0:00 Buy & Sell Homes Online 3:56 Reimagining the Real Estate Experience 8:11 Phones, Cars, now Homes for Cash 12:55 Convenience and Liquidity with a Cost 17:58 A Modern House of Cards 19:49 Financial 3D Chess & Living on Debt 23:54 Business of Institutional Home Flipping 26:58 iBuying Moats & The Demise of Zillow Offers 💬 Join the Reddit community for additional content & discussion: www.reddit.com/r/modernmba/
Still just a *"house flipping app"* so only as good as the bubble it lives in. Very valuable data sets tho and little wonder all of said "info" remained proprietary.
Stupid question: who invested? I mean. if a bunch of Silicon-Valley-Gurus burn a billion Dollar to let 6.000 employees jump the hoops .. and end up with nothing ... that's tickle-down-economics :)
I ❤️ Opnedoor. They overpaid for our home in April after the market had already shifted. The house is still on the market and one of the most overpriced houses in town.
Yeah but what % did they charge in fees? They make their margins when they buy the home and pay themselves first. Then, try to make a 2nd margin on the sale. The sales price is not the whole picture in a real estate transaction. The seller nets less than the sales price and the buyer‘a total cost is more than the sales price. So, there’s more to each transaction than just sales price
@@SmartestDumbGuy yeah it works… but it only works if your clients are pretty desperate and you’re willing to take advantage of them in some way. scaling and scaling and relying on desperation are two different things. i’m sure they have clients who would benefit from this arrangement but not enough to make their bloated promises to remake all of the real estate market believable
@@ShaneBurns Uber is really cabs with a slick way to avoid employment laws, allowing significantly lower pay and benefits for drivers who barely profit after gas and wear and tear to their cars. Even then, Uber isn't doing great. They still lose significant money each quarter. Last reported quarter, they lost 2.6 billion dollars
We sold our home to OpenDoor about a year ago. I estimate that they over paid us by around $50,000. They didn't end up reselling our property for 6+ months.
This is truly a classic “tech” scenario. A lot of hype, some big names, lots of funding, lots of buzzwords, and yet still ripping off the customer and not creating any new value for society.
Bingo. Tech often seems to innovate for the sake of innovation and making founders rich, spurred by cheap money. The virtue signaling thing is all platitudes
I wouldn't say trading gives no value - it's an additional option for seller to get money quickly, if they have high time preference But it probably could be done without huge tech layer around it
"Remember kids, a cookie recipe is an algorithm. My grandma's cookie recipe is a proprietary algorithm. Don't let these words ever impress you again. Algorithms are just sets of instructions " -My old professor
Sold my house right at the peak of my neighborhoods pricing. Opendoor has taken a 36k loss so far(and the price keeps dropping every few weeks). My ex girlfriend and I got out of the sale pretty happy since we got to pay off debts and move on to our own lives. We didn't have much time to deal with a realtor and sales process since we were about to hit foreclosure and we'd have to short sale so Opendoor really took one for the team whether they liked it or not.
@@Soundsaboutright42he should’ve purchased a lottery ticket the day he had the breakup. Man’s already won one lottery by not getting massively fucked over when co-owning a home while unmarried.
My wife worked for them until a year or so ago. They were astoundingly dysfunctional in so many ways. They didn't have solid, objective ways to evaluate homes, plus with COVID they talked themselves into thinking they could evaluate value without even going inside. They had two groups which didn't communicate at all... The buying side versus the selling. Guess what happens when neither side talks or learns from the other! It was a dumpster fire
I agree In general but I think people (especially agents) are making too much of a big deal about the “data failure” part of this story. As you said, modeling and algorithms are usually looser than many people imagine, but the bigger deal here imo is they didn’t seem to factor in selection effects for who will sell a home to an i buyer. They also seemed to have failed to develop local networks of contractors for flips ahead of time. There’s a reason there is no national company doing flips, and it’s not because no one has tried.
Even if they had all the data they claimed as a former banker I am sure it was doomed to fail. The problem is there tends to be just too much variation between markets so each neighborhood really would need different parameters and a retuning of the algorithm. But they don't have enough data within each neighborhood (not to mention within each market segment in each neighborhood) to get much power so they might actually be estimating off as few as a dozen observations many of which are old and out of date. Then add in the fact that you're more likely to get lemons that won't stand up to closer examination signing up for a quick sale process like OpenDoor. It's actually not that hard to hide local problems if all you do is a single home inspection, whereas a traditional seller with a local real estate agent will know more about the neighborhood and often do more visits at various times of day.
I mean they did mention things like access to transportation and noise being included in the prediction so idk, probably not just one python script some moron threw together in an afternoon.
The reason local flippers make money is that they know their niche market and do what repairs they can do them selfs and have a contract with friends that own a small house repair company that does the repairs at a large discount. The people that make the real money are the ones who buy fixerupers and rent the houses out for at least two years before selling to save massive amounts of money in taxes. The advantage to this model of flipping is that they can take their time to find good houses and are not always needing to find that next house to flip. Another advantage to this model of flipping is they don't have to do all the repairs right away they just need to get enough done to get the house rented and as the months to years pass do more of the lesser needed repairs to sell the house for top dollar. To rent a house you don't need to do things like replace carpet, or update kitchens & bathrooms, or do any other upgrades that need to be done to sell the house that all can wait to be done for years and can be planed two months in advance when a tenit is moving out if they decide that it's a good time to sell.
Well, and these guys are trying to do everything from agent to contractor, but no contractor is going to be the one without a chair to sit in. A contractor who buys a home to flip is then willing to do the work for less than what they would charge a market customer, because the sum total of those renovations is the profit on the sale of the home itself. This "algorithm," they keep talking about is what every real estate agent does too, but no algorithm can go against the forces of the general market - if you buy in a seller's market and sell in a buyer's one, you are going to lose money regardless of how good your calculations are.
Plus a lot of them are already real estate agents which give them the option to either make money on the real estate commission or conversely to sweeten the deal by reducing the commission.
Yeah, most 'flippers' are basically a DIY home repair business that makes money by making homes more valuable. IBUY is more about looking for arbitrage or middle-man income. But with how competitive the market is, there isn't much arbitrage to be had. But a renovation that """objectively""" increases the home value doesn't have to deal with the lack of arbitrage, because that's not where most of the profit comes from.
I use to hold properties and rent them for 2 years, it became a headache because you would have to go back in and make repairs before you can resale and with COVID getting your rent was a hassle, better to sale in this market and move on to another flip, but it sucks to give government even a dime.😊
Part of the problem with the "algorithm," esp. regarding homes, is that it can't possibly know everything about a particular property. The algorithm probably wasn't, checking for things like: * the frequency and severity of termite infestations for an older wood-frame home in a particular neighborhood (anyone who's lived in my city knows not to buy wood frame houses in a certain zip code because your house will either get eaten out from under you or you'll need to be on a first name basis with an exterminator) * whether an older house still has lead paint in it (A friend ran into this exact problem when she bought a townhome she thought she'd turn into a rental only to discover she couldn't until the lead paint had been removed, an expensive process that requires a certified specialist in her city) * or any number of miscellaneous oddities that might be wrong with a house that the current owner might not even know about no matter how long they've owned the property (my mother has lived in her home for 30 years and didn't realize that her back yard was flooding all the time because of the massive courtyard pavers buried under less than three inches of sand in the yard and only discovered it when she had a landscaper come out to try and fix the flooding). Like, these aren't cars that can be inspected in a day or hardware that has specs published. Some information just isn't available in a database which skews the dataset.
As a tech worker at a major tech company, I'm really tired of the incestuous logic of SV companies. Even the very initial premise seems very flawed... "I need a quick fast sale of my house" seems a rare scenario compared to "I want to maximize sale value"
The vast majority of homeowners want fair market value. Zillow tried to do it that way, and use the homes as a loss leader for their mortgage arm, but they were overwhelmed with losses. Give people less than fair market value and you compromise demand. Wholesaling can be profitable at the local level. Opendoor advertised a revolution, investors swooned, here we are, again.
I think the idea wasn't just to operate in the fast turnaround market, but to displace realtors. MaRkEt DiSrUpTiOn!! But NAR is obviously not going to take that lying down. And given that most buyers still work with a realtor, they're basically being blackballed out of the market.
I have a friend who works for opendoor and while it started out reasonable he now is posting daily instagram stories about how "no guys!! The housing market will not crash at all!! Everything is great because I just updated one of our pricing algorithms so everything is going great!" It's honestly hard to watch because I know that he's smart enough to know its not true but he's too deep in to see the burning forest through the trees.
I believe there would be a crash if the bubble was pure speculation, but all assets cost more as the federal government dumped $6,000,000,000,000 into the economy.
I looked at several Opendoor "flips" in the area I used to live in and you are right about minimal capital renovations. They hired the worse contractors who half assed their jobs. Then they expected to get top dollar for their homes.
Ironically the good real estate market screwed them. When the market was as hot as it was, you’d be foolish to not sell it on the open market with multiple bidder even as a FSBO. Anyone who is selling to Opendoor likely had a serious issue that was hidden, in economics this is called adverse selection. They got the lemons, meanwhile their sales data, which had the nicer homes kept pushing valuations up
We found Opendoor cool because you could just go up to any of their houses and tour it. Their app allowed you in without making an appt. That was perfect for our schedule. We did buy a house from them at 30k lower than the original listing price. This has been a great house!! I think others skipped buying it because it was ALL royal blue outside. That's been fixed. This was a super buy, right before the market shot up!!
In Vegas, it’s known that if your seller’s house is in bad condition or bad neighborhood, you help clients to get offer from Zillow and boom, top dollars for our buyers. It was the best while it lasted!
@@heyryanisonx3141 the large influx of Californians who sold their homes in CA and bought up most of the new properties in Vegas, cash, driving up prices in the area because of demand and the fact that they really didn't care what they paid because they're used to the CA real estate market. My home was $317k in 2017 and is about $530k now. Fine by me, but it does make it a LOT harder for Nevada locals to get into their first house too, which isn't so great.
@@bjkarana i live on the hour line from the closest proper city I saw that same rise on $60k houses towards the city (as in them costing $250k) during covid while houses 10 minutes further away only went up to $70k
Opendoor was fined $62M by the FTC this morning for cheating and misleading home sellers. "In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because the company’s offers have been below market value on average and its costs have been higher than what consumers typically pay when using a traditional realtor." Press Release: www.ftc.gov/news-events/news/press-releases/2022/08/ftc-takes-action-stop-online-home-buying-firm-opendoor-labs-inc-cheating-potential-sellers Federal Complaint: www.ftc.gov/system/files/ftc_gov/pdf/Complaint%20%28redacted%29.pdf
I dont understand the issue. Open door is convenient. People can choose the easy way or harder way... but in the end you make your decision with your own free will. If open door offers less but is easier... some people will prefer it.
Me and my mom were moving out of a rental and ended up buying a house owned by Opendoor. The inspection found that there was a cable in the AC that had melted through and was causing a burning smell, and the plumbing had to be fixed, on top of the pool being effectively broken because the cleaning system wasn't working. Opendoor wanted to fix *none* of it, and initially refused to do anything, despite the house clearly being both unsafe and at least somewhat unlivable. Fortunately, I am a stubborn asshole, and refused to let my mom even consider accepting that. They tried to give us a whole 2K credit for the repairs (which would have cost around 10,000 just to make the house safe), and we flat out told them they had until the end of the offer period to make a better offer or we walked. That was the most stressful two weeks of our lives, because they refused to communicate with anyone, and waited until the **last day** to finally give us an offer we were happy with, which included them doing the major repairs that were needed. Conclusion: Opendoor is not a real estate company. They are a legal mafia trying to make money by ripping off buyers with lower offers, and sellers by selling them broken homes for more than they're worth. Do not trust them, and if you have to buy from them, do not let them push you to accept their shit, because they will try everything they can to give you the worst deal they can.
My son sold his home to Opendoor in March of 2021 in Madison, Alabama. It's still on the market currently for 31K less than they bought it for. The first listing price was 44K more than they paid and Madison is still a solid housing market.
Almost bought a home from OpenDoor. Our inspector found significant damage on the roof, as well as a plumbing that was constantly leaking into the foundation.
I work in fixed income portfolio management. Many, many people have tried and failed to ‘solve’ the illiquidity of that market. The fundamental problem is that the more illiquid a market is, the greater the required compensation for the market maker as a reward for inventory risk. That, in turn, means sellers must be willing to accept steep discounts for the convenience of an instant sale. However, most people simply would rather deal with the hassle of a normal sale than sacrifice 5% of a home value or easily several tens of thousands of dollars.
My wife and I bought a house back in 2018 and we realized very quickly that most of the people selling their houses to Opendoor were doing so for a reason: they were trying to unload a lemon. Almost all of the houses selling through them were overpriced and in mediocre condition and could easily be skipped in a house hunt.
@@SmartestDumbGuy Every house we toured (6 or so from 2000 to 4500 sq ft) with Opendoor had the same crappy and sloppy paintjob and maybe a few questionable and cheap looking upgrades that looked like someone was trying to put the minimum amount of effort into a flip. In the end we only used Opendoor to get an idea of different layouts and sizes because the houses were not desirable.
@@SmartestDumbGuy But then you actually have to fix them up. If OpenDoor is doing nothing and then jacking up the price expecting sales, then they have a crazy business model.
@@SmartestDumbGuy the problem is that open door buys trash and sells trash at super overpriced prices. The funny thing is that I always see that the homes are super overpriced for the pieces of junk they sell.
I think the problem with this model is that housing is treated like a fungible commodity, i. e. each unit is exactly the same as every other unit - shares of stock, bushels of corn, random doodads. That's not the case. The buyers definitely don't look at it that way. That's going to be their home. Every house is unique in terms of location, size, condition, school district, etc. It also seems like a total scam that they make an offer with a 5% commission and then deduct for repairs. That's not flipping. When a house is flipped, the investor takes responsibility for the repairs. I would never deal with this.
That’s true, but investors often make lowball offers on homes that are dilapidated or being auctioned off sight unseen. They would only offer market value if they believe they will hit their target profit after repairs and updates.
Buying a home is an emotional experience, reason only takes you so far. The real point of the realtor is to assure the buyer/seller that the transaction is a good one. They have to convince their customer they are getting the best results
This same company bought a house near mine for $737,600, wanted to sell it for $776k after "upgrades" still in the market 3 months later now at $692k... Whoops!
They don’t sell for the price that property records show, because they are requesting tens of thousands in seller concessions. So it may be much lower.
Our OD offer was around $525k for our place (Sacramento Co) back in 2019. 10/19 we sold for $600k with our traditional realtor. The realtor had me dealing with way more stress and wasn't sure about pricing, but I knew we could get a lot more than that instant offer.
I work in Machine Learning. Your channel is a godsend, because it backs up what I've been pushing for a while. Machine Learning, without understanding the fundamental domain and verifying whether it would be a smart bet, is just a way to burn VC money
This. As a Dev myself, Devs always sound like the most arrogant pricks when they think they can 'disrupt' industries they know fuck all about - usually trying to skirt regulations and practices they know nothing about or don't care for, and fuck over as many people as possible in the process. They then pack up and call it a day of 'disruption'
I drive a lot for work and whenever I need a bathroom just find an opendoor house because they're usually closer. Great places to take a dump. Then I report the pool to the health department because I'm tired of Opendoor letting them turn stagnant and become breeding grounds for mosquitoes.
I'm in SoCal, and Opendoor owns a bunch of homes here, they were over-bidding during the housing market craze of 2020 - early 2022. They are now selling a majority of them at a loss, many are on the market for well over 100+ days.
Before fully watching this video, I keep remembering someone on Twitter commenting on Zillow and giving their own perspective on why it failed so hard. The two main points were: 1) The smallest tiniest flaws in the code that fail to perfectly match up to the actual realities of the market will produce very major losses in profit, and it is very hard to find those ahead of time or even identify the problem afterwards. 2) The market is not full of random noise they can predict the trends of by throwing computers at it, it is full of very hungry sharks that will adapt and pounce on anything you try to do to push the market in a certain direction. The market will react to your presence and exploit the gaps in your strategy, and your actual returns will always be worse than your simulated returns.
Anyone in real estate, actual boots on ground dealing with properties, contractors and markets can only just laugh at all this. Great video none the less.
As one with $5000 or a little above it and given the present economy , is it better to invest into Real Estates or into Stocks. Which would yield better output. Considering a young mid income, short term person living in the US with less time on my hands?
Has got to be Stocks but of course, you have to be well informed on the right ones or better still, get a pro to handle it for you (that way, you save time and minimize risks). Made my first million this way earlier this year. One more thing, one can wake you up by 2am to complain about a leaking pipe, the other can't.
@@patriciacleveland2588 Very sound advise! I have been into both for long and though I won't say I have lost a fortune, I have squandered quite a lot... If it's not a problem, do you mind recommending the pro you worked with? I could definitely use the help of one right now... I look forward to your reply...
@@amymansfield8184 Funny enough, I can honestly relate. Nobody said it was easy as it takes some level of decisiveness and discipline. I don't know if I am permitted to drop it here, but her name is "Leah Marie Sandock". Was in the news a lot in 2018. You may look her up for more.
@@patriciacleveland2588 Wow I know this little lady. Once attended a seminar she was also in attendance in Madrid,, She's American though, I doubt she works with foreigners,,,
I was well into my 20s when the 2008 housing crisis hit and decimated the market, honestly what's happening now feels much worse in terms of how bad it's going to implode then what happened back then. The large businesses in 'o8 that took the hit got a government bailout to ease the fall but now the market has switches to offloading most if not all of the risk onto customers and smaller businesses which will not be receiving any government aid when things finally do implode.
I get Open Door stuff in the mail all the time. All I really knew was that their proposed offers were always lowball. Their mailers to me go from the mailbox straight to the recycle can.
An interesting litttle known quirk of the real estate agent model is that it promotes agressive pricing, but moderate negotiation. An agent gets a cut of the home price as their fee, meaning even a 10-20k overbid on market price will only net the agent a few hundred dollars at most. It is therefore much more profitable for them to quickly find a buyer at the best opening price possible, and move on to the next deal. This actually contributes significantly to maintaining some rationality in home prices, and trust in the purchasing system as the agent is able to act quite impartially once the actual offer/negotiation process has begun, prioritising closing the deal over squeezing out every drop of juice. I think opendoor's attempt to become both buyer and seller in two consecutive transactions would have led to gross distrust anyway.
Buyer's agents absolutely do not go aggressively after seller's agents. As long as ANY of their income comes from the sale price, they cannot be trusted. 😂😂😂
I agree they a huge threat to affordable housing is letting big corporations buying up supply. Anytime we add massive speculation to market it blows up.
@@jameskroeger1436 in us, you can not make multi family homes, you can not make a building with a Lot of apartaments, because of regulations. So, the problem IS government. Is regulations.
As a real estate broker, open door is a terrible broker to deal with because they make their listings nearly impossible to view. For whatever reason they don’t subscribe to the ShowingTime app and insist on agent Calling to make appointments. The call is then handled by an English second language representative. They limit appointment availability to strict hours and limit length of appointments. For being cutting edge, They’re super old fashioned in the showing department. Additionally, all of their listings are over priced and undesirable due to factors that AI wouldn’t understand. Apparently AI doesn’t understand functionality, layout, landmarks surrounding property, ect that humans easily recognize. Opendoor is ClosedDoor for a good reason.
You aren't tested until a company you own and believe in is down 30-40-50% from its highs. You will question your conviction, your strategy, your process. The market has a way of finding your breaking point. Nothing tests your conviction like falling stock prices.
@@batliff no, that's what happens in ANY business ANYWHERE in the world. Go talk to a Bangladeshi truck driver and see that it's the exact same concerns. Go talk to a Lebanese gadget fixer and it's the exact same concerns. Talk to a Philippino landlord and it's the exact same concerns. Anything that's a significant investment of your own money into goes through this because that's how it just works when your future depends on how well your investment does, regardless what is actually in. Could be any of the above.
@@bennygerow You have resulted to insults, usually means you agree on some level or don’t possess the intellectual capacity to formulate a reasonable response.
Taking an intro to machine learning class. Really snatches the wool out of people's eyes once they realize it's digital Legos that you put together to make a number go down. Don't get me wrong, it's cool, complex, and it's helped solve problems, but it's not this amazing silver bullet that many perceive it to be.
tbh their core mistake was trying to do both analytics and actual real estate arbitrage in one business. The analytics could have been its own core product sold to institutional investors and they could have instead provided a platform to connect home buyers and sellers to those investors (kind of like what you see in the loan industry). Acting as a middleman with an immediate value-add product to sell would have made them profitable sooner and lowered their risk exposure. As it is, their business plan was very ambitious but also very stupid.
Real-estate has already too many "middle men." It would be a useless additional cost to the consumer. This is a solution looking for a problem that doesn't exist.
One of the things I really like about this channel is that when the intro ends I realize I’m just watching the intro and not an entire video. I respect that
With Silicon valley's venture capitalists, it feels like they were extremely successful in the beginning when they were unknown and invested in multiple companies giving them several x returns like in Facebook, Google, Amazon etc. but then their success got to their heads and like Bill Gates said, "success is a lousy teacher, it makes you believe you can never lose". They thought everything they touch will turn to gold, since they got so incredibly rich and famous with their past exploits but they forgot "not everything that glitters is gold". I think Silicon valley itself is ripe for "disruption" a word they so love to use for other industries.
the rate of tech startups failing is about the same as ever, you just don't remember or never heard about all the big failures of the past one major difference is that when a startup does succeed, it now often means being bought out by the tech giants (the goal is for the investors to cash out as much as possible, not necessarily to build the biggest company), rather than becoming a new giant, and that will prevent the emergence of the next google or facebook
This is still way way way off what's required. houses arent traded often enough and local enough to actually have house price data. When houses are sold the economic (local geographic, local schooling, etc. etc.) are all different. There's a significant amount of local information needed that can easy make a 10% difference to house price (wiping out their profit margins). All this information doesnt exist in any dataset, nor can it, with much of it changing as we speak.
@@AConversationOn I don’t think that is exactly the issue. Those datasets DO exist. I know because they’re used by different funds on deciding which houses to buy for the long term. The difficulty is using the sparse datapoints to figure out which houses to buy in the short term.
@@Maximocow They're largely lying. Much of this large scale apparently working "AI" is bullshit. Necessarily so, because as soon as this video opened with "predicting house prices" I started laughing. Predicting house prices is a classically nearly impossible thing to do, for reasons I stated above. Even a 1% point on interest rates blows all calculations out the water, and central banks are adding pts on every month -- who knows when they'll stop. Houses arent like generic goods, they are extremely rarely traded by comparison and theyre largely loan/credit products -- extremely sensitive to so many variables it's silly. This business model, if it has worked at all, has only done so because of extremely favourable economic conditions over the last 10 years -- making "finding 10% margin" on a house "by pot luck" possible. I'd predict they'll be entirely out of business by next year. Everyone' was a genius when central banks were handing out free money; they arent any more.
I really wish there was a bigger breakdown of OpenDoors fixed costs. Like 600m for legal, and admin is a HUGE amount. I wonder if OpenDoors is hiding part of their unit costs under “Legal”. It would make sense to add the cost of legal documents for each home bought and sold under a unit cost, but I’m betting they’re bundling it with their administration legal costs to make their numbers more palatable. Otherwise where’s the money going? Maybe It’s executives given high salaries, but when 130m is spent one expensive Tech, and 400m on marketing, I’m struggling to find where the moneys going.
they charge fees which wind up you would have been better off selling thru a regular agent. They padding these approx 10%. An agent online Rick McHone said today that their fees were what made them the money. He brought an offer & they added a fee of $10k to paint on a property that was freshly painted.
When accounted for properly, legal and other acquisition costs related to buying a property are not things you need to make palatable. Instead, these costs are accounted for by attaching them to the property. For example... if OpenDoor buys a $500k house, spends $10k of legal costs to acquire it and $25k on renovations, that house is included in their inventory as a $535k house. It would actually look worse if OpenDoor did what you described. Everything else you're asking for is available in their audited financial reports. The increase in admin costs is primarily due to stock compensation.
Vast majority of those costs was one-off stock compensation that vested when the company went public. That's why stock compensation is $239m in the March 2021 quarter and $164m in the June 2021 quarter before dropping to $60-70m/quarter.
The people I know that have used a cash for house type of deal let their houses go into significant disrepair. They weren’t being taken advantage of. Even though they had the money to keep their house up, they chose not to and then they got to a state where they found it easier to dump it and move on.
There is repeated mention of the 5% service fee and is continually included in the calculation of how much less OpenDoor will offer you. If you consider (as stated in the video) that a traditional agent costs 5-6%, the service fee is negligible. You will still get a below market offer from the iBuyer, but you will pay someone to sell the house either way. That all said, there are escrow and title companies that have transaction coordinators specializing in for sale by owner transactions. I would encourage anyone looking to sell a home to see if they can do it on their own before forking over several percentage points to someone to sell it for you. Also remember a real estate agent's commission is ALWAYS negotiable.
what these "quants" forget is that most models are trend following. they use past data to predict future. crashes in housing market don't happen often. Its like making a model to determine when a volcano will erupt. It might have 100% accuracy for 10 years of predicting the volcano won't erupt. thats the trouble with predicting sparse events.
yawn quants know this... their models recommend a very modest number of homes to buy, it was the MBAs above them that disregarded this and bought up properties more aggressively
I did my undergraduate degree in business a decade ago and your videos blow away most of the Harvard Business School cases I've looked at in my classes. You should consider converting some of the research you've done for these videos to business cases you can sell as part of textbooks or something.
I'd be curious to see the numbers but my gut feeling is that in the end, the real margins, profit, and societal value will only come from flipping houses that are run down and not desirable in the first place, rather than buying a fully functional $250k house, slapping some paint on it, and trying to sell it for $275-300k. In the latter, you're only helping to inflate the values of middle class homes which are increasingly becoming out-of-reach for that middle class to buy. Find a run down home for $75k or less that nobody wants or can live in, collaborate with building companies and turn that into a livable $200-250k home. You'll have way more profit and provide livable homes that were not livable before.
@@i.alegre9401 that's very inaccurate, the Chinese bubble is one of nearly infinite lending without true backing and massive projects complete, or undergone without any consumer market. Any middle class American will buy the 75K house that was destroyed by a homeowner who shouldn't have had the home in a 2008 crash, and flips it for an attractive house that hides the messy history for 250K as travelling slim states. Which btw, would be an exceptional bargain in almost any city.
There is really only two ways to make money consistently in housing , aside from the realtor scam. That is as described with the 75k dump. Or building it yourself and saving on the labor. Quick flips are possible, but not something most people can repeat.
A lot of times those houses are marked down for a reason - the cost to repair the house can easily balloon and end up higher than you can sell it for. Esp if there's fundamental underlying issues, such as foundation problems. The main problems with the housing market is that it's a market and it's entirely driven by debt. You have to be extremely rich in order to buy a house without getting a mortgage. And when that's the way for middle class ppl to "increase their wealth," it causes a knock-on effect that keeps them permanently in debt. We live in a debt-driven economy and the housing market demonstrates that more clearly than any other market. The reason why the housing market being a market is a problem is that we're talking about a fundamental human need - shelter. Markets go up and down and tons of ppl lose their homes every year because of market collapses - and not just because the housing market collapsed, but also because other markets they depend on to pay their debts collapsed. When you're choosing between paying for food, meds, or your shelter, the system is fundamentally broken.
Zillow is big in the mpls area. Studied market in a particular suburb, since my daughter wanted to buy a house. Found Zillow bought mostly condos and townhomes, and mostly slightly over paid. I think their computers were lumping in town houses with regular houses, which of course sell for more per square foot, because they are more desirable.
To be fair, some of these businesses are scams from the beginning. Their creators know the company will eventually fail or will likely fail, but as long as they can get rich along the way and get away with it they don’t care. Remember, if you make millions running a failing company then it’s not a failing company.
I believe that Zillow failed for three reasons: 1) they underestimated the amount of work from actual humans it takes to do all the work required to buy, fix and sell property. 2) they assumed the market would continue to go up and overshot when the market shifted downward 3) interest rate changes raised the cost of borrowing operating capital as well as cooled the entire housing market.
My mother's home was built in the 1920's and sold for $ 5,000. In 1997, we had trouble selling it for $ 200,000. It is now valued at $1.2 million. Tell me that real estate is a great investment. The probability it will go down in price is much greater than it will increase.
In a traditional sale, you pay cleaning/repairs/staging/etc + 5-6% in realtor fees. A company that offers something close to FMV as a baseline minus 5% fee and repair costs is competitive in the market. There's a "I can take your offer guaranteed, or I can list it and risk getting less or waiting longer to sell" that might make it an attractive option. (If what's going into my pocket is within 1% of what I expect in a realtor facilitated sale, and guaranteed, that doesn't sound like a bad deal).
You did an excellent job, concise and comprehensive. I know it’s schadenfreude, but it does give me great satisfaction that greedy people and corporations which are people, fail miserably. The only part I feel bad about is the good people I just wanted to keep their jobs.
Thank you for this interesting video. Lots of tech bros but no real estate experts. I worked in the title insurance industry for years, and note some additional problems with this business model. Assuming everything in the video is correct, I wonder if any states where OpenDoor does business care that they're offering appraisal services without a license (unless, of course, they are licensed as appraisers). In my home state, appraisal licensing is taken seriously and enforced strictly. Lawyers doing tax assessment reduction work got in trouble with state regulators for not being licensed appraisers. Also, they might also be within the state regulators' definition of brokers even if they are purchasing the homes themselves--particularly when charging fees that could be deemed commissions, particularly when the rehab fees represent no actual rehab. Further, if they did reduce the "rehab" fees to attract sellers and hid them in title and loan fees as per the video, that would be a RESPA violation. You can't charge fees and then hide them. Someone who paid those fees can make a complaint with HUD, the CFPB or the FTC I would think. Finally, when a buyer purchases a property, does no rehab, and then sells it quickly for a higher price, we used to call that a bad flip or a potentially fraudulent flip (particularly if they claim they did the rehab work), and that type of fraud made up a lot of the 2008 crash problems. To do a legal flip, they should do the work to improve the land to support the end purchase price and inform the end buyer's lender about the flip. The end lender should use that information in their loan underwriting to ensure that the sales price hasn't been inflated to pull down more mortgage funding than the land supports. Aside from legal concerns, I wonder if OD's business model has a built-in problem similar to Heisenberg's Uncertainty Principle: if they offer sellers more to attract the buy business, they're raising the comps and raising their own flip-side prices, which can be seen as good but may be chilling the buy side. On the other hand, if they are lowballing the sellers, they're creating lower comps and lowering their own flip-side sales prices. Their own actions in the local markets affect the local markets.
I toured a couple houses with the open door sign out in the front with my ex. It was nice, I enjoyed walking throughout the homes and it helps me figure out what I like and what I don't.
I've seen several Opendoor houses in my neighborhood. They are always in visibly terrible condition and they sit on the market much longer than the houses with regular realtors.
Yeah, when my wife and I were house hunting, we learned early on to skip the Opendoor houses. The people who sell their houses to them are people who weren't able to sell them through conventional agents.
If we want to talk about making the world a better place with respect to housing, the actual good thing to do would be to increase the supply in high demand areas so that we don’t have people commuting super long distances (thus reducing emissions). But that’s not really a tech problem, of course.
And it would drive down median tax revenue for the municipality. There's alot of entities that don't want cheaper homes, local government being one of them.
why does the median matter? If you replace a $2 million SFH with a triplex at $800k each the city is now taxing $2.4 million of real estate. And what about cities that love to have major company headquarters for all the tax revenue, but do nothing about housing people that work there?
I don’t disagree with either of these points per se, but there are going to be natural agglomeration effects that arise. We can’t just stick our heads in the sand and not prepare for that. We can’t pretend that if we don’t build it, they won’t come. They will come and we will just end up with an ever worsening housing crisis. I agree in limiting investors in favor of actual homeowners, but we also need to acknowledge that we’ve built far too little relative to the growth in population.
I'm the same, not just with houses but cars too. By the time I get to physically being there I've done a ton of homework on the house. I don't need someone to to say "gosh, look at all that room"!
I out performed the S&P 500, every hedge fund and every other investor class. What am I? A home owner. But the real joke is of course I’m not a home owner being near Vancouver as a millennial in 2022.
Really fantastic look at a company I have been trying to wrap my brain around. I’m not well versed in reading financial statements so your explanation helps me a great deal. I’m in the market for a house and therefore spend a lot of time bouncing between Redfin, Opendoor, and Zillow looking at what the price history on houses. I often see Opendoor listings with multiple price reductions and relatively high days on market. But my hunt and peck search methods in the apps are anecdotal at best. I am sure the 5% fee and repair money isn’t reflected in the sale price. Just going with my gut feeling I don’t see how this goes well in a rising interest rate environment if house prices drop at the same time. It wasn’t making money before these headwinds were in place, how long can they burn cash before it falls apart?
There are a lot of houses that never make to your perview because the agents and investors are rat holing the good investments, unknown to sellers, these frauds are stealing money from sellers and putting it in their own pockets. Poor sellers had no idea it was being hidden from buyers. Printing only one advertising mailer to show the seller, hiding the listing on Zillow under "other listings", then colluding with other agents to write phoney offers, then telling the seller the buyers credit fell through. The whole market is a cluster of thieves.
There's a big adverse selection problem in Opendoor's inventory, it largely consists of houses that the owners would have trouble selling through conventional methods.
So long as there are naive buyers and sellers this scam will go on, until they get sued, which happened. Buyers and sellers should learn from this and know it can be done on a large scale as well as a small scale with sketchy unscrupulous agents anf brokers. The internet is such a goldmine, you should take no ones word for what the value of a property is. Also, value depends on you. is that the tract you always wanted to live in, are the services close by what you will patronize, is it flat enough to enjoy a bike ride, is it safe, are the nearby owners first and second generation who value their property? All these things are not suitable for an algorithm to tell you, this is the home for you, only you can make that decision and value it accordingly.
This sort of thing adds zero value to the system, just makes things more expensive so the select few shareholders can make a little profit at the expense of you know, houses being remotely affordable
This company was evil and people fail to see it. It treated housing as a pure financial asset and preyed on the cheapest houses. Usually bought by the poorest buyers, which now have to deal with a massively inflated price for a subpar house. Shutting even more people out of home ownership, because theres a lot of incentive for current home owners to sell to open door, and negative incentive to sell to a poor family.
Thank you for this reveal on Opendoor. I am a buyer in the Jacksonville, FL market. I have been searching since January 2022. I have learned to avoid Opendoor listings in this market because of their complete disregard of buyer intelligence. Opendoor’s laxity, in this market, regarding repairs, is mind blowing: usually lacking all kitchen appliances, closet doors, lawn and pool care, and more. The description of their listings, in this area, are ridiculously lacking in effort, and they continue to list homes above market value. I’ve seen Opendoor listings sitting on the market since January. I avoid these listings like the COVID. It’s a shame. My best guess is that Opendoor is using the repair fees they collect from the cash sale to contribute to their revenue. Opendoor needs to disappear from this market. This area is not in their fortè.
It is now 4 weeks after my original post, Opendoor stock went down even further to $4.10 a share. That is a 90% drop since their peak just a year ago! Ain't Karma a witch? You can't artificially jack up home prices beyond local affordability (that resulted in homelessness for many) and not pay the price for it. Word to the wise: nothing wrong with getting rich, BUT NOT at the detriment of the rest of society. You will always lose in the end if you devastate lives to line your pocket.
Why not use the algorithm as a price tool with automated agent tools to link buyers with sellers. I feel like getting into house leveraging is a terrible idea. They could’ve teamed up with rocket mortgage or some other online financier to create a Facebook marketplace of sorts for house buying.
I have been a real estate broker since 1972. I purchased one of the first real estate franchises from Century 21. That was a game changer which used TV advertising and Large scale advertising to gain market share. Flipping homes is a LOCAL BUSINESS not for I buyers, I predict they will ALL fail in a BIG way now that the market has shifted and price reductions are rampant. The only ones that will FAIL on a larger scale are the home builders who will be stuck with thousands of vacant homes they can't sell. Only the idiots in the White House think their house will not sink, But it will!
Charging a 5% "service fee" is considered a commission under the law, regardless of what it is called. This means Opendoor needs to run each transaction through a licensed RE broker in every State they do business in. For example, as a buyer, you cannot charge the seller a 5% fee contingent on the contract transaction price. If you do, you are violating State law, basically functioning as an unlicensed broker. While functioning as a legal broker/agent, the broker must by law get the highest price possible for the seller, or lowest price possible for the buyer, based on an agent's fiduciary duty to his principal.
It seems like they found a way to get the full 6 percent commission. They are doubling their commission, getting the buyer and sellers agents commission and then when they turn around and sell the home, they save on having to pay commissions to a buyers agent.
I'm always thankful for your high quality videos and thorough breakdowns of company business models. It has become extremely difficult these days to cut through the chaff and find out the truth behind a business' true long-term (or even medium-term) viability, and you provide clear, concise explanations of it all. I think it's frankly sad how much money flows in this direction; it feels like a collective brain fog when there's dozens of productive, sustainable and profitable businesses out there being ignored.
As a realtor I never viewed Open Door a "breath of fresh air". Their work was always crap. Before I knew who they were I wondered how it is they were making money doing what they were doing and now I know, they never were. It was all venture capital coming in an disrupting local markets in a terrible way
It's no wonder, after this truthful video, that Opendoor is not performing. A 5% fee is what Realtors take, but they offer personalized service. Rather than undervaluing, charging for repairs and their sales fee. That's bananas. ☮️
In Europe there is a "new business model" (which must be a copycat of a US startup and which is definitely a copycat of time shares...). Basically, the tech company has spotters in France looking for great vacation homes to buy. The startup checks the demand for such asset in its platform (interacted buyers). If they see enough demand, the startup buys the asset and resell it to up to 8 buyers (fractional ownership). The startup provides some other services : they find tenants for the house when possible, they replenish essentials in the fridge before the owners come for their holidays. They also provide an app for all the co-owners to "book" when they want to use the house. What a nonsensical business model...
House flippers loosing money always makes me laugh. They deserve it for driving up real estate markets and making real people that need homes pay more than they should.
It's more greedy sellers than house flippers. House flippers who truly turn a home into an amazing creation, deserve their money's worth. For instance, ones that turn a 3/2 into a 4/3 or a 4/2, update everything, deserve their money's worth. The ones who buy a property for $100k, do nothing then list for $150k, deserve nothing except failure.
@@Tracked350Z it's just business dude. No one is forcing anyone to buy the home. Wouldn't you want the maximum pay for whatever work or product you're selling?
House flippers are necessary in an economy where there are rules on lending. There are always homes that need work, and it’s wrong headed to assume those doing the work will live there necessarily.
@@Tracked350Z beauty is subjective though, an amazing creation could be considered trash by the people looking to move into that area which they would be remodeling afterward anyway. I agree though generally it's better than adding zero value and riding the market for profit.
I love zillow offers. I sold a home to Zillow October 2021 right before they collapsed and were taking their offers back. They offered 15% over market rate and only $1700 in closing costs. It was insane. Given if I waited 6 more months i would have sold at an additional 10% over what zillow offered but at the time it was incredible. Fast forward to today, I used that money to buy 3 more houses at the peak of the market April 2022 with 5%+ interest rates and im in crippling debt and have had ramen for breakfast lunch and dinner for 7 weeks straight. Youre stupid, im smart.
“Company is a shell of itself” only expanded to over 50 markets now and massive increase is houses bought and sold. Hardly a shell of itself, don’t confuse a stock price and the company performance.
A question from a curious viewer: how are you able to find these pitchbooks and marketing materials for these firms? I would love to do some of my own research on these, but I don't know where to start.
0:10 Opendoor thinks that simplifying the real estate transaction procedure is "solving a real problem"... I thought the "real" problem with housing market is that houses are too expensive and people cannot afford it. I guess this is what happens when the rich try to think from the poor's perspective: - The Boring Company building tunnels to help the rich solve their traffic problem. - Blue Origin / Virgin Galactic building spacecrafts for the rich to visit space.
The business model seems a good bit like Tesla's sales model: No hassle (vs. going to dealership), with the inability to get a better price (which you might get at a dealership). I'm a less-hassle-is-better person so I can see the advantage of OpenDoor; but I'm in a well-off demographic.
