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Opendoor is a startup that descended upon Arizona sometime in 2015 where three young men from the San Fran area secured an insane amount money from investors. The Opendoor sales pitch is “Sell your home to Opendoor so you can skip the hassle of listing, showings, and months of uncertainty.” This gives Sellers the option to cut and run if they need to or want to and the purchase prices don’t seem to be the crazy lowball numbers we are used to seeing from investors (20-25% below market value) but they are still 5-10% below market value not including the outrageous fees.
iBuyers (instant offers) Is the convenience worth the cost?
But in most situations, in my opinion, Opendoor does the home seller a disservice, and that seller would put much more in their pocket if he or she took the traditional route. Sellers paid, according to Opendoor, 10 to 12 percent in fees! Also, sellers pay for all repairs that are found during inspections, (repairs, if not warranted, are negotiable in traditional sales; plus sellers must pay whatever Opendoor charges for needed repair). According to Opendoor’s inspection brochure, the company offers two other options: sellers can tackle the fix themselves or “say goodbye.”
In addition to the fees, Sellers split their closing costs with Opendoor (so no savings here); sellers are clearly giving up significant equity in exchange for convenience. On a $300,000 house, giving up 5 percent to 10 percent of market value — plus paying 12 percent commission or fees and making all repairs needed — can add up to a very pretty penny. The market value hit is worth $20,000, and the higher commission or fees is worth at least $18,000 — plus the repairs; that’s $40,000 less in their pocket by going with Opendoor versus hiring a real estate agent and selling the traditional way.
Opendoor also reserves the right to renegotiate after the inspection period if it decides that something they discover will affect the resale value. This might just be a bad color option for the countertops, so that $5,000 hit is added to fees, but the property still shows as selling for 96 percent of market value. (This is how Opendoor makes money but appears to buy close to market value.)
Check Out The Recent Yelp Reviews From Local Sellers Below:
Yelp hides reviews for Opendoor
“Put our house on the market in Mckinney TX, which is a huge market right now. Decided to check out open door before we signed anything w a realtor. Offer was about 20k below what we could get. Declined the offer. I am sure the company is growing but by the time that they took to reply with an offer and after seeing they take 10% (4% more than your realtor and buyers commission), glad we decided to go with the Realtor!”
“I got an offer on my house in Frisco, TX for 203k. I knew that was too low. Ended up selling my house with a Realtor for 25k more, plus I saved an additional $10,000 on commission!!! They take advantage of the money you make on your investment! Do not fall for this!”
“I asked Opendoor for a more realistic offer since they low balled me on the first one and after leaving a Yelp review they said to let them know if I want another offer. They went up 5k and it was quick, like less than 24 hours as opposed to the first time they gave me an offer. Hmm? Moral of the story, if you don’t care about them taking so much more of a % and don’t want to deal with showing your house, and don’t mind losing money- Opendoor can help you. Otherwise, just use a Realtor.”
“Watch out – it’s a bait and switch. They offered me a price and I accepted – then a few days before closing (almost a month later) they came back and said they made a mistake on my appraisal and had to drop the price almost $40k. Pretty shady stuff. Seller beware.”
“We reached out to Opendoor to sell our home, because it was supposed to be no-hassle for a fair price. That was not our experience. Opendoor never spoke with us prior to making us an offer. The offer was $13,000 less than what our home just appraised for. Worse than that were the $10,000+ in fees plus undetermined repair costs. When we tried to negotiate with them, we were told that maybe they weren’t the right company for us. I guess they were right!”
“Very deceptive realty practice to the point if you are very desperate you might fall for the scam. The contract they send on its face is great offer, but then you read the fine print they hit you with a 15 to 20 per cent service fee. In my case the service fee would have been 36,600.00 dollars. The prompts lead you into getting to sign contract I did not get into the contract itself The person who sent me the contract was a *** ******. All I say is be careful….”
“We received the 1st offer from Opendoor and we felt it was below market value. So we provided more detailed information and listed all the upgrades to the home so we requested a 2nd offer… it was such an insult! 2nd offer was almost $30,000 less than the 1st offer. I think because they knew we were interested in a Lennar home they took that as we were desperate because Lennar will only do business with Opendoor if you own a home already. So everyone beware of this “monopoly” scheme!”
“Selling through Opendoor was the single most horrific experience I could imagine. I was willing to accept a slightly below market price given the apparent ease of the transaction compared to a traditional listing. I was even willing to concede that certain repairs would be necessary in order to bring the property to a marketable condition. I did not know Opendoor’s approach was to send their band of thieving contractors through our home with an open checkbook and an understanding that they should bid any and everything they’d like to be paid for. I’ve had MULTIPLE roofers inspect my roof after hail storms. Each one would have every incentive to tell me I needed a new roof and I would have filed an insurance claim instantly. Each one said my roof was fine, intact and no repair or replacement was necessary. I even had an inspection AFTER Opendoor’s thieving contractor’s NINE THOUSAND DOLLAR estimate who confirmed yet again, no repair or replacement was necessary. Yet, Opendoor repeatedly stated “we stand behind our assessment”. Of course we were too far into the process and committed to our next move to cancel the contract and start over. Opendoor and your band of thieving contractors should be ashamed of themselves. Judging by your BBB reviews I anticipate a class action lawsuit coming. Opendoor will soon be Closed doors for good. Complete scam. Stay away from this company at all costs.”
Yelp hides reviews pages for Opendoor, Offerpad
The mega reviews website still maintains the reviews but makes them harder for consumers to discover, while traditional brokerages have fully public Yelp reviews….
Yelp has made a quiet, subtle change that could have a big impact on the real estate industry: the mega reviews website has made it extremely difficult for people to find Yelp reviews for Opendoor and Offerpad, two of the country’s leading online homebuyers and re-sellers.
Bearing nearly 500 reviews, a subpar 3-star rating and many responses from its corporate account, Opendoor’s three-year-old Yelp reviews page is still accessible online, but the only way for anyone to find it is by going directly to this link or bookmarking it. The page can no longer be located through Yelp’s online search tool, nor through Google search. The same goes for Opendoor rival Offerpad’s Yelp page, which was much less active than Opendoor’s listing, holding only a single one-star review.
Yelp reviewers and industry experts told Inman they believe Yelp’s decision to hide major iBuyer reviews pages from search impedes public scrutiny, making it more difficult for consumers to evaluate the companies while leaving traditional real estate brokerages, whose negative Yelp reviews are still discoverable, at a competitive disadvantage.
Opendoor has also received financial backing from Yelp’s CEO and two former Yelp board members, though an Opendoor spokesperson told Inman the ties between the two companies had nothing to do with Yelp’s policy change, and that Opendoor did not ask Yelp to hide its page.
“Any agent or broker with less than four stars on Yelp would give their left pinky to have those reviews disappear,” said Brian Boero, a real estate consultant. “If I were Opendoor and had a three-star rating, I would be relieved to have that suddenly vanish from Yelp.”
Indeed, research has shown that a substandard Yelp rating can have a punishing impact on businesses. One recent survey found that 57 percent of consumers will not even consider a business with less than four stars. Opendoor and Offerpad’s Yelp pages both have less than than four stars.
iBuyers (Instant Offers) Is The Convenience Worth The Cost???
There has been a lot of hype around a newer real estate technology trend referred to as “iBuying.” You may have heard the radio spots for Opendoor, Redfin , Myers the Homebuyers and now Zillow advertising: “Sell your home to us so you can skip the hassle of listing, showings, and months of uncertainty”.
So what does this mean for you as a homeowner thinking about selling?
First, what exactly is an iBuyer? An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen, based on a proprietary valuation model. If you choose to accept the price, you can close in as little as a couple of days. The iBuyers tout the selling experience as quick and easy, but when would you consider selling your home this way? A few examples are if you need to move to relocate for a job, you are a distressed seller or you have found your next home and want to act quickly.
This sounds awesome, but what’s the catch? When selling to an iBuyer, the other side of the transaction is a company or an investor. Investors like to make money, and the quick and easy experience for sellers doesn’t come cheap. The iBuyer will typically charge a full commission, plus build in a 5%-10% discount to fair value to compensate for the risk they take by providing you with “instant” liquidity. Those who work in finance would call that a “liquidity premium” because the buyer has to use their own money to buy an asset.
So what does this really mean for the homeowner’s bottom line? Most homeowners purchase their home with a mortgage. If you purchased your home for $400,000 with 20% down, you showed up to closing with $80,000 of your own money, which is also your equity. If the value of your home remains the same and an iBuyer offers you $380,000 for your home — a 5% discount to fair value — you will lose $20,000 on the value of your home, plus pay a 6% commission (an additional $22,800). This is a higher transaction cost compared to selling on the open market for $400,000. More importantly, compare that combined $42,800 to your original down payment of $80,000 — you will be giving up over 50% of the equity you put into your home partly for the convenience of a quicker sale. Does the added cost make sense for the consumer?
While iBuyers provide the convenience of selling quickly, matching expert investors against consumers isn’t always the best thing for the consumer. Zillow recently explained that 90% of sellers who engaged its Instant Offers platform decided against the iBuyer offer and chose a traditional agent instead. If 9 out of 10 consumers pass, the pricing can’t be that compelling. Choice is good, but a home is generally your largest asset, so you may want to consult an expert before “iSelling.”
The convenience of iBuyers is definitely intriguing. However, it seems like the overall cost of this convenience will need to come down before it becomes consumer-friendly and more mainstream. Without an experienced Sellers agent with intimate knowledge of the local market, you could be losing exposure to 80% of the buying population resulting in a lower sales price for your home. Our proven selling system and high tech marketing strategy ensures that our Sellers always walk away with the highest price possible.