So, Opendoor has done enough to convince me that it might not be Zillow 2.0 - I'll always be cautious now with iBuying, but I do think that (done correctly) it will transform the real estate industry. Opendoor addresses this, highlighting that it only holds properties for 3-4 months, with ~35% of inventory under resale contract at any given time. The longer a property is held, the more its future valuation could fluctuate - and after seeing what happened with Zillow, investors will worry about the impact of that fluctuating to the downside. Opendoor is also a lot more cautious when it comes to its conservative cash offers as well as the length of time it holds properties for. As we can see below, all margins have been trending in the right direction over the past five years. Clearly, Opendoor is a business with more nous than Zillow, and this is demonstrated by its ability to continue to improve profitability and contribution margins. The company has successfully increased both the gross and contribution profits generated over the past 5 years, and the company was actually GAAP-PROFITABLE in Q1'22 - considering Opendoor still has a substantial amount of room to scale up, the Q1'22 profitability so early on is a great sign. This has made myself and many on Wall Street increasingly cautious when it comes to investing in iBuying businesses, so the first question I have to ask about Opendoor - do its algorithms actually work, or is it just going to pull a Zillow & buy all the houses in the U.S.? Well, the numbers speak for themselves. Zillow Offers failed, the company laid off 25% of its staff, and it lost almost $1 billion on its iBuying business. real estate market, but it had a wealth of data & years of Zestimates to help the company price iBuying offers accurately - it just didn't work. Zillow remains the digital leader in the U.S. ![]() Now, I am a former investor in Zillow, which has probably been the most talked about iBuying business over the past 12 months for all the wrong reasons. Title and Escrow: Opendoor offers customers integrated title insurance and escrow services through its subsidiaries, charging fees related to settlement and escrow as well as title insurance premiums.Opendoor acquired the assets of digital-first mortgage brokerage RedDoor in 2021 to help accelerate its progress with this product. Opendoor Home Loan: launched in 2019, this tech-enabled mortgage platform helps customers looking to buy or refinance a home.In these transactions, Opendoor collects the buyer's agent commission from the seller. Buy with Opendoor: unlike the current process with agents acting as intermediaries, Buy with Opendoor customers can use the company's app or website to self-tour or virtually tour both Opendoor and non-Opendoor homes, shop for financing, and submit an offer backed by Opendoor's cash.Opendoor charges a 5% service fee for customers who sell directly to them. Once all has been confirmed, sellers can then select their preferred closing date and, in some cases, are able to close electronically. They will receive a preliminary offer online, Opendoor then conducts a variety of checks to verify information about the home, including a virtual interior home assessment. Sell to Opendoor: homeowners can sell their home directly to Opendoor for an all-cash offer.At the end of 2021, Opendoor had the following core offerings: Opendoor is looking to change this process by using machine learning algorithms to make it easier to complete a real estate transaction. real estate market alone is worth about $2.3 trillion, but the process of buying and selling a home is convoluted - with a multitude of steps, and tons of intermediaries who increase both the cost and the time it takes to complete a transaction. It was founded in 2014 with a mission to "empower everyone with the freedom to move," and the company looks to achieve this by leveraging technology to make buying and selling real estate possible from a laptop or mobile phone. Opendoor is a leading digital platform for buying and selling residential real estate - typically known as iBuying. The thesis behind iBuying remains the same it is better for buyers and sellers, the process is less complex and painful, and it can enable platforms to extract more value from the home buying and selling process.īut does that mean Opendoor is going to succeed, and does it look like a good investment right now? I put it through my framework to find out. ( NASDAQ: OPEN ) can succeed where Zillow failed. ![]() ![]() Then I spent about 6 months licking my wounds.īut now, I'm ready to get hurt again - or hopefully not, as perhaps Opendoor Technologies Inc. ( Z) because of its potential in iBuying. Khanchit Khirisutchalual/iStock via Getty Images Investment ThesisĬards on the table: I invested in Zillow Group, Inc.
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