OpenDoor Will Fail
OpenDoor has just been funded with an extra few hundred million.
They buy homes at a 6% discount, to save people paying 7% in fees/costs and having to wait…
I predict that it will not be a long-term success. Because:
It doesn’t scale well. Apps for booking viewing times are not ground-breaking. National advertising won’t work any better than local advertising or word-of-mouth.
There’s no barrier to entry. Someone buying just one property can compete with them.
No first mover advantage. They won’t have the biggest marketplace. Anyone can sell the bought properties on whatever the dominant regular online marketplace is.
Competitors will offer better prices – in a race to zero profitability.
No repeat customers. No mailing list of any worth. No upgrades. No freemium model.
Other disruptors. Someone else will find a way of reducing realtor fees through technology. Without having to actually buy the property.
Interest rates will rise. When they do, they cost of holding a property before selling it will rise.
KILLER DOWNSIDE. When property prices fall, again (inevitable), they will go broke.
This business model can work if you only target the most desperate people – but even so, that is not too different to buying at mortgagee auctions. It could work if you target uninformed people with lowball offers.
It won’t work for OpenDoor. I have never seen so many negatives in a business.
If you have read this far, here’s a genuine winning idea. Property swap. Get everyone thinking of selling and everyone thinking of buying in the same system. And match up any that can be swapped – locations and price. Team up with Zillow for unbiased valuations. Costs are low. Sellers save 5-6%, not 1%. Profits are massive. First mover advantage.