Opendoor, online house-flipper, buys title company OS National in bid to own more of residential real estate market
With competition increasing among internet-based real estate firms for control of the homebuying and -selling market, companies including Opendoor, Redfin and Zillow are seeking ways to design an end-to-end experience when consumers buy, sell or trade a home online.
On Thursday, Opendoor — which makes instant online offers to buy homes — announced it was acquiring national title and escrow company OS National. The purchase allows Opendoor to integrate title, escrow and closings into its online buying and selling experience.
“Title and escrow has always been a major pain point in the homebuying and -selling process,” an Opendoor spokeswoman told CNBC. “This acquisition will enable us to start mitigating that pain point with deeper integration with OSN.”
The acquisition is Opendoor’s second after last September’s purchase of Open Listings, but the more significant one in terms of company size. Open Listings has 50-plus employees, OS National about 500.
Duluth, Georgia-based OS National has worked with Opendoor since 2016 and will become a wholly owned subsidiary. Terms of the deal were not disclosed.
“Consumers are confused about the status of the close and timeline, overwhelmed by hundreds of documents to understand and sign, and frustrated by the delays due to multiple parties coordinating,” said Eric Wu, co-founder and CEO of Opendoor, in a statement announcing the deal.
Opendoor ranked No. 35 on the 2019 CNBC Disruptor 50 list and has been valued at close to $4 billion after raising more than $1 billion in capital from investors, including publicly traded national homebuilding company Lennar.
This San Francisco-based start-up helps homeowners sell their house more quickly by offering to buy it from them. Sellers pay an average fee of 7.7% of the selling price to Opendoor and can schedule a closing in as little as 10 days, compared with 50 days for a traditional home sale closing. There are no showings, and any repair work can be handled by Opendoor and the costs deducted from the proceeds.
The company uses market data and software tools like machine learning to figure out how much it can make by buying, fixing, listing and then selling the home to another buyer. The houses are those typically priced between $100,000 and $500,000 and built after 1960.
Online real estate companies, including Opendoor, Redfin and Zillow — as well as more established residential real estate brokers, like Keller Williams — are vying to take control of the one-stop, internet-based real estate market, sometimes referred to as iBuying.
Opendoor recently launched a home-loan business in Texas and Arizona allowing homebuyers in those states to get a mortgage directly from the Opendoor app. The company — which says its all-cash offers to homeowners has reached $4 billion in deals annually — operates in 20 markets, including Atlanta; San Antonio, Houston, Austin and Dallas–Fort Worth, Texas; Raleigh-Durham and Charlotte, North Carolina; Denver; Las Vegas; Los Angeles and Sacramento, California; Minneapolis-St.Paul; Nashville; Phoenix; Portland, Oregon; Orlando and Tampa, Florida; and Tucson. The company is expanding into Boise, Idaho; Salt Lake City and St. Louis next year.
Zillow, which began as an advertising-based online real estate information company, expanded last year into online homebuying and -selling, a program called Zillow Offers. Zillow reported in its recent August earnings that its Homes segment had grown to roughly half of its revenue, $248.9 million of a total $599.6 million in revenue last quarter.
But the profitability of these online home transaction models remains uncertain. Owning real estate services like the title and mortgage process could give these companies a way to generate greater margins from home transactions.
Redfin has been in the mortgage and title business for several years. Redfin’s Title Forward launched in 2012, and Redfin Mortgage started in January 2017. Revenue for both businesses is reported in its “other” segment. In Q2 2019 the “other” segment contributed revenue of $5.3 million, an increase of 89% annually. Its CEO, Glenn Kelman, said after its recent August earnings report that mortgage and title services were in “a more aggressive phase of market expansion” and will “contribute meaningful gross profits three to five years from now.”