Correction: This article was updated following publication to clarify that the author used Knock’s List Guarantee program, as well as to explain the terms of that program. We have removed the errors and regret them.
Some say Knock, OfferPad and Opendoor are the wave of the future — that they are “coming for real estate” — but as a Keller Williams agent, I’m not so sure that’s the case.
Knock’s new trade-in model, OfferPad’s “Agent-on-demand” and Opendoor’s $1.3 billion annual purchase rate are worth discussion, and I do believe they have a market, but I don’t think these companies are the massive real estate force they are reported to be.
How they work
All three companies are very similar. Each one is a for-profit company, which means they seek to make a profit either by relisting a home or through commission on the sale of the home.
Opendoor and OfferPad offer sellers a lower price for their home and relist it at a higher price to sell it for a profit. In Knock’s case, it lists the home on the market rather than buying it directly from the sellers. After the home is listed on the market for six weeks minimum, it potentially offers to buy the home.
The process starts with buyers who submit information about their home. The companies then research comparables (comps) and tax records, and then they present the buyers with a comprehensive offer that includes the home cost and all fees.
If the sellers approve the offer and agree to sell their home, a closing date is set. Those are the basics. (We’ll dig into the details a bit later.)
Put to the test
I used my renovated 1950s ranch-style home in the Atlanta area to test Knock and OfferPad. (Opendoor does not buy older homes, so I used a friend’s house.)
We gutted and rebuilt the house in July 2015, keeping only three existing walls and the foundation, essentially making it a new home.
The house was originally 1,198 square feet with an approximate 505-square-foot exterior entrance basement. When finished, the house was 3,071 square feet with 505 square feet of unfinished basement. We had an appraisal completed in December 2017, and it was valued at $495,000.
I submitted information about my house to Knock, OfferPad and Opendoor. In addition to providing relevant details, I was also prompted to upload photos. I then received offers from all three. The breakdown is as follows:
Knock
Knock’s initial offer via its List Guarantee program, which Knock says isn’t its most frequently used solution, was a price range from $323,763-$409,996. According to the Knock representative I asked, the company came up with the evaluation using tax records and comps.
After looking at the comps Knock chose, I saw that it picked homes outside of my subdivision and then adjusted them. Every home compared to my house was smaller with fewer upgrades.
I gave the offer a poor rating, and a Knock representative reached out to discuss my dissatisfaction. After a lengthy talk (where I mentioned that I had an appraisal done two months earlier at $495,000 — I’ll use this as the final sale price in my hypotheticals, but it could be higher or lower depending on the listing agent), the rep decided to send someone out to take pictures.
Knock’s final offer was $373,000, which is $122,000 lower than the appraisal. It gave me a suggested list price and a guaranteed sale price, which was $24,500 (approximately 6.6 percent lower).
After the seller signs the purchase contract with Knock, the company sends an inspector to the home. Knock will then send a list of items it feels need repair, and any items the seller doesn’t repair will be deducted from the price of the house.
In a traditional sale, repairs are negotiated.
Here’s how Knock says it works: The repairs are recommendations to be completed at the discretion of the seller. The sellers are walked through the potential ROI of each repair, and they decide what they’d like to do. Knock advances up to $10,000 toward those repairs to be settled at closing. If the seller decides to have Knock purchase the home, which is only an option after six weeks on the market not selling, the repairs or comparable concessions are required.
Breakdown of Knock vs. traditional Realtor
Purchase price
Knock: $373,000
Traditional Realtor: $495,000
Fees
Listing agent fee: 6 percent commission ($22,380)
Traditional Realtor: 6 percent commission ($29,700)
Total (not including repairs)
Knock: $351,000
Traditional Realtor: $465,300
Difference between appraisal and final price
Knock: $122,000
Traditional Realtor: $29,700
Difference between the Knock offer and a traditional Realtor: $114,300
OfferPad
OfferPad is very similar to Knock, but the biggest difference is that OfferPad will not go to the seller’s house if there is a valuation issue.
I submitted all my information on the website, including pictures and a detailed description of the renovations we did to our home. The initial Offer I received — $265,000 — was way off.
When asked how pricing was determined, the OfferPad representative said the company looks at tax records and comps. The problem is my tax records are not completely accurate since I renovated my home.
Also, OfferPad pulled lower comparable properties inside and outside of my subdivision. I did let the rep know I had an appraisal that was done two months earlier valued at $495,000. The rep asked me to send it to OfferPad, and I did. The following is the company’s response and final offer price:
Ok, we’ve sent an updated offer over. They were able to increase the offer by $45,000 based on the additional information. Comp wise, it looks like one of the primary ones they looked at was 3655 Hickory Circle. It has no garage like yours, it is a little smaller w/ 3/2, but it is the same age. It sold for 275k in 72 days. Based on that, we feel like we could sell your home for about the 290K mark, the difference being a factor of our costs to get the home “list ready” (honestly not much), but then our carrying and marketing costs as we work to sell it.
Comparing 3655 Hickory Circle vs. My House
| Features | Hickory Circle | My house |
|---|---|---|
| Year built | 1962 | 1958 (complete renovation: 2016) |
| Bedrooms/bathrooms | 3bed/2ba | 4bd/2.5 bath |
| Square footage | 1581 | 3071 |
| Basement | Crawl | 505 square feet unfinished |
| Layout | Original layout | Open floor plan |
| Garage/ Carport | 2-car carport | Driveway |
| Ceiling Height | 8 feet | 9 feet |
| Patio/Deck | Deck | Patio |
| Updates | Granite over older cabinets | Everything in the house taken down to the studs, rebuilt with new floor plan and addition |
| Laundry | Kitchen | Laundry room |
| Sales price | $275,000 | OfferPad offer: $265,000 |
Below are pictures for comparison. The house on the left is 3655 Hickory Circle and my house is on the right. Do you see any similarities? I don’t.
OfferPad sent me an offer $10,000 lower than the sales price of Hickory Circle. Hickory Circle is half the size of our house (which is essentially new) and has no updates. Everything was replaced and rebuilt, so how can OfferPad make such a low offer when it was given pictures of my house, a recent appraisal and a detailed description of all renovations?
After all that information, OfferPad still felt it could sell it for $295,000 and offered me $265,000. Not only was the offer ridiculous, it was going to charge me an additional $15,400 in fees, which include commission, the holding fee to sell the property and the OfferPad experience fee of $2,200. Here’s the breakdown:
Breakdown of Offerpad vs. traditional Realtor
Purchase price
OfferPad: $265,000
Traditonal Realtor: $495,000
Fees
OfferPad: Approximately $15,400
Traditional Realtor: 6 percent commission ($29,700)
Total (not including repairs)
OfferPad: $249,600
Traditional Realtor: $465,300
Difference between appraisal and final price
OfferPad: $245,400
Traditonal Realtor: $29,700
Difference between OfferPad and traditional Realtor: $219,900
Opendoor
This company works just like the other two, basing its pricing on comparable properties and tax records. It makes a cash offer on the house, and if all parties agree, it buys the home.
Opendoor does not buy older homes, so I used a friend’s 4,855-square-foot house — a traditional five-bedroom, two-bathroom two-story with a finished basement.
I filled out the paperwork for Opendoor and submitted it. This is the response I received:
Net offer details
- Valuation: $341,000
- Opendoor customer experience and risk fee to cover holding costs and liability while finding a buyer: $18,755
- Net offer price: $322,245
Additional costs to seller to close:
- Co-broke due to buyer’s agent: $0
- Seller’s agent commission (from the listing agreement)
- Repair request (to be confirmed post inspection)
- Seller closing costs (provided by the seller)
- Loan pay-off (provided by the seller)
- Net to seller at close (net offer less above fields)
Opendoor will have inspections performed by a licensed independent home inspector and will submit a repair request like a traditional buyer. Opendoor itemizes the requested repairs and provides its cost to have the repairs completed. The seller has the option to provide a credit in-lieu of repairs. (Examples of larger repairs include roof, HVAC, foundation and/or pool issues.
The offered price was low. The last two homes that sold in my friend’s subdivision sold for $335,000 and $337,500. The $335,000 house is 2,733 square feet with similar upgrades. The second home is 3,135 square feet with similar upgrades. Both homes are on a slab.
The sold homes are between 1,720 square feet and 2,122 square feet smaller than my friend’s house. If I were to sell my friend’s home, I would price it closer to $375,000.
In addition to a lower offer, Opendoor is charging $18,755 in fees. These fees include a customer experience fee and risk fee (holding cost is charged while it’s selling the home). Fees don’t include closing costs or repairs, so the fee could be $5,000-$10,000 or more depending on the repairs.
Just like the other two, there is no negotiating on repairs; they will provide sellers with a repairs list and then ask for a price reduction.
Breakdown of Opendoor vs. traditional Realtor
Purchase price
Opendoor: $341,000
Traditional Realtor: $375,000
Fees
Opendoor: Approximately $18,755
Traditional Realtor: 6 percent commission (20,460)
Total (not including repairs)
Opendoor: $306,245
Traditional Realtor: $351,281
Closing costs
Opendoor: ~10,000 (estimate includes commission and repairs
Traditional Realtor: $1,219 (average of current sales in neighborhood)
Difference between appraisal and final price
Opendoor: $68,755
Traditional Realtor: $23,719
Difference between Opendoor and traditional Realtor: $45,036
This is the best of the three by far. Still, $45,036 is a lot of money to lose.
Summary
Below is a summary of all three companies and what a traditional Realtor does.
| Program Features | Traditional Realtor | Knock | OfferPad | Opendoor |
|---|---|---|---|---|
| How they Price | Based on comps and experience |
Tax records, comps, experience, in-home evaluation |
Tax records and comps | Tax records and comps |
| Accuracy of pricing | Accurate | Accurate | Very Low | Very Low |
| Fees | 6 percent | 6 percent | 6 percent | 6 percent |
| Included in fees | Listing and selling agent commission | Listing and selling agent commission | Buyer commission only, holding costs to sell home, “customer experience” fee | Buyer commission only, holding costs to sell home, “customer experience” fee |
| Repairs | Negotiated by Realtors between buyer and seller | Negotiated by Knock between buyer and seller | Not negotiable, not included in fees, but considered additional costs | Not negotiable, not included in fees, but considered additional costs |
| Advantage for each | Experience, pricing and negotiating | No-hassle selling | No-hassle selling | No-hassle selling |
| Place in market | Work with all sellers | Works with all sellers | See below | See below |
The market for these companies would include:
- Sellers unable to keep up with payments or going into foreclosure
- Sellers who have a new job, need to leave quickly and have a large amounts of equity in their house
- Sellers who don’t have any idea about the process
- Sellers who don’t want to haggle
My concerns
I have several reservations when it comes to these companies, the first of which is the fact that the price they offer has to be low, otherwise they’d have to resell the home at a loss.
Additionally, making the seller pay holding costs while one of these companies tries to sell the home means customers are paying them to sell their house and get the profits.
The high fees and inability to negotiate on prices or repairs are deterrents for me. And it seems there is a lack of experience when it comes to the market, as demonstrated in the three case studies I completed.
These companies are either unfamiliar with the real estate markets or they’re just hungry for profits. Either way, sellers risk losing a lot of money using them.
OfferPad and Opendoor offer a one-sided transaction that benefits only OfferPad and Opendoor. With Knock, there’s a little more wiggle room as the seller’s home is not purchased directly.
Why the Realtor will win
Homebuyers and sellers miss out when real estate transactions lack the much-needed human element. Unlike iBuyers, I believe that agents and Realtors evaluate properties more accurately so they’ll sell at or above current value.
While there are representatives available to speak with at these three companies, they aren’t client advocates like agents are. There is no negotiating price, terms and repairs on the clients’ behalf. There’s no one on the clients’ side, in their corner, ready to help them reach their long-term goals, well past the transaction.
Chad Schernikau is a Realtor with Total Atlanta Group at Keller Williams Realty Cityside in Smyrna, Georgia. Follow him on Facebook, or connect with him on LinkedIn.
