How This Real Estate Startup Is Tackling Buyer’s Remorse
Wouldn’t it be great if buying a house were as easy and risk-free as picking up a new gadget at an electronics store and returning it if it doesn’t work that well or fulfill its promises?
That’s exactly what Opendoor, a startup that buys and sells houses, aims to do with its new money-back guarantee. As of Tuesday, the startup, which currently operates in Phoenix and Dallas, is providing a 30-day guarantee to its buyers that lets them “return” the house if they’re not happy for any reason. In addition, Opendoor is also providing a 180-point full inspection of every home it sells, as well as a two-year warranty that covers up to 20 items.
“There’s that fear that you’re going to purchase a lemon,” Opendoor co-founder and CEO Eric Wu told Fortune of the concern he hopes the new policies will alleviate.
Opendoor debuted its home buying and selling service in Phoenix in late 2014. Opendoor says it aims to make both purchasing and selling a home as fast, easy, and fair as possible, which is why it makes instant online offers to sellers looking to offload their house quickly, using sophisticated models to price each home. On the buyers’ side, it provides around-the-clock self-serve house tours so they can avoid the hassle of scheduling a viewing. Opendoor charges up to 6% more than traditional real estate agents and performs necessary repairs before putting the house on the market.
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Now Opendoor hopes to add even more ease of mind for buyers with its new policies. The company will offer its 30-day money-back guarantee to all buyers, for any reason. If they do want to give back the house, so to speak, Opendoor will purchase it back at the price it sold the house, minus the fees associated with the sale, including any escrow fees, title insurance, homeowners association fees, and commissions. Sellers who took out a bank loan to purchase the house will have to pay back the loan to release the house’s title back to Opendoor, said the company.
“No one else in the industry can do it,” Wu said of Opendoor’s money-back guarantee. “An individual homeowner can’t say, ‘If you don’t like it I’ll give you your money back.’ They’re taking the money and buying another home,” he explained.
In the case of a re-purchase, Opendoor would use the same financial reserves (credit lines at undisclosed terms) it uses to purchase houses.
For its two-year warranty, Opendoor has partnered with OneGuard, a home warranty provider that operates in Arizona, Texas, and Nevada. Opendoor’s warranty includes a range of items, from kitchen appliances to the sprinkler system and timer. If anything within the coverage breaks during the two years, the new homeowner’s cost to get it fixed won’t exceed $59, according to the startup’s marketing materials. Buyers can also opt for a one-year warranty from the provider of their choice.
As for its 180-point inspection it completes for each home it purchases and sells, Opendoor says it’s just a more formalized version of its practices thus far. Now the company will do a full inspection, take care of the necessary repairs, inspect the house again, and provide the new buyer with the full results of its inspection.
“It’s about showing our work,” Opendoor vice president of product Evan Moore told Fortune.
The new policies were the icing on the cake for Aaron Dean, a veteran who recently purchased a home in Dallas from Opendoor, he told Fortune. Dean had already decided he wanted the house by the time the company told him about the new perks, but he says they definitely added to his peace of mind.
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Opendoor has tested its new policies only with a small group of buyers so far, so it had no concrete data to share, though it did say that no one has yet asked to return a house. Currently the startup is selling about $50 million worth of homes per month in Phoenix and $20 million in Dallas, double the figures it disclosed in March. Next it plans to expand its operations to Las Vegas, the company said.
Still, Opendoor’s business carries risk. Though it makes roughly $10,000 to $15,000 in profit from each home, according to a Wall Street Journal report from January, Wu admits that the company has lost money on a few homes. Moreover, the company has failed to sell some homes it purchased for more than six months, though Wu told Fortune that only 5% have taken this long to sell. In the event of a downturn in the real estate market, Opendoor could find itself with a lot of homes on its hands, and less hope to sell them at a high profit, if any at all.
Wu founded Opendoor in 2014 with former PayPal executive and investor Keith Rabois, Ian Wong, and JD Ross. To date, the startup has raised $110 million in equity funding.
The story has been updated to clarify that Opendoor has lost money only a few homes, along with additional details about the portion of homes that have taken more than six months to sell.