On the Opendoor Acquisition of Open Listings

Just thought I’d drop a brief (well, for me) note here about Opendoor’s acquisition of Open Listings, in between preparing for hurricane Florence…. Inman News has the story:

Flush with hundreds of millions in venture funding, the fast-growing home-buying and selling startup Opendoor is making its first acquisition: Open Listings, a discount brokerage with a team of salaried in-house real estate agents that offers homebuyers a 50 percent rebate on a buyer’s agent’s commission. Neither of the private companies disclosed the purchase price.

“By integrating Open Listings with Opendoor’s mortgage, title and home services, the company will make it as easy to buy, sell or trade-in a home as it is to hail a ride, book a flight, or shop online,” Opendoor said in a press release announcing the deal.

The deal is potentially as significant to the wider real estate industry as Zillow’s $3.5 billion purchase of rival listings portal Trulia in 2014 — if not more so.

This is big news, yes, but uh… let’s slow down there a touch, sparky. This deal is important, yes, but it isn’t anywhere close to as significant as Zillow’s acquisition of Trulia in 2014.

Subscribers to The Red Dot should read this post as an add-on to all of the things I covered in the August and September issues. This is House Opendoor making a big play to be The Platform, but it reveals weakness rather than strength. Plus, this move serves as further validation of the idea of convergence.

Let’s get into it.

Convergence is Inevitable

In the August edition of The Red Dot, The Truth About iBuyers, I wrote:

I believe that all iBuyer models will eventually converge to the same place and end up with roughly the same business model.

The reason is the importance of Closing the Loop for the consumer.

The most striking thing about the iBuyer phenomenon is that there are thousands of people who are effectively willing to pay thousands of dollars in order to skip even half of the pain, inconvenience and delay of the traditional real estate process.

Remove all of the pain, inconvenience and delay, and the total addressable market might not be 5% or even 10%. It might be the vast majority of consumers as happens with automobiles.

In that world, the counterparty to most real estate transactions is an institution: the iBuyer, who becomes a new intermediary between the ultimate parties.

In connection to this idea, Mike DelPrete, of Adventures in Real Estate Tech, is quoted in Inman:

Industry analyst Michael DelPrete says Opendoor’s new buy-side service “effectively closes the loop to the business model.”

“Closing the loop means each customer can remain in the Opendoor ecosystem, which can have a negative impact on market incumbents and traditional brokers that aren’t part of that ecosystem,” he added.

I look forward to his take on this.

But my point ultimately is that all companies that hope to remain relevant in the Game of Platforms have to figure out a way to Close the Loop for the consumer. They can do that through referrals. They can do that with their own agents. They can do that with managing leads effectively (as Zillow is trying to do). But they do have to figure out how to close the loop. So convergence is inevitable.

Opendoor acquiring a brokerage (even though it has always been a brokerage… of sorts…) is the least surprising thing in the world. I also don’t think it’s the last of Opendoor’s acquisition either… because….

Revealing Weakness?

In a weird way, the acquisition reveals Opendoor’s weakness in the Game of Platforms. This is not something that Eric Wu and team are going to tolerate for too long.

Think about it. With the Open Listings acquisition, Opendoor is really not that different from Redfin, is it? They’re  both technology-based hybrids, with employee agents, a network of partner agents, and the capital to play the iBuyer game. They’re both discounters and proudly so. They’re both extremely consumer-centric and has that whole “the consumer is our North Star” deal in their DNA. Since Redfin has had Redfin Now for quite some time, and recently committed to expanding that program nationwide, the two have converged to roughly the same place and have ended up with roughly the same business model.

When you look at it that way, however, it does sort of suggest that Redfin is just way, way ahead of the curve in terms of brand, audience, and experience. I have no idea how much business is attributable to Open Listings, but I’d be pretty shocked if it were close to Redfin:

• $21.3 billion in Sales Volume (2017) — Would have been #4 on RealTrends 500, ahead of Howard Hanna
• 45,793 in Transaction Sides, with 35,038 being in-house and 10,755 being done by Partner Agents (2017) — Would have been #4 on RealTrends 500, ahead of Keller Williams Realty, GO Management Offices.

In fact, maybe Open Listings just doesn’t report its numbers, but the Swanepoel Mega 1000 shows no results when searched for “Open Listings”. I’m not inclined to follow up, but let me know if you find their numbers.
Plus, we can’t ignore the fact that as successful as Opendoor and Open Listings have been so far, and as talented as their teams are, they’re not close to Redfin’s 28.8 million average monthly unique visitors (Q2/2018). They’re just not.

Finally, Redfin’s been around for almost 15 years now. They’ve lived through the Collapse, which is why Glenn Kelman is fond of saying “We were born in the dark.” They lived through the rebound. They have institutional knowledge and experience that very few tech-hybrid brokerage plays have.
So now the Game of Platforms has a clear frontrunner (Zillow), a clear runner-up (Redfin), and a contender rising fast (Opendoor). We’ll see if some of the other Great Houses make any moves.

Relax, Slow Down

That revelation of weakness is why I’m telling Inman crew to slow down a touch, tap the brakes. When Zillow acquired Trulia, it eliminated the #2 portal in real estate and vaulted the #1 to a ginormous lead over the third place Realtor.com — a lead it has yet to relinquish. It also served notice to everybody that Zillow was The Big Dog in the portal wars.

Yes, the fact that Opendoor has acquired the ability to do trade-up deals on all homes rather than just the homes it owns is a big deal. But then again, Knock exists… just waiting for one of the Great Houses to make a play for it. And then there’s the fact that Zillow is hip to the trend:

[W]e had no data on how long it would take from when a seller said yes to when a seller actually puts the house to us. You can think about what we’re really selling to sellers is a put option on their home. And when we reach agreement with them, they then put the house to us when they’re ready to close….

Note, it would be helpful if we could help originate that mortgage. That would certainly facilitate her transaction more readily. But part of it also is just the ease that we’re providing to the seller, where the seller is now taking advantage of the fact that she can rest easy and choose to close anytime in the next month or two, and that’s just delaying the starting time.

So let’s slow down a touch and recognize that Opendoor is going to learn a tremendous amount about being on the buy-side of the business with its new acquisition. They’re fast learners, being all very smart people, and Open Listings has been around for a few years. So all of that is good.

However, I would bet that Opendoor makes more big bets, more acquisitions, once they have things figured out a bit. Because it’s a tough ask for them to catch up to the two leaders — Zillow and Redfin — through organic growth, whether on traffic or on partner networks or on business volume. If Opendoor is really thinking about an IPO in 2020, as Inman suggests, then I think we’re not done seeing them make big acquisitions.

A bit of free, unsolicited advice, worth exactly what they paid for it: if I were Eric Wu and team, I would look hard at Remax. Its market cap is only about $840 million at the time of this writing, and I imagine many of Remax’s shareholders would readily swap their shares for shares in a pre-IPO unicorn company valued at over $2 billion today.

Anyhow, congratulations to Opendoor and Open Listings on their upcoming nuptials, and well, I have to get back to moving smallish objects off my porch just in case Florence decides to visit us here in the Upstate. If I don’t get a chance between now and landfall, my prayers and good wishes are with the people in the path of the storm. Hope this turns out to be just a lot of hype instead of a real dangerous hurricane.

-rsh