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In 2003, Keith Rabois, a longtime Silicon Valley investor and executive, had an ambitious idea: He wanted to start a website that would instantly offer a fair price for houses. If the offer is accepted, the site would agree to buy the house immediately, closing the deal in a matter of days.
To Rabois, the plan seemed obvious: houses are the most expensive possession many own, and yet they are also the most difficult to trade on ” to sell in a hurry if one needs to relocate or are otherwise looking for quick cash. But tech could solve that. By analysing lots of sales data, a company could come up with an accurate price for most houses; then the startup could buy houses quickly, charge people a convenience fee and sell the houses over a longer period of time.
There was just one problem: Back then, Silicon Valley was in the middle of a post-dot-com bust and nobody would fund such an expensive plan. So Rabois sat on the idea for more than a decade. Then in 2014, amid flusher times, he and several partners opened the home-buying company, called Opendoor. Opendoor has since raised more than $300 million in equity and has also taken out more than $500 million in debt. It plans to be in 10 markets by the year's end.
In the process, Opendoor also has become a model for a new kind of tech upstart: Call it the fat startup.
For much of the past decade, tech investors have been enamoured with software companies that could grow very quickly for little money ” like Instagram, which raised less than $60 million before it was bought by Facebook for $1 billion.
But modern capital markets have since unlocked far grander opportunities for tech entrepreneurs. They are blessed with essentially unlimited access to money, and ideas that once seemed too expensive, too risky or just too crazy are now getting off the ground. These startups are fat ” with capital, with industry-altering ambition and, to their critics, often more than a little hubris.
Consider how Elon Musk, the chief executive of Tesla and SpaceX, is building electric cars, a gigantic automated factory, solar roofs, rockets and, as a hobby, a tunnelling company. There are startups trying to create superspeedy Hyperloop transportation and others working on flying vehicles.
Opendoor fits that mold. Its plan is precarious: The company faces rising competition, high operating costs and ” because we are talking about the market that caused the global financial crisis ” the possibility of an unforeseen blowup. But if it works, Opendoor could be transformative; by making buying and selling houses as easy as buying and selling cars.
"Real estate is a $25 trillion asset class ” people spend more on housing than food, transit, health care and education," said Eric Wu, a founder and the chief executive of Opendoor."We think we can make it work much better than it does now."
So far, Opendoor is growing quickly. In broad strokes, the service works exactly like Rabois' original vision. If you want to sell a home in Opendoor's price range, you go to the site, type in your address, answer a few questions and then wait for an email.
The company has data scientists who have developed a sophisticated system for modelling home prices. Opendoor focuses on the middle of the market, and will neither buy distressed homes nor luxury homes, for which pricing dynamics aren't predictable. If the house meets its criteria, it will send an offer meant to reflect the best estimate of the property's value.
A surprising number of people are saying yes to Opendoor's offer. Wu said that about 30 percent of people who request an offer decide to take it. Opendoor declined to provide revenue or growth numbers, but because housing sales data is public, outside analysts have been able to track the company's progress. Once it buys the house, the company makes necessary repairs, and then puts it up for sale. On average, it sells the house within about 90 days.
A year ago, according to an analysis by Mike DelPrete, an independent real estate tech adviser, Opendoor was selling about 50 houses a month in Phoenix, which at the time was its only market. Sales have steadily increased since; in February, Opendoor sold more than 300 houses total in Dallas, Las Vegas and Phoenix. It plans to begin service in its next market, Atlanta, within a few weeks.
The company has been streamlining other parts of the real estate process. The houses it sells are fitted with internet-enabled cameras, sensors and door locks, allowing potential buyers to unlock the home with Opendoor's app and come and go as they please. It also started a mortgage brokerage operation, so buyers can speed up their access to capital ” a potential precursor to offering home financing on its own.
Opendoor faces huge hurdles, including competition. Two other startups, Offerpad and Knock, are already offering similar services. And this week Zillow, the real estate portal, began a pilot programme that relies on many investors, including Offerpad, to make instant bids for homes in Las Vegas and Orlando, Florida.
Finally, there's the nightmare scenario: a real estate crash.
What if there's a nationwide correction? Wu said his team had run simulations on previous crashes, including in 2008, and had found one of two scenarios: On the one hand, the business might slow down for a few years, then pick up as the market does. Or it might even do better, because sellers would decide to pay a higher premium to get a certain offer.
"There's a possibility that we might thrive in times of volatility," Wu said.
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05/06/2017
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