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Is the real estate industry finally ready for an e-commerce makeover?
Opendoor, a startup co-founded by Khosla Ventures partner Keith Rabois, is launching an online service in Phoenix today that aims to help homeowners sell their homes online in just a few steps. Homeowners enter their street address into the site and fill in and confirm basic information, including the house’s physical condition and square footage. Minutes later, Opendoor emails the homeowner a price it is willing to pay for the home.
The launch comes as young companies such as Zillow and Trulia build online businesses by simplifying the search for homes. Redfin, another technology company that publishes listings online, also employs its own real estate agents to shepherd buyers or sellers from a housing search or listing to a purchase or sale. But these services still don’t eliminate the need to list a home for sale, open up your home to potential buyers and then hope and pray that the process goes smoothly.
“There’s a lot of uncertainty, risk and pain in the process,” said Opendoor CEO Eric Wu, who previously worked for Trulia.
Opendoor has built an algorithm that mines data from public and private data sources to come up with what it believes is a fair selling price. Still, the company takes some manual steps to increase its confidence in its offer, which helps differentiate it from other online estimates such as Zillow’s Zestimate home-value feature. In the minutes before Opendoor emails the seller an offer, an Opendoor employee goes online to do a quick visual check of the home before submitting a bid. The employee looks up photos of the home if available and uses tools like Google’s Street View maps, to check for other factors that could influence the sale price, such as power lines that block a view.
If a seller accepts Opendoor’s offer, the company sends a partnering real estate agent or inspector to the home to make sure the information provided is accurate. The sellers can choose a date to close on the sale, anywhere from three days to 60 days after they accept Opendoor’s offer.
Even with these non-automated steps, selling through Opendoor has the potential to eliminate significant time from the home-selling process. The company lets sellers fill out most of the related paperwork online and sends a notary to notarize the deed at the seller’s preferred meeting spot. In exchange for the speed of selling through Opendoor, sellers can expect that the Opendoor offer will come in a few percentage points below what they might be able to get on the open market, Wu acknowledged. But offer prices may go up over the long haul.
“In the long term, we want to be on par with selling in a traditional channel,” Wu said.
Opendoor also charges sellers a 5.5 percent fee, which is in the range of the commission a seller would typically pay a real estate agent (Opendoor is a licensed broker in the cities in which it operates). The company splits closing costs with the seller, too.
On the surface, Opendoor is putting a Silicon Valley spin on the old-school “cash for your home” businesses that often target homeowners in dire financial straits. But Wu maintains that those kinds of sellers aren’t Opendoor’s target customer. Instead, he said the startup found in private beta testing that the service is attractive to working professionals who need to move quickly for a new job or for families that are having trouble getting a mortgage for a new home while still owning their current home.
With the launch, Opendoor becomes the latest startup to attempt to use technology to help reduce the complexity of the home-buying and home-selling process. None, however, have been able to completely reinvent the process, which should stir up skepticism about whether Opendoor can be successful where others have failed. Earlier this year, real estate listings site Zillow agreed to acquire competitor Trulia for $3.5 billion. The deal is slated to close in 2015. Meanwhile, Seattle-based Redfin, a technology company that employs its own real estate agents, has been eyeing a possible IPO.
Opendoor is also currently testing a home-buying service that would allow it to sell the properties it is purchasing from home sellers. Wu declined to provide more details on this service.
Opendoor is launching first in Phoenix, Ariz., and will be available in Portland, Ore., and Dallas, Texas, over the next few months. Opendoor looks to launch in markets where the vast majority of homes were built after 1960, which it says greatly reduces the risk for outlier properties that trick its algorithm. The company has a credit line with a financial institution, which it declined to name, that provides the funds to buy homes. Opendoor, which has 20 employees, has also raised $10 million in venture capital from a large group of investors including Khosla and SV Angel.
This article originally appeared on Recode.net.
