Source: Opendoor

Homeowners dreaming of moving up from their starter home to a newly built, larger home are being offered more ways to make the move as quickly and effortless as possible. A growing number of homebuilders have partnered with internet-based real estate companies, including Opendoor, to cut down on the hassle and uncertainty homebuyers often face when moving from one house to another. On Tuesday, Opendoor announced two more homebuilding companies with which it has signed partnerships: Texas-based Gehan Homes and Colorado-based Century Communities, which operate in 12 states across the Southeast, Texas, Mountain and Western U.S. One of the key hurdles to buying a new home can be selling an existing one, said Nate Harbacek, head of corporate and business development at Opendoor. To combat this, the company gives homeowners a cash offer for their house and a flexible closing date so customers don't have to show their home. It also lowers the risk of a buyer backing out at the last minute. What's more, the flexible closing date circumvents the need for temporary housing, storage and carrying two mortgages at the same time. "I think that there's an embedded procrastination on the part of many people who have already gotten to the point where they've outgrown the walls of their home," said Stuart Miller, the executive chairman of Lennar, one of the country's biggest homebuilders, which is an Opendoor venture investor and partnered with it to spur home sales in 2018. "Just the anxiety around having to engage in the selling process and bringing multiple prospects through their home — it's a daunting task."

Opendoor's housing sweet spot

Opendoor's appraisal process is heavily automated, allowing it to give cash offers within 24 hours, Harbacek said. That offer is then good for 60 days, or nine months if the deal is made with one of its homebuilder partners. The company focuses on buying homes in a price range of $100,000 to $500,000. It offers cash to the seller, which the company has raised through a combination of equity and debt. The average fee charged by Opendoor is 7.5%, Harbacek said. Most sales through Opendoor are direct and don't involve a Realtor. The median price of a newly built home dropped in September to $299,400, 8.8% lower compared with September 2018, according to the U.S. Census, and was the lowest since February 2016. Half of the homes that sold in September were priced below $300,000. Sales of newly built homes dropped slightly compared with August but were 15.5% higher annually, and stocks of the homebuilding companies have risen along with a record stock market this year.

For homebuilders, the ability to steer a potential buyer to Opendoor gives them what they are looking for: a more solid sale commitment, as homebuilders are more hesitant to sell to a buyer carrying an existing mortgage. Miller said the ultimate efficiency would be for buyers to close on new homes the day they are completed. Working with Opendoor, and other shifts such as the growing trend of builders selling new developments to single-family rental companies, allows the builders to sit on completed but empty houses for shorter amounts of time. Though Lennar doesn't have data that isolates the impact of its partnership with Opendoor, Miller believes that it is working. "It's been impactful. We think in terms of efficiency but also in terms of happiness around the transaction," Miller said.

Online real estate competition increasing