The story of the growth of open door, A Leader in the Internetization of Real Estate

Keith Lavoie goes to the PayPal mafia and famous venture capitalist, tech company.

He has held key positions in leading IT companies such as PayPal, LinkedIn, and Square.

He had such a keen eye that he recognized services such as Avernb, Lyft, and YouTube, starting from the cotyledon, and invested in seeds.

La Boyce had a dream he had been cherishing for 16 years.

It was a project called 'Home Run'. This is an online real estate transaction.

"Real estate is one of the largest economic sectors unaffected by the Internet"

"There are still Trulia and Zillow, but they are still fundamentally unaffected by the Internet."

"The process of selling a house hasn't been revolutionized by technology"
(Keith Lavoie)

He's been meeting people for 5-10 years and has consistently offered to commercialize the home run project.

This invitation from Lavoie was accepted by a representative of a real estate technology startup who participated in the Y Combinator program.

It was Eric Wu, a young man in his 30s who majored in economics at the University of Arizona.

As a Taiwanese-American, he has been a 'real estate shopaholic' since his college days.

When he was in his sophomore year in college, he bought a house with a scholarship of $20,000, renovated, rented two rooms, and lived in the other one, earning tuition and living expenses.

He got refinanced and bought real estate again, renting it out and increasing his investment. By the time he graduated, he had become a wealthy man with 20 properties.

His mother had a big influence on his early awakening to real estate investing.

According to Forbes, she bought the house because his mother thought she was 'rent = waste'.

Eric Wu doesn't want to pay rent like his mother, so he's been actively investing in real estate since college.

He said, "Real estate is part of my DNA," and has since started three businesses in the real estate sector alone.

Examples are 'Rent Advisor', a rental apartment review platform, and 'Mobity', which collects and analyzes geographic data.

In particular, Mobity is a service that analyzes and provides crime information, noise, commuting time, and house price data for reference to those who want to buy a house.

It was acquired by real estate technology company Trulia. Eric Wu met Mobity co-founder Bob Koch and Y Combinator Lavoie as mentors.

Although Lavoie decided to invest in Mobity, he earnestly encourages Eric Wu to commercialize the home run project.

After he sold Mobity, he met Lavoie and started a serious business discussion.
do.

“I wanted to do something bold, something I could work in a field I was deeply interested in for more than 10 years,” Wu told Forbes.

They hired Ian Wong, a former software engineer, as the third founding member to build a model that automatically sets the price of real estate.

Justin Ross, founder of Fresh Print, a tailor-made apparel company, joins as the fourth founding member.

The online real estate brokerage platform 'Open Door' was born like this in 2014 in Silicon Valley, USA.

Open Door, an all-in-one real estate transaction solution provided online, has developed a transaction model that combines real estate and technology over the past 5 years, growing into a proptech unicorn that combines real estate and technology.

Let's take a look at the business models of those who are evaluated as milestones in the US real estate industry.

Real Estate Sales

Real estate sellers can sell houses through Open Door, and Open Door buys them directly.

First, the seller briefly posts the real estate information and address on the Open Door website.

You can list the number of garages in your home, appliances, materials, other features, and attach photos.

Open Door sets and proposes prices based on local real estate information, recently sold, comparable homes, and market trends.

Algorithms and human experts are involved here.

They have algorithms that compare hundreds of pairs of models for a given home address.

We operate a 'local pricing team' made up of former appraisers, real estate agents and real estate investors. Because it is necessary to understand the local situation and context when interpreting market data, this compensates for the limitations of the algorithm.

It takes 2 to 48 hours to set a real estate price. If the seller is satisfied with this, he or she can sign the contract agreement online.

After that, the company connects with a personal home advisor and goes to evaluate the condition of the house for free.

They check the roof, electricity, plumbing, etc., and check where the repairs are going.

The seller can repair it himself, and then prove it to the company through photos and documents.

Another option is to take care of the repair of the open door, but the seller bears the cost.

Then, we proceed with the closing work to finalize the real estate transaction through the title-escrow company.

Open Door has the following criteria when purchasing a house.
- Detached house, townhome, 2nd generation building, condo.
- $100,000 to $500,000 house
- Houses built after 1960

Purchasing real estate

Buyers can save, share, and tour a house they like on the app or website.

In particular, through a program called 'Open House', you can freely visit houses owned by Open Door every day from 9 am to 6 pm.

You don't even need to book a tour, and you can open the door to the house you want to tour through the Open Door app.

The company will also send you a specific code to allow customers to enter your home.

However, if you want to enter a house owned by an open door in a residential area where outsiders are restricted, an agent will accompany you.

After this tour, you can decide which house you want to buy, and then you can apply for a purchase online either directly or through an agent.

Open Door will respond within 48 hours. The buyer signs the purchase contract and schedules the house condition inspection. Your lender may require a home appraisal to evaluate the value of your home.

Once financing is guaranteed, we set a closing schedule to close the transaction and a moving schedule.

During the closing process, you can give the seller the house price and receive the key. It takes 20 to 30 days after signing the contract.

Buyers can return the house if they are not happy with it.

Open Door guarantees that the company can buy it back within 90 days from the closing date through its '90-day buyback guarantee'.

Trade-in

Selling an existing house to an open door while looking for a new house to move into.

Once you apply to sell a house, it goes through an open door review and offers a sale price within 24 hours.

The purchase process is similar. The advantage is that you don't have to move twice or borrow twice. You can even save 2% of your service charge.

How Open Door Makes Money.

The company's business is a fee-based model.

Those who sell houses on Open Door pay a fixed service fee.

Considering the time it takes to sell a house, it is said to be around 6-8%. Average 7.1% and no more than 14% maximum.

Open Door discloses the rate composition of their service fees as above.

Assuming that it is usually 6.5%, 3% is the fee paid to the agent of the next buyer.

2% is the cost of arranging for resale.

0.5% is for property taxes, insurance, financing and maintenance.

1% is the convenience cost of delivering a hassle-free, stress-free user experience.

In addition, the main source of income is the profit from the sale of a house from the company, which is then repaired and sold at a higher price than the purchase price.

[caption id="attachment_5316" align="aligncenter" width="1180"] Open door- House sales per month. Data as of 2021[/caption]

In addition, Open Door also offers mortgage loans to those who want to buy a home.

They also earn money from interest on loans on the houses they buy.

The strengths and investment value of open door

The strengths and investment value of open door that invite money can be summarized as follows.

'Simple-certain-convenience' three beats

The Open Door service is characterized by its simplicity, convenience, and removal of uncertainty in the process of real estate sales and purchases.

Open Door handles most of the procedures necessary for buying and selling a house.

A lot of the work was done online, reducing the agent's paperwork.

Automate tasks and reduce work time by tying pricing to algorithms

High growth potential

The fact that the i-buying market, which buys and sells houses online in the US, has great growth potential is also encouraging for Open Door.

[caption id="attachment_5320" align="aligncenter" width="771"] frequency of internet use for buying homes in the U.S over the years.[/caption]

It is also interpreted to mean that it is difficult to graft real estate purchases online. It also means that there is a lot of room for pioneering because the market is still in its infancy.

Substantial growth, the foundation for long-term growth is key. Open Door must overcome the following barriers in order to continue its rosy future.

Barriers to Overcome

Weak profitability

OpenDoor does not comment on whether the company is profitable, but the industry believes it is not yet profitable.

Eric Wu also says that his current goal is not to make a profit.

The industry believes that even if Open Door accounts for only 1% of the 5 million real estate transactions in the United States, it is expected to earn 1 billion dollars through audits and commissions.

It is not difficult to make money, and if you increase the scale, it seems to be interpreted as a matter of time to make a profit.

The fact that the company has not yet confidently disclosed its profitability raises doubts that it may not have achieved economies of scale as expected.

Algorithm accuracy

The accuracy and reliability of the algorithm is a task that must always be carried.

It's not just an Open Door problem, but the algorithm is just a black box, and there is no objective way to guarantee the transparency of the algorithm other than trusting the company's explanation.

CB Insights also points out that 'the owner of the house knows more than the open door'.

They say that because the people who lived there are well aware of the local circumstances, they can more accurately evaluate the quality of local schools and neighbors.

Anxiety of online house trading

It's a concern for the 'i-buying' market as a whole. Some view that it is difficult to apply online because the real estate purchase process is too complicated.

[caption id="attachment_5324" align="aligncenter" width="1024"] Online Home Buying by the Generations- Statistics by The New York Times[/caption]

According to Forbes, most millennials try to buy a home online, but because most of them are buying a home for the first time, they realize early that they need the help and expertise of a broker.

Security issues

There is a possibility that an open house could become a crime zone. According to the Inc report, there are some people sleeping or camping in an open house, but this is at the level of aegyo.

Last year, there was also an incident where police arrested people who entered an open house to spend the night after being hit with heroin.

Female realtors often take their guns with them when they go on an open door tour.

There is a high risk that a tragedy of the commons will occur even in an open house.

As this is the company's signature service, stricter management is required to manage the brand image.

I wonder what the future of Open Door will be like.