They’ll Help Take Your Home Off Your Hands—So You Can Buy One of TheirsBy
Collaboration with tech firm Opendoor tested in Las Vegas
Builder provides $100 million in debt for program’s expansion
Lennar Corp. builds homes with 2-by-4s and nail guns. Opendoor uses computer algorithms to buy and sell them. For the past year, the companies have been testing a way to make it easier for Lennar’s customers to offload their houses and trade up to new ones.
Now Lennar is part of a group that is furnishing Opendoor with $135 million in funding as the San Francisco-based startup seeks to expand this year from six U.S. markets to more than a dozen.
Fifth Wall, a Los Angeles venture capital firm backed by Lennar and other real estate companies, led a $35 million equity investment and served as a matchmaker for the partnership. Lennar provided $100 million in debt, mostly through its Rialto Capital subsidiary. The companies, which first tested the trade-up program in Las Vegas last spring, are aiming to offer it in every market where Opendoor operates.
“Trading in a car is second nature to Americans, but no one thinks about that relative to a home,” said Jon Jaffe, chief operating officer of Miami-based Lennar. “What we’ve found is that the customers love it. It’s something that they didn’t think about as a possibility because it didn’t exist before.”
Opendoor tries to simplify home transactions by having sellers fill out an online form and using algorithms and market data to put together an offer within 48 hours. If the homeowner accepts, the firm sends an inspector, who confirms or adjusts the offer. Opendoor then buys the home, makes repairs and puts the property back on the market.
In return for the added convenience, Opendoor tacks on a fee, usually about 1 to 1.5 percentage points, on top of the 6 percent commission real estate agents typically charge. For the Las Vegas test run of the Lennar partnership, the builder offered as much as $2,000 to help cover moving expenses for people who sold their homes through the program.
Opendoor has raised $320 million in equity and $700 million in debt since it was founded in 2014. Investors also have pledged millions to competitors OfferPad and Knock. Collectively, those startups could make housing a more liquid asset and encourage Americans to move more frequently, according to Stephen Kim, head of housing research at Evercore ISI.
For that to happen, though, sellers will have to decide that Opendoor’s service is worth the extra fees. That may be a tough proposition in today’s market, where a tight supply of listings has made finding a buyer relatively easy, according to Ralph McLaughlin, chief economist at housing website Trulia.
“Their success hinges on the ability to make the fee low enough to entice sellers, but high enough so that they can cover the risk of not being able to sell the house, either because of issues with the house itself or shifts in the housing market,” McLaughlin said.
One in three sellers who receives an offer from Opendoor accepts, according to Chief Executive Officer Eric Wu. The company spends about $100 million on home acquisitions a month, Algorithms that adjust pricing for economic conditions should help the firm to thrive in both up and down markets, he said.
Joel Trabado used the service in March to buy a new, three-bedroom Lennar home in Las Vegas. The last time he decided to move, he carried two mortgages while waiting for his old house to sell. So when a Lennar representative pitched him on Opendoor, the idea immediately clicked.
“I don’t have to worry about selling,” he said. “I already have a ready buyer.”