There is considerable interest in the so-called iBuyers of homes. Opendoor and OfferPad are the main operators in Greater Phoenix. With the data gathered from public records we provide Tableau charts about Opendoor and OfferPad purchases and sales within the Cromford Public section of our web-site.
Here is a summary of what we know about Opendoor`s Greater Phoenix operations so far.
- first purchase was in August 2014
- first sale was in November 2014
- there were 1,602 purchases during the last 12 months (Nov 2016 - Oct 2017)
- annual average purchase price was $213,636
- annual median purchase price was $204,550
- there were 1,512 sales during the last 12 month
- annual average sales price was $223,119
- annual median sales price was $214,000
- median gross margin was $13,000 for homes sold in the last 12 months
- average gross margin was $11,779
- average time from purchase to sale = 105 days
Typically an iBuyer will charge the seller 9% of the agreed purchase price. This percentage can vary however, based on the iBuyer`s business objectives. The fee is not disclosed in public records since the price stated on the affidavit of value is the gross figure prior to the fees. The seller will receive the gross figure less the fees and less any other close of escrow costs.
Thus the iBuyer typically receives 9% of the purchase price plus the gross margin on sale as top line revenue. From this they will have to cover refurbishment costs, selling costs and two sets of closing costs, including the commission for the buyer`s agent, if there there is one.
For a typical home this looks like $31,500 in top line revenue, consisting of $18,500 in fees and $13,000 in gross margin.
Opendoor's operation grew quickly in 2015 and 2016 but the acceleration has slowed down in 2017 as they face more competition from OfferPad. They are also operating very much at the low end of the market, which is rapidly contracting in size due to diminishing supply. Annual purchases grew by 15% between October 2016 and October 2017.
During the last 12 months, 1,512 sales represents 1.1% of the market in Maricopa and Pinal Counties. The total transaction count over that time was 133,476. Of course you could argue that Opendoor was involved in 2 transactions for every home they sold, the first as buyer and the second as seller. However every one of the 133,476 transactions we monitored had both a buyer and a seller, so there were 266,952 transactions sides of which Opendoor represented 1.2%.
Annual sales were running at $337 million at the beginning of November. OpenDoor has never paid more than $550,000 for a home. Because of this focus on the low end, OpenDoor has a smaller share of the dollar value, just over 0.87%.
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Sounds like the seller is paying dearly for the convenience of the quick sale. 9% fees. And if I understand this model correctly the seller must be getting less than market value to allow for a 'gross margin' on the resale.
To be fair and as mentioned above, the 'ibuyer' does have 'refurbishment costs and two sets of closing costs, including the commission for the buyer's agent' (on the resale).
But again, what price convenience!!!
Broadening the scope of this to discounters in general: Whether it's the traditional discount brokerage models or now this, I've personally researched these models and have seen them pick away at the fringes (mostly lower end) of the market for 40 years. While these brokerage models can and do make money for themselves, I would say sellers who fall prey to the pitch that 'we'll do it fast and do it for less' are mostly misinformed and mostly not very well served.
However, the real 'crime' is falling for the 'we'll do it fast, do it for less and net you more'.
The counter to this flawed way of thinking we would say 'it's not how much you save in commissions it's how much you net'.
It's understandable. Without a value proposition for their services, discounters use the only lever they have, their commission. But is it truly benefiting the seller (netting them more). I would say not.
How the discounter actually costs the seller more: To make matters worse for the seller, the discounter will often overprice or bid the property up to get the listing (either out of ignorance or greed) - bottom line: sellers are being lied to twice i.e. 1. we'll get you more and 2. we'll do it for less', creating an unrealistic and unachievable expectation.
In the end this only costs the seller time and money.
The reality that needs to be communicated and understood: The so-called benefit to the seller of the 'discounted commission' most often pales in comparison to what is subject to negotiation (the typical list-to-sales-price ratio of 2-5%). This is because 'it's competition for the next best home in any given market segment that drives the price and shortens the market time.' Much easier to hold the line on price when your in the competition from the beginning of the listing period. So again, that 1% discount pales in comparison to the 2-5% that's the typical negotiation range for properties that sell.
More: Overpriced listings are essentially invisible to motivated buyers. And when they do 'see' an overpriced listing (or any listing for that matter), what's the first question the buyer asks? Of course, how long has it been on the market. More time equating to perceived distress, begging for low offers, assuming there's any interest at all.
One of the greatest benefits of the our brand is that the value proposition is so strong.
To best leverage that value proposition we do well to lead with the marketing. If you do it well the commissionekomy discussion doesn't come up; or if it does you may be able to marginalize with a little humor - this is Neiman's not WallMart!
But the real benefit is to the seller (in net proceeds and a happier outcome) is when they not only buy into the power of our marketing, but competitive positioning.
Keep in mind that the most effective way when we transition to a competitive positioning discussion is to lead with our marketing and then use the transitional phrase 'while our marketing truly is world class, all the marketing in the world can't compensate for overpricing.
Forget 'time is of the essence'. Time is the enemy!
Regardless of market conditions - Sellers net the most and sell in the shortest amount of time when they are competitively positioned. That's a statistical fact. Unfortunately, just not well understand...even within much of the industry.
For your success,
C. Tiller
