My Experience with Open Door and Offer Pad Real Estate (sale, banks)
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Just took a look at the Opendoor repurchase agreement. Somewhat of a misnomer. It is much more of an "asis" purchase agreement. Basically the buyer holds the seller free of any responsibility other than the repurchase agreement. But the only way that works is the buyer has to move in within 30 days, claim the place is unsuitable within that period and move back out within in 45 days of the close of escrow. And the buyer gets nailed for the costs of the original sale including the commissions.
I am waiting on the paperwork. Should be interesting to see what they do about tying all this stuff into the standard purchase agreement. I am inclined to suggest to the client that they decline the guarantee and go with the standard agreement. I suspect though that will not fly with open door.
The client is reasonably capable (mature financial types) and may proceed anyway. I think they may be willing to buy off the inspection and their own views of the property.
That is also very interesting to know, thanks for sharing. I thought they strived for very bland, standard homes that wouldn't carry too many variables into the marketplace. Interesting to hear that most of them actually had obstacles that would make them difficult to sell.
Do you think these homes were priced well considering the work that needed to be done? Was the value still there and you just didnt like them cause you aren't interested in doing the work yourselves?
I suspect that they would like the bland, standard homes like you say. And, maybe in some markets they could get them. I just think that in the market I am buying in houses like that sell very easily, quickly so there may be less motive for a seller to try to use Open Door. That is, a huge advantage of Open Door is that you as a seller don't have to do a lot of work to get your house ready to sell and you don' t have to keep your house show ready for potentially weeks or even months depending on your market. But -- if you are in a market where a move in ready house is under contract in less than a week usually then that advantage of Open Door may not be valuable enough to give up the possibility of getting multiple offers.
On the pricing -- I thought some of the houses were reasonably priced given the work that needed to be done. And I did notice that most of those houses sold quickly. I saw a couple of houses that I felt needed much, much more work than was reflected in the price and saw that they were on the market for months.
Another odd thing about Open Door was that they in some cases did do some work to update the house but it was very hit and miss and often didn't address major issues. It was sort of a why bother kind of thing. The house needed $100k in updates and they had put in a cheap granite in the kitchen on top of ancient cabinets.
Just took a look at the Opendoor repurchase agreement. Somewhat of a misnomer. It is much more of an "asis" purchase agreement. Basically the buyer holds the seller free of any responsibility other than the repurchase agreement. But the only way that works is the buyer has to move in within 30 days, claim the place is unsuitable within that period and move back out within in 45 days of the close of escrow. And the buyer gets nailed for the costs of the original sale including the commissions.
I am waiting on the paperwork. Should be interesting to see what they do about tying all this stuff into the standard purchase agreement. I am inclined to suggest to the client that they decline the guarantee and go with the standard agreement. I suspect though that will not fly with open door.
The client is reasonably capable (mature financial types) and may proceed anyway. I think they may be willing to buy off the inspection and their own views of the property.
One thing that I found interesting is that when OpenDoor inspected our house 3 people came out. The inspector for OpenDoor, a roofer and an A/C tech The roofer and A/C guy were from private companies not OpenDoor. Usually it's just one person who tries to do it all.
One thing I wonder is if a rental company will grow out of all of this. If OpenDoor starts having a growing inventory of homes that aren't selling fast enough maybe they'll create an OpenDoor rental pool?
One thing that I found interesting is that when OpenDoor inspected our house 3 people came out. The inspector for OpenDoor, a roofer and an A/C tech The roofer and A/C guy were from private companies not OpenDoor. Usually it's just one person who tries to do it all.
One thing I wonder is if a rental company will grow out of all of this. If OpenDoor starts having a growing inventory of homes that aren't selling fast enough maybe they'll create an OpenDoor rental pool?
if they have enough cash.
Or, if they partner with one of the relatively-new investment funds. Difference is, they all swooped in during the recession when they could buy on the cheap, and the return on rent satisfied their investor needs.
If they're in an area where $rent > $purchase for consumers, sure it can work ... because they're not dependent on the margin from selling so quickly.
In other words ... in a market that should rise "well" over the next 10 years (it's in a recession but has good fundamentals with employment, etc) - they bought homes at a 10-20% discount. The value of homes in fundamentally solid economic markets is higher in 2018 than pre-recession.
But Opendoor is buying houses - according to them and you - at market value, and simply hoping the 6% fee you pay covers their transaction costs on both ends of the deal, and provides them a good enough return for their investors. And to my knowledge, investors in startups aren't looking for 6% on their cash.
Or, if they partner with one of the relatively-new investment funds. Difference is, they all swooped in during the recession when they could buy on the cheap, and the return on rent satisfied their investor needs.
If they're in an area where $rent > $purchase for consumers, sure it can work ... because they're not dependent on the margin from selling so quickly.
In other words ... in a market that should rise "well" over the next 10 years (it's in a recession but has good fundamentals with employment, etc) - they bought homes at a 10-20% discount. The value of homes in fundamentally solid economic markets is higher in 2018 than pre-recession.
But Opendoor is buying houses - according to them and you - at market value, and simply hoping the 6% fee you pay covers their transaction costs on both ends of the deal, and provides them a good enough return for their investors. And to my knowledge, investors in startups aren't looking for 6% on their cash.
As I understand it Opendoor finances their homes, they are getting much more than 6% ROI. Even if they went all cash 6% over a two to six month period is more than a 6% return. They do have overhead and such but they are probably banking 8% on every deal, they keep 6% and they average a 5.5% gain on their sales.
Cash in on a $250k house, assuming standard investment loan, is 25% down plus 1% finance costs, they very likely have some bulk discount deal so aren't paying that. Cash in is $62.5k down less the 6% fee ($15k) = $47.5k down plus finance charges they are cash in at about $50k. That house will resell for $263,750 (5.5% appreciation); they owe $200k on it so will see a return of $63,750 on the sale which is a gain on their initial investment of $13,750 which is a 27.5% ROI, less overhead costs, taxes, etc. of course. If they did that quarterly, about where they are right now, they probably could double their initial investment in 3-5 years, there are a lot of costs they cannot control.
You're of course very right, if they are financing. I laid it out with cash only upthread.
The point of that post that I was trying to make is they aren't *likely* to become landlords if they are paying today's market value at a 6% fee only (what the OP laid out), because the returns aren't the same.
and since they can close in as little as 2 weeks, they're definitely wholesaling any financing they use.
After checking around their "as is" addendum is not binding in NV. The seller is still required to disclose known or should have known defects. That would include anything which was disclosed on the Sellers Real Property Disclosure. And if Opendoor did not get one they are likely on the hook for what should have been disclosed.
You can buy "as is" in NV but it requires a particular form with a notarized signature. An addendum will not do it. May be why Opendoor cites AZ and TX law but not NV.
I received the accepted contract from Opendoor. Standard content. No reference to the addendum.
Unfortunately the buyers got turned off by the delay in response from Opendoor and are declining. So I won't get to ride this one out.
Well, it's done. Had the final inspection at 0830 and as of right now just waiting for the wire transfers to clear the Fed and enter the bank.
Closing went smooooth as could be...
Well, it's done. Had the final inspection at 0830 and as of right now just waiting for the wire transfers to clear the Fed and enter the bank.
Closing went smooooth as could be...
Let us know what it sells for after they put it back on the market. I'm very curious.
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