Instead of helping homebuyers sell their houses, Opendoor buys the homes directly and then resells them, eliminating uncertainty and lag time for sellers. The company charges sellers an average fee between 7% and 8% of the purchase price when it buys houses. While Opendoor can make the case that its approach involves less of a hassle for people looking to sell their home, homeowners might have to pay thousands of dollars more in fees than if they used a real estate agent. Meanwhile, some instant-sell competitors are trying to undercut Opendoor’s fees.
“It’s still more expensive than listing with a realtor, and we’re not there yet,” said Mr. Wu. “I hate to cite other people’s principles, but [Jeff] Bezos says it nicely: ‘Our margin is your opportunity.’”
Lowering fees is a way to get more “mainstream,” said Mr. Wu. Opendoor executives hope to reduce the average fee from about 7% to 6% by the end of the year to be on par with traditional agents, said a person close to the company. It’s a challenging proposition. Opendoor charges the fee to help offset the cost and risk of holding a property for months before selling, a tradeoff that many customers might accept given the certainty selling to Opendoor provides. Reducing that cost hinges on Opendoor honing its predictive models that determine optimal prices to offer.
Mr. Wu, a 34-year-old University of Arizona graduate whose geo-data analytics startup Movity.com was acquired by Trulia, co-founded Opendoor in 2014 with Keith Rabois, a former PayPal and Square executive who is now Opendoor’s executive chairman. In turn, Mr. Wu has recruited the likes of former Uber head of finance Gautam Gupta and former Amazon executive Jason Child to the San Francisco-based company in recent months.
The company, reportedly valued at about $1 billion on paper, focuses mostly on cookie-cutter suburban homes in the $125,000 to $500,000 range. Opendoor calculates how much to offer based on machine-learning models that predict home value and market risk, using both public data like prices of similar homes and more subjective criteria such as the quality of the flooring to help predict how much to offer for homes.
The stakes are high for Opendoor to get prices right. If Opendoor lowballs an offer, customer complaints can stream in on review sites like Yelp, and competitors can scoop up the home. Overvaluing the home is bad for business, too, sticking Opendoor with a home that might be difficult to sell for high-enough margins. (For example, it sells homes at about a 5.5% margin in Phoenix on average, according to an estimate by Mike Delprete, an independent real estate analyst. Opendoor says that figure is too high and likely excludes repairs Opendoor makes to homes and concessions to home buyers.) Mr. Wu said the company has made “drastic improvements” on the rate of big mistakes on pricing over the last few years. He said one in three “serious sellers” accept Opendoor’s offer, a ratio Mr. Wu is pleased with.