'Every market acts like Silicon Valley now': Real estate is booming, and Opendoor thinks it can help
Opendoor Chief Product Officer Tom Willerer discusses why the company expanded its product portfolio to address the red-hot real estate market.
In a normal real estate market, iBuyers represent an attractive option for home sellers. It can otherwise be a tedious and uncertain process: Sellers need to list their home through an agent, host an open house, field offers, wait for potential buyers to get a loan approved (which often doesn't happen) and then maybe they can address the mountain of paperwork needed to finalize the deal.
By contrast, iBuyers such as Opendoor, Redfin and Zillow can provide a guaranteed cash offer and handle much of the related paperwork needed to close, all within the span of a few days. The problem for iBuyers is that this isn't a normal market. Housing supply has plummeted to near-record lows, fueled by low interest rates and a wave of newly-remote workers taking to the suburbs.
"Every market acts like Silicon Valley now where there are multiple offers on homes and buyers need a way to be able to stand out," Tom Willerer, chief product officer at Opendoor, told Protocol.
With such high demand for homes, sellers are keen to try their luck on the open market, pitting prospective buyers against another to maximize the sale price. Plus, with so many buyers in the market, homes don't take very long to sell, making the speed of iBuyers less of a differentiator.
In early March, Opendoor unveiled a new product — cash-backed offers — aimed at helping buyers stand out in the red-hot real estate market. Protocol spoke to Willerer to learn how it fits into Opendoor's broader iBuying strategy. Willerer also discussed why he thinks the demand for homes isn't going away anytime soon, as well as how Opendoor's approach to the residential real estate market differs from that of Compass, which recently went public.
This interview was edited for brevity and clarity.
Why did Opendoor decide to launch a cash-backed offers program?
I'd start with our overall mission, which is to empower everyone with the freedom to move. We started thinking about cash offers as a way to delight buyers and solve what we believed they were trying to do — win the home of their dreams.
There is a lot of industry data out there that shows cash offers are two times more likely to be accepted by sellers. So that got us really excited and set us on this journey. Additional to that, the market conditions are ripe for this. We have historically low interest rates and historically low inventory levels.
So it's all of the above, where we're trying to create a differentiated experience that buyers will choose. We've read all the research and talked to customers and understand that cash offers are one of the main ways we can help our buyers win. And in the market right now, buyers are screaming out for a way to stand out. I describe it as every market acts like Silicon Valley now, where there are multiple offers on homes and buyers need a way to be able to stand out.
What is the difference between a cash-backed offer and getting pre-approved for a bank loan or using something like Rocket Mortgage?
The way we're doing this is all of our customers are getting pre-qualified, [but] they will still have financing. If for whatever reason their financing falls through or takes too long, we will step in and buy the home for them. And then once their financing comes through, they buy it from us.
With Rocket Mortgage, etc., they're doing fast financing. But there's a small minority of times that the homes fall through because financing fell through. So we're removing that contingency for sellers, which then increases the odds of the buyer winning the home.
How does Opendoor make money in this process?
We split a part of commissions with the partner agent. We give them a referral fee because we brought the lead — we enabled the cash offers [and] they helped with the transaction. So we split that 2.5[%] to 3% commission between.
Longer term, we view this as a way for us to continue to drive up additional services to the business. For instance, I think it's logical that as we continue to innovate on cash offers and drive more adoption with our customers, more customers will choose our mortgage services.
With such limited housing supply, is there reason to be concerned that first-time buyers will be locked out of the market altogether? Especially considering the rise in home prices relative to wages — maybe people will just rent instead.
No, especially as people are seeing this change to working from home on a long-term basis — they're looking for different things than they get out of their living situation, which is causing people to move. I think that's going to continue for a while. There's somewhat of a reshuffling happening that's going to drive buyer demand for the foreseeable future that we're pretty excited about. So we remain bullish.
Where do iBuyers fit into the broader real estate market from the agent perspective? What would be the upside of an agent working with Opendoor as opposed to a company like Compass, that really markets itself as a champion of independent agents?
The agent is definitely the focus for a company like Compass. They're trying to create a great experience for agents. Our focus is different — we're trying to create a great experience for buyers and sellers. I think it's true that a traditional brokerage will be much more focused on how [to] create a digitized, efficient experience for agents. So there's just a difference in focus and it shows up in the types of things we end up doing.
We still find a fair number of agents coming to Opendoor to get an offer for their customer. They'll walk through our flow because they want to be able to offer their seller options. If I'm an individual agent, being able to give my seller options for how they can sell on the market and educate them — it's a good value proposition. Why wouldn't most sellers on the market want to come to Opendoor to find what their offer [would] be? Why isn't that the natural starting point for how a seller would want to approach the market? And an agent can help facilitate that just as much as a seller can come to Opendoor directly and do that themselves.