renovate and take it back out to the market, and like I said we’ve done this in a market downturn. We think the key is making sure we understand all of the market conditions.

Opendoor has said it might charge higher fees in a downturn. Would OfferPad do that?

Bair: No, we wouldn’t anticipate doing that at all.

How much market share does OfferPad hope to have in Phoenix one year from now?

Coleman: Our projections are that we could be in the 1 to 2 percent range in Phoenix.

Bummer that Opendoor also happens to operating in your best market, huh?

Bair: We’re operating in Tampa and Orlando [Opendoor isn’t operating in those markets].

Coleman: We feel it’s working great [in reference to competition with Opendoor].

What would your advice be to real estate agents who want to thrive as companies like OfferPad gain traction?

Bair: I don’t think anybody has a crystal ball for that, but I do think [real estate agents] need to adapt and stay flexible with technology changing the way real estate [is sold].

Stay flexible on what?

Bair: Really just adapting to what the homeowner’s needs are — as real estate evolves, staying ahead of where that is. Specifically, the best example I can give you is truly just the homeowner’s needs.

Always stay flexible to what the homeowner needs or the buyer needs, and that’ll lead you to good places.

What about flexibility on price? Do you think technology will put downward pressure on commissions?

Coleman: There’s been a lot of downward pressure on commissions from different listing platforms. I think that’s always going to be there, whether it’s now or 10 years from now, but I think that that’s going to come. That’s always going to be a question people are going to ask.

Does OfferPad only buy within a specific price range, like Opendoor?

Bair: We’re very flexible with that. That’s where our real estate knowledge comes [in]. We don’t have any specifics on that.

Email Teke Wiggin.