iBuying company Opendoor is responding to a slump in its business by helping customers who need to secure financing to buy a home make cash-backed offers that can improve the chances of their bid on a home being accepted.
The company said that in order to take advantage of the offer, buyers will first need to get prequalified with Opendoor Residence Loans or another mortgage provider. Once pre-approval has been secured, Opendoor will then pair buyers with one of its affiliated real estate professionals who will review their offer before submitting it on their behalf. Opendoor will then back that offer with cash, meaning buyers can submit their offer free of financing, appraisal or home sale contingencies. Opendoor will then buy the home itself, with cash, if the buyer’s financing request is rejected.
Opendoor Chief Product Office Tom Willerer told Bloomberg in an interview that by making cash-backed offers more accessible, its clients will be able to compete in the hottest real estate markets on a more level playing field.
Sellers tend to prefer cash deals as there is less chance of the transaction falling through. An offer that’s contingent on financing is much riskier, and not every seller wants to take the chance that the buyer may not be able to secure a mortgage. At present, cash offers comprise 36% of all residential real estate transactions, according to realtor.com data.
Cash offers are especially advantageous now as the housing market is extremely hot, with a very limited inventory of homes available for sale.
“The market conditions right now are screaming for this,” Willerer told Bloomberg. “We’re in a low-interest rate world that’s incentivizing a whole bunch of buyers to come to market and we’re in a low-inventory setting where buyers need a way to stand out.”
Opendoor said it won’t charge customers extra to take advantage of its all-cash offers. Rather, it said it sees the offering as a way of enticing people to use its other services, which include home loans, insurance and warranties.
The company is in need of as much business as it can get. Although it saw explosive growth in its early days thanks to the novelty of its iBuying model, which allows people to sell their home instantly instead of listing it the traditional way, it has struggled over the last year and today revealed in its fourth quarter financial results that its 2020 revenue fell by 45%.
Opendoor’s problem is that its business model is less enticing in such a hot real estate market, as it tends to price its instant offers on homes at below the market value. With such high demand for homes nowadays, most sellers can sell their homes very quickly on the traditional market for a much higher price, negating the need for iBuyers.
Opendoor said its cash-backed offers service is available now in Atlanta; Charlotte, N.C.; Raleigh-Durham, N.C.; Dallas-Fort Worth, Austin, San Antonio, and Houston, Texas; Orlando, Fla.; Phoenix; Tucson, Ariz.; and Riverside and Los Angeles, Calif. It said the service will be made available in Sacramento, Calif., later this month, too.