Firms buying homes direct
But is it a good deal for Orlando owners to sell to online companies?
Less than 24 hours after receiving a flyer from real estate company Opendoor, Winter Garden’s Steven Drowlette was online filling out questions about selling his home.
A few weeks later, with about a $25,000 profit over what he bought the home for two years ago, he had sold it and was looking for a new place.
“We’ve had some bad luck on other homes,” said Drowlette, who works in sales. “So figured if we can walk away with some extra money we’ll pay down debt.”
Drowlette is one of a growing number of Orlando-area homeowners skipping the traditional
real estate process and selling to a new wave of companies buying homes directly.
With big marketing budgets, venture capital funds and promises of quick and easy sells, direct home buying companies such as Opendoor and Offerpad are becoming a major force in the Central Florida real estate industry. Real estate tracking website Zillow said recently that it plans to launch its Zillow Offers program later this year, which is a similar program to Opendoor that buys homes directly and puts them back on the market.
Opendoor and Offerpad bought more than 500 homes in Orange County alone last year, according to an Orlando Sentinel analysis of transactions. Opendoor said it now represents about 3 percent of all sales in the Orlando market and is the largest seller making payments to real estate agents.
Opendoor, which bought 348 Orange County homes last year according to public records, said it makes most of its money on the 6.2 percent average commission on selling homes.
Both Opendoor and Offerpad do tend to sell homes for more than they bought them for, according to data on nearly 400 homes bought by the two companies over the last two years in Orange County. The median spread between buying and selling price for Opendoor is $11,000. Offerpad has a median spread of $19,450.
“They buy in volume to make a profit and get to the front of the line ahead of real estate agents with marketing and technology,” said Ken Johnson, a real estate economist at Florida Atlantic University.
The companies are just the players in a trend of technology companies and startups in the real estate world, Johnson said. The direct homebuying model, Johnson said, relies on technology to identify homeowners ready to sell in stable neighborhoods. The companies make money on fees, maybe with a slight profit on selling.
Selling homes is also much less time consuming for real estate agents, Johnson said. A company that can buy directly and then sell doesn’t have to bother with taking a client to look at dozens of homes. In fact, Opendoor and others use an app to allow potential customers to view homes at their leisure during daylight hours. Since they are unoccupied, there is no need to schedule with homeowners.
Zillow said they also don’t plan to make money as real estate investors, but instead hope to make money from fees. Home sellers usually pay about 6 percent of costs, half to an agent representing the seller and half to the one for the buyer.
But these new companies said they aren’t necessarily hoping to reduce the cost of selling a home, but reduce the difficulty.
“Our research shows that potential sellers are stressed out,” said Josh Swift, Zillow’s senior vice president of acquisitions. “They are often simultaneously buying another home and want to sell on their schedule.”
It’s also a controversial trend that has real estate agents and some homeowners skeptical.
Clermont real estate agent Kyle Lawrence said direct homebuying companies, sometimes known as iBuyers, can lure homeowners with one price and then lower the bid after inspections. The companies could also take advantage of uneducated sellers who never see how much their home is worth by testing it on an open market.
“I’ve actually lost two sales to Opendoor,” Lawrence said. “They take advantage of the stigma that home selling is hard. But if you put a home on the market, you might be able to get more money.”
Zillow said it plans to work directly with real estate agents on buying and selling. Opendoor representatives said it welcomes real estate agents into the process and pays standard fees to represent buyers.
“We’ve been around for five years now and have mastered pricing,” said Cristin Culver, a spokeswoman for Opendoor. “We do offer a competitive fair market price.”
Culver said Opendoor has no intention of buying homes, holding them and profiting on appreciation. Neither does it engage in major remodels, she said, although they make minor upgrades such as paint and landscaping.
“We would just do the kind of things a normal seller would do to get their home ready to sell,” she said.
However, the system isn’t perfect. Offerpad lost $155,000 on the sale of a Dr. Phillips area home it sold in December after buying it 15 months earlier. But it also made a $62,500 selling profit on an eastern Orange County home.
Culver said Opendoor has been successful though. It has about 225 homes on the market now in the area and about half those are under contract to be sold.
The company also has about 30 employees in the area.
In markets it has been operating in longer, Culver said Opendoor has a 5 percent market share and growing.
For Drowlette’s Winter Garden home, he contacted both San Francisco-based Opendoor and Gilbert, Ariz.-headquartered Offerpad for quotes. Opendoor offered $314,000 and Offerpad $280,000. Drowlette sold in October and walked away with $290,000 after the fees and about $800 that was deducted for repairs.
Opendoor listed it for $332,000 in October, then dropped the price to the $314,000 it’s listed at now. A sale on the property is pending.
Since then, he’s settled in a nearby rental with his wife and son.
“I’m real curious to find out how much they sell it for,” Drowlette said.
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