Opendoor Offers Fast Cash for Homes. SoftBank Bets $400 Million on It

(Bloomberg) -- Opendoor, which has already raised billions to buy homes over the internet, just landed another large investor: the SoftBank Vision Fund.

The fund, part of Japan’s SoftBank Group Corp., is investing $400 million in Opendoor, whose flagship service uses home-pricing algorithms to make rapid, all-cash offers to sellers, charging a fee for simplifying the selling process.

The new investment values the company at more than $2 billion, according to a person with knowledge of the matter, who asked not to be named because it is private. Opendoor has now raised more than $1 billion in equity and more than $2 billion in debt from investors including General Atlantic LLC, Access Technology Ventures and homebuilder Lennar Corp.

“Buying and selling real estate is a massive life disruption,” said Eric Wu, chief executive officer of Opendoor. “How do we make it so that when you find a home of your dreams, you can just click a button and everything is handled for you? That’s what we’re moving towards.”

Opendoor plans to use the money to add features and expand into new regions, Wu said. The company announced the acquisition of home-search website Open Listings earlier this month and plans to start offering home loans and other services. It’s currently operating in 19 U.S. metropolitan areas and buying homes at a rate of $3.8 billion a year, up from $1.2 billion in January.

For now, Opendoor’s main service encourages sellers to upload some basic information about their home and uses that to make a cash offer for the property within 24 hours. If the seller accepts, Opendoor makes minor repairs and lists the property for sale, charging a fee above what real estate agents typically charge, in return for speed and convenience.

It’s a capital-intensive and potentially risky operation that requires data scientists to build pricing algorithms and contractors to ready homes for resale. So far, the company has been aided by rising home prices, making it relatively easy to buy homes and sell them at a higher price a few months later. That model resembles home flipping, which burned investors when housing markets collapsed amid the U.S. foreclosure crisis.

Wu said the company is positioned to succeed in declining real estate markets because the certainty of a fast offer will have greater value when buyers are scarce. And unlike a homebuilder that is anticipating demand years out, Opendoor aims to turn houses over within a few months, making it easier to anticipate prices, he said.

Since San Francisco-based Opendoor launched in 2014, it has been followed by startups like Perch and Offerpad as well as publicly traded real estate companies Zillow Group Inc. and Redfin Corp. On Tuesday, Realogy Holdings Corp. announced a partnership to start making cash offers to clients seeking to sell their homes through its Coldwell Banker brokerage.

Fifty percent of sellers who solicit an offer from Opendoor accept, paying an average fee of 6.5 percent. In the Phoenix area, institutional buyers like Opendoor accounted for 4.5 percent of home purchases and 3.8 percent of home sales, excluding new homes and certain distressed sales, according to July data from Michael Orr, publisher of the Cromford Report, which provides data on the local housing market.

SoftBank’s $100 billion Vision Fund is a major investor in Uber Technologies Inc., WeWork Cos. and vertical-farming startup Plenty, among others.

©2018 Bloomberg L.P.