Dominique Khoury of Elk Grove noticed a house for sale last fall that was perfect for her growing family. To compete for it, she figured she’d have to sell her current home first, and fast, to have the down payment in hand.
How fast? That came as a shock. At a friend’s suggestion, Khoury typed information about her house into a new online real estate website called Opendoor. A day later, Opendoor emailed her with an offer to buy her home. No open houses. No staging. No real estate agent. She could set the move-out date.
“It was surprising,” she said. ”They said, ‘We’re going to buy your house from you.’ And I was, ‘OK, that’s it?’”
Khoury is among the first home sellers in California to test what some say could be a industry-changing trend. Opendoor, a 5-year-old San Francisco-based company that calls itself a real estate “disrupter,” is among several companies now pitching themselves as the Uber or Netflix of home-buying.
Zillow, the Seattle-based real estate data giant, is also getting into the game. It launched “on-demand” online home purchases in seven markets nationally in the past year, and plans to begin business in California later this year, starting with Riverside.
Using computer algorithms and some human analysis to determine the price, the companies buy homes online, offering sellers quick money, flexibility, varying move-out dates and the option to back out of the deal.
“This is the next phase in real estate,” Opendoor spokeswoman Cristin Culver predicted. “We’re breaking tradition.”
Opendoor, founded by a group of real estate and tech entrepreneurs, appears to be the first online company to gain a toehold in Sacramento. As of last week, it had purchased 104 homes and sold a handful in the capital region since it launched here six months ago. The company is in 19 markets nationally, including Riverside, and company representatives say they plan to expand to Los Angeles in March.
Local real estate officials say they are keeping an eye on the newcomer. Some Realtors have worked with Opendoor, but many say they question how successful online companies ultimately will be in an industry where sellers have traditionally relied on local experts as guides.
Opendoor charges sellers a variable fee that appears typically to be slightly higher than the 6 percent a seller would pay a real estate agent. The fee varies depending on Opendoor’s assessment of how quickly it will be able to resell the home. The Sacramento Bee requested a home price offer on a South Land Park home last week and was quoted a 7 percent fee for a proposed purchase price that appeared to match recent neighborhood sales.
Once a deal goes through, Opendoor then resells the home, sometimes with minor upgrades. It allows potential buyers access to the home for self-guided tours via a smart phone app that unlocks the front door. If the market is on the upswing, the company can profit by selling for a higher price.
Sacramento early to the game
Company officials said they chose Sacramento as their launch site in California because the area’s real estate market is healthy and growing, but not exorbitantly priced, with many newer homes in good shape.
Several other companies are entering the online home-selling world. Notably, Zillow, a national aggregator of real estate data, has begun offering online sales in several cities nationally. The company has no timetable for offering its service in Sacramento, but a spokeswoman said the company hopes eventually to be in every major metropolitan area nationally.
Spokeswoman Jordyn Lee said Zillow’s research found that many consumers find home-selling stressful and are open to ways it can be simplified.
“I don’t think people would have been ready for this five years ago, but consumer expectations are changing,” Lee said. “Now, people want an on-demand experience, to do things with a click of a button.”
Zillow requires potential sellers to email photos of their house before the company makes an offer. Both Zillow and Opendoor send home inspectors to check houses before finalizing deals. Both say that can happen in a matter of days. If home repairs are needed, the companies adjust the price.
Notably, Zillow and Opendoor limit the types of homes they are willing to buy.
In Sacramento, Opendoor will only purchase homes built after 1960 and in the $200,000 to $600,000 range. It prefers homes in master planned communities where it is easier for its analytics team to determine comparative sales prices. For the same reason, the company avoids buying homes that are architecturally distinct, representatives said.
Opendoor also has a partnership with Lennar Homes, one of the largest new home builders in the country, that allows buyers of new Lennar homes to sell their current home to Opendoor but stay in it until their home is constructed.
A few local real estate agents say they are sending clients in a pinch to Opendoor. That is how Khoury, of Elk Grove, ended up selling to Opendoor last October.
Khoury said she didn’t know anything about Opendoor when her real estate agent, a friend, suggested she check it out. The experience was smooth, she said, but she haggled over the price. She had a studio shed in the back that Opendoor didn’t initially calculate in its offer. She got them to increase the price $5,000 after a representative of Opendoor visited the home.
That taught her one lesson about dealing with the online company. “If anything, you have to be your own advocate. I had to call them a few times because I was unclear about a few things.”
After buying her house for $475,000, Opendoor put in new carpets and painted the walls, then put the house on the market for $499,000 a few months ago, Khoury said. The Sacramento real estate market had stalled, though, and Opendoor has since dropped its asking price to $477,000. Khoury said that tells her she probably got a fair deal on her sales price.
Trend or fad?
The online trend has caught the attention of many in the traditional real estate industry, notably real estate agents and appraisers, whose expertise and services could be undercut if online companies grow.
Some say they believe the Opendoor model may only work in real estate markets where prices are going up. If prices remain flat or go down, companies like Opendoor would lose money on a sale if they hold onto a house too long.
In an email to The Bee, Jared Martin, president of the California Association of Realtors, said the online businesses appear focused on sellers who want “a quick buck.”
“Convenience-based platforms may help sellers who need to unload their property in exchange for a quick buck, but there is no substitute for the unparalleled value of a Realtor,” Martin wrote. “Buying or selling a home is usually the largest, and often the most complicated, transaction a consumer will ever make, and a Realtor can help them navigate through the process.”
Paula Swayne of Dunnigan Realtors – who sells in Sacramento’s older areas, such as Land Park, East Sacramento and Curtis Park – said she believes the new companies can find a place in the market, but she questions how significant their impact will be.
“There is a niche for everybody, but I don’t see this taking over our industry,” Swayne said. “I don’t think it is something we should be frantically waving our hands about. It’s a good fit for some sellers, but not predominant.”
Appraiser Ryan Lundquist said he has talked with others in the industry who are concerned about Opendoor and other online dealers, but he said the coming months could give better perspective on the model’s viability and reach.
“Everyone wants to be the new Netflix in the Blockbuster world,” he said. “Are they? Not yet, but they are making a ripple in the market. I am curious to see if their model can work.”