Can Opendoor’s iBuying bring the trillion-dollar housing market online?

Billionaire investor Chamath Palihapitiya is taking Opendoor public via his SPAC. Can this iBuying firm win the $1.6T home buying opportunity?


September 24, 2020

Here is Opendoor’s pitch from its website: “Sell your home from the comfort of your couch.”

Like, from your iPhone.

Billionaire investor Chamath Palihapitiya likes the pitch so much that he recently announced he’ll be taking Opendoor public via a SPAC ($IPOB).

The deal values the real estate startup at $4.8B and Palihapitiya believes it will be a “10x in 10 years” play.

Consumer real estate is a $1.6T opportunity

As explained in a one-page investment thesis Palihapitiya posted on Twitter.

The document further explains the pain of the current buying process: it’s offline, slow, inconvenient, unpopular (low NPS) and — with less than 1% of its sales done digitally — ripe for disruption. 

Opendoor was launched 6 years ago to tackle this problem with an iBuying solution and — to date — has done $10B in home sales and worked with 80k homeowners, per the company’s investor presentation.

How it works

Opendoor allows you to digitally buy or sell a home through these steps:

  • Pricing: A real-time pricing model that tells you how much a home is worth… click buy.
  • Home ops: If there’s a sale, the company handles inspection, data collection, repairs, and renovations.
  • Fulfillment: The closing process is automated.

Its pricing model has been trained on 145 unique features (e.g., countertops, roofs), and the company has conducted 175k on-site inspections.

Currently, its margin on a home sale is 4%, but Opendoor believes it could reach 7% with better pricing and upsells (e.g., titles and escrow services).

Opendoor currently operates in 21 US markets

With annual revenues of ~$5B.

The company says its playbook can be successfully implemented across the US, ringing up $50B per year.

At a macro level, Palihapitiya notes the following tailwinds:

  • Americans relocating because of housing affordability issues
  • 75m millennials will soon enter the homebuying market
  • Working from home is here to stay, meaning you can be location agnostic

If imitation is the sincerest form of flattery, then $22B real estate marketplace Zillow has flattered the sh*t out of Opendoor (and validated its business model) by making iBuying a mission-critical part of its business.

(For a deeper dive, check out smart takes from 2 Trends members: Anuj Abrol and Packy McCormick)

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