A startup that pays cash to buy homes now offers money-back guarantee

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Opendoor, a two-year-old, San Francisco-based startup is a swing-for-the fences type of bet during a time when the most ambitious startups are suddenly less fashionable than they once were.

That’s not crimping the company’s style. In fact, Opendoor, which is on a mission to make it simple to buy and sell houses online, just added another layer of uncertainty onto its big-risk, big-reward model.

The roughly 100-employee company currently buys homes sight unseen when a home seller visits its site, asks for a quote, and accepts Opendoor’s bid, which the company comes up with based on public market information about historical home sales and its own proprietary data about market conditions. (The company says its offers are typically one to three points below what the seller might fetch on the open market roughly three months into the future. That’s the average time required to sell a home in the U.S., it says.)

Starting today, it’s making two more bold promises. First, it will buy back a home if the new owner is unhappy with it. Specifically, if someone changes his or her mind for any reason, that person has 30 days to receive a full refund. More, Opendoor will provide each new buyer with a 180-point inspection report on the condition of their new home; if anything breaks in the first two years, it will fix it.

“We stand behind our homes,” says Eric Wu, CEO and co-founder of Opendoor. “Unlike a typical seller who is trying to hide information from [the seller], we’re fully transparent because we want our customers to be happy.”

Wu, who previously sold a startup to the real estate portal Trulia, cofounded Opendoor in March 2014 with three others: operator-investor Keith Rabois; Ian Wong, who formerly led data science at Square; and JD Ross, who oversaw product at the investment management platform Addepar.

Their plan from the outset was to use technology to flip homes, an idea that has garnered roughly $110 million from investors, including its biggest shareholder, Khosla Ventures.

Wu says Opendoor has also raised “hundreds of millions of dollars” in debt in order to carry the homes on its balance sheet while it works toward re-selling them.

In an interview with TechCrunch yesterday, Wu declined to say how many homes have so far been bought or sold using the platform. But he did say that OpenDoor typically buys 10 houses a day across the two markets in which it’s currently operating: Phoenix and Dallas.

He also said that Opendoor typically charges sellers  “less than 10 percent” of the value of their home in fees. In return, Opendoor gets enough money to ensure that a home is whipped into move-in-ready state, including addressing any safety issues.

To keep from buying any real lemons, Opendoor won’t purchase any home built before 1960. It also sticks with homes that range in value from $100,000 to $600,000, which apparently covers 90 percent of homes in the U.S. Not last, Opendoor says it inspects all homes after its online offer is made but before it writes a seller a check.

The model still sounds rife with risk. Most obviously, if the market were to turn sharply, Opendoor could be stuck holding properties it can’t sell. But Wu argues the frictionless marketplace that Opendoor is creating more than makes up for that risk.

In both Phoenix and Dallas, for example, Opendoor has a growing number of vendors using its software. That allows landscaping companies with which it works to spring into action once it has purchased a home. Similarly, using its software, new home buyers can easily order a local contractor to spruce up their kitchen.

In fact, Wu says Opendoor is “already seeing a lot of [demand] coming from both buyers and sellers,” which is slowly creating a kind of virtuous circle. “We call [the transactions] trade-ins. In the automotive industry, 60 percent are cars are traded in for new models; we’re starting to see that behavior on Opendoor, too.”

The company has also said it could imagine getting directly into the financing business at some point.

As for profitability in the meantime, Wu says Opendoor isn’t focused on it just now, despite nervousness in the investor market. Instead, Opendoor is boldly purchasing more than $50 million worth of homes in Phoenix per month, and $25 million per month in Dallas, a market it entered six months ago.

“Our investors are incredibly supportive of our market and the time horizon under which we’re operating,” says Wu. “We aren’t navigating our business [around] VC sentiment.”

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