Opendoor Moves Beyond Home-Flipping in Move to Back Cash Buyers
(Bloomberg) -- Opendoor Technologies Inc., pioneer of an algorithm-driven method of flipping homes, is embracing a new way to wield its software: helping buyers make cash offers.
With inventory scarce across U.S. housing markets, the company is working with prospective buyers to make no-contingency offers that often win out over similarly priced bids. In the new system, Opendoor promises the seller that it will buy their home with cash if its client – a would be buyer – fails to qualify for a mortgage.
“The market conditions right now are screaming for this,” said Tom Willerer, chief product officer for Opendoor, which went public last year through a merger with one of Chamath Palihapitiya’s blank-check companies.
“We’re in a low-interest rate world that’s incentivizing a whole bunch of buyers to come to market,” Willerer said, “and we’re in a low-inventory setting where buyers need a way to stand out.”
In many cases, Willerer said, Opendoor would sell the home to its client once they’ve arranged a loan. If the client can’t complete the purchase, Opendoor would sell the home into the open market.
The company, which operates its own brokerage and also partners with outside agents, isn’t directly charging for the service. It’s using the program to entice house-hunters to hire its agents and to promote other services, including home loans, warranties and insurance, which the company views as crucial to its pursuit of profitability.
Read more: Opendoor Faces an Expensive Path to Profitability in Real Estate
Opendoor isn’t the first company to hit on the idea of backing clients’ cash offers. Startups such as Orchard and Knock have employed similar models, advancing cash or offering guarantees to homebuyers seeking a leg up in competitive markets. The timing is especially good for the current moment, when cheap financing and demand for larger living spaces during the pandemic have pushed inventory to record lows.
Still, the new business is unlikely to pay off in the short run.
Opendoor, which reports earnings for the first time on March 4, said last year that it doesn’t expect to achieve adjusted profit before interest, taxes, depreciation and amortization until 2023. That hasn’t diminished the company in the eyes of stock market investors, who have bid up shares in Opendoor, Zillow Group Inc. and other companies that use technology to help people buy and sell homes.
Opendoor shares have gained 38% this year through Tuesday’s close.
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