A data-driven analysis of Opendoor, the real estate disruptor, looking at its business model and traction since launch. Based on actual MLS data in its launch markets.

1. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Inside Opendoor: what two years of
transactions say about their prospects

2. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
The goal of this analysis is to answer key
questions about Opendoor’s business
model and prospects:
• How much money does Opendoor make per transaction? Is
Opendoor offering its customers a fair value for houses?
• How big could this model really get in the U.S.?
• Does Opendoor have a sustainable competitive advantage
against competitors that might enter the space?

3. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
But first, an overview of its business model
• Opendoor buys houses and owns them, acting as a middleman (as
opposed to a matchmaker) in residential real estate transactions.
• Opendoor won’t buy every house—qualifying properties include
single-family homes built after 1960 with a value between $125,000
and $500,000.
• Opendoor makes money in two ways: from the service fees it
charges, and from any difference between what it buys houses for
and what it sells them for.
• Opendoor works with real estate agents, offering to pay full buyer
commissions, as well as seller commissions if a sale comes from an
agent.

4. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Opendoor is building strong traction in its
first market, Phoenix
Strong uplift during
the end of 2016
The equivalent of
more than 4 home
sales each day

5. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
The price Opendoor buys homes at are
tightly clustered
The average price
paid by Opendoor
for a home in
Phoenix is $217,370
Sweet spot

6. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Time is money: Opendoor typically relists
homes 20 days after buying them

7. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Opendoor typically lists homes for $20,000
more than it buys them for
Its pricing strategy shows
a clear intention to make
some money off each
sale

8. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
On average, Opendoor sells houses for
5.5% more than what it buys them for
• The average
appreciation in value
is about $10,000 per
home
• This does not include
the investment
Opendoor puts into
each home
• The number is lower
than what a typical
home-flipper would
expect

9. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
As of Dec 1, Opendoor was holding homes
for an average of 98 days
This includes homes that
were still actively listed
for sale

10. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Traction in its second market, Dallas, is
ramping up quickly
Dallas has reached just
under half the volume
of Phoenix in its first
three months.

11. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Estimated 2016 revenues in the Phoenix
market are north of $30 million

12. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Opendoor breaks $1B in annual revenues
by launching into 20 markets

13. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
An estimated unit economics breakdown
shows slim margins
Estimated Unit Economics, Phoenix Amount (% of
home value)
Revenue $31,479
Fees $19,563
Appreciation $11,912
Cost of Services $23,159
Closing costs on purchase (escrow, title, transfer tax) $4,347
Rehab (replacing carpets, landscaping, exterior/interior paint) $4,000
Holding costs (financing, property tax, utilities, HOA, home ins) $3,872
Buyer concessions (closing costs on sale, paid by Opendoor) $4,347
Buyer agent commission $6,592
Gross Margin $8,320
All costs are
assumptions,
not actuals.
Gross margin does
not include costs
such as salaries,
marketing, tech, and
overhead.

14. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
There is a high degree of risk in the model
Opendoor says three factors mitigate risk of holding homes:
• Data lets them detect and react to downturns faster
• Diversification across geographies
• Ability to wait out a downturn with a longer hold/rent-out
Our take: Calling the market is one thing, but conviction to act is
another. Geographic diversification smooths risk in placid
markets but provides less protection in a major downturn.
Feasibility of waiting out a downturn depends on terms with debt
issuer.

15. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Possible sources of sustainable
competitive advantage
• Proprietary automated valuation model (AVM)
• Access to capital
• Battle-tested and efficient flip process
Our take: Opendoor’s brand, flip process and AVM reduce
costs and provide some protection. But competitive pressure
will likely drive margin below where it sits today. The core
customer experience—a fair, fast offer—is replicable by new
entrants with deep pockets.

16. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
Concluding thoughts
• For home-sellers willing to pay a premium, Opendoor creates a
dramatically smoother customer experience
• Transaction data (unit margin, buying and selling 100’s of
homes/month with positive slope) suggests Opendoor’s business
model is sustainable
• At scale, not unreasonable to see Opendoor generating over $1B in
annual revenue and operating profitably in “normal” markets
• Two major hurdles: proving out risk management approach to
decrease financing costs, and differentiating from new entrants to
avoid a race-to-the-bottom price war that kills margin
• True disruptors are both better and cheaper than incumbents;
Opendoor must address cost or will face a limited total addressable
market

17. Prepared by Mike DelPrete and Sib Mahapatra – www.mikedp.com – December 2016
A note on data
This analysis is based on MLS records, listings from Opendoor’s web site, the
Maricopa City Assessor’s public property records, and public records sourced from
Redfin. We used industry benchmarks to estimate the costs and fees associated with
flipping homes in Phoenix. The data out is only as good as the data in, and the MLS
system can be inaccurate. The analysis should be taken as such—a review of
available public records—and not a verifiably complete picture. While absolute
numbers may be off, we believe that directionally our analysis provides a very good
look at the business.
Contact the author, Mike DelPrete, at: mdelprete@gmail.com
Follow my blog, Adventures in Real Estate Tech, at: www.mikedp.com