Opendoor, a start-up that flips homes, attracted attention in June when it announced it had raised $325 million from a long list of venture capitalists. The financing valued the four-year-old company at more than $2 billion.
That was only an appetizer. Three months later, Opendoor has more than doubled its cash pile. On Thursday, the company said it had gotten a $400 million investment from SoftBank’s Vision Fund. The valuation for Opendoor remains the same.
The so-called mega-round for Opendoor was not the Vision Fund’s only major real estate-related deal on Thursday. The firm also co-led a $400 million investment in the high-end brokerage Compass that valued the company at $4.4 billion.
The hauls are part of a race by investors to pour money into technology for real estate, or what Silicon Valley now calls proptech.
Having watched tech start-ups upend old-line industries like taxis and hotels, venture capitalists are casting about for the next area to be infused with software and data. Many have homed in on real estate as a big opportunity because parts of the industry — like pricing, mortgages and building management — have been slow to adopt software that could make business more efficient. (...)
Opendoor’s goal is to make moving as simple as the click of a button, according to Mr. Wu. While that remains a far-off reality, the company has simplified the process of selling a home. It uses a combination of data, software and a team of 50 human evaluators to assess a home’s value. If a customer accepts Opendoor’s value for their home, the company will buy the property, charging a 6.5 percent fee on average.
The company said it offers sellers certainty — many conventional home sales fall through — and flexible closing dates, helping them avoid paying double mortgages. It also eliminates the need for a real estate agent. Opendoor employs 100 licensed real estate agents to advise customers if they request it.
Opendoor only buys homes built in 1960 or later, worth $175,000 to $500,000, and not in need of major renovations or repairs. Operating in more than a dozen cities, mostly in the South, it bought $316 million of homes in August, up from around $100 million in January. After some light fixes, it sells the homes in an average of 90 days.
Before its latest cash infusion, Opendoor planned to expand into one new city a month. Now it plans to double that pace. The company said it expects to be in 22 cities in the United States by the end of the year.
Its growth has spawned competitors: OfferPad and Knock offer comparable services to Opendoor, and Zillow and Redfin, which are both publicly traded, have entered the house-flipping market as well. (...)
Opendoor’s business model has not been tested by a major dip in the housing market, causing some skepticism about whether it can work over the long term.
“The vast majority of investors who hear about it initially think it’s a bad idea,” said Stephen Kim, an analyst at Evercore ISI, a market research company. But the skepticism often fades as they realize Opendoor makes money by providing a service to home sellers, rather than on price appreciation, Mr. Kim said. Even if the company breaks even on a sale, the transaction fees are a meaningful business.
That was only an appetizer. Three months later, Opendoor has more than doubled its cash pile. On Thursday, the company said it had gotten a $400 million investment from SoftBank’s Vision Fund. The valuation for Opendoor remains the same.
The so-called mega-round for Opendoor was not the Vision Fund’s only major real estate-related deal on Thursday. The firm also co-led a $400 million investment in the high-end brokerage Compass that valued the company at $4.4 billion.The hauls are part of a race by investors to pour money into technology for real estate, or what Silicon Valley now calls proptech.
Having watched tech start-ups upend old-line industries like taxis and hotels, venture capitalists are casting about for the next area to be infused with software and data. Many have homed in on real estate as a big opportunity because parts of the industry — like pricing, mortgages and building management — have been slow to adopt software that could make business more efficient. (...)
Opendoor’s goal is to make moving as simple as the click of a button, according to Mr. Wu. While that remains a far-off reality, the company has simplified the process of selling a home. It uses a combination of data, software and a team of 50 human evaluators to assess a home’s value. If a customer accepts Opendoor’s value for their home, the company will buy the property, charging a 6.5 percent fee on average.
The company said it offers sellers certainty — many conventional home sales fall through — and flexible closing dates, helping them avoid paying double mortgages. It also eliminates the need for a real estate agent. Opendoor employs 100 licensed real estate agents to advise customers if they request it.
Opendoor only buys homes built in 1960 or later, worth $175,000 to $500,000, and not in need of major renovations or repairs. Operating in more than a dozen cities, mostly in the South, it bought $316 million of homes in August, up from around $100 million in January. After some light fixes, it sells the homes in an average of 90 days.
Before its latest cash infusion, Opendoor planned to expand into one new city a month. Now it plans to double that pace. The company said it expects to be in 22 cities in the United States by the end of the year.
Its growth has spawned competitors: OfferPad and Knock offer comparable services to Opendoor, and Zillow and Redfin, which are both publicly traded, have entered the house-flipping market as well. (...)
Opendoor’s business model has not been tested by a major dip in the housing market, causing some skepticism about whether it can work over the long term.
“The vast majority of investors who hear about it initially think it’s a bad idea,” said Stephen Kim, an analyst at Evercore ISI, a market research company. But the skepticism often fades as they realize Opendoor makes money by providing a service to home sellers, rather than on price appreciation, Mr. Kim said. Even if the company breaks even on a sale, the transaction fees are a meaningful business.
by Erin Griffith, NY Times | Read more:
Image: Aaron Wojack for The New York Times
