California tech company bought more Wake County homes than anyone else during pandemic
LaShara Gilkes was looking to sell her home in northeast Raleigh early last year.
But doing so required taking the time to make the home market ready, and Gilkes, 41, spends most of her days working full-time for Wake County Public Schools and raising her two children, ages 4 and 12.
Instead of selling her home the traditional way through a real estate agent, Gilkes sold her home to Opendoor, a San Francisco-based tech company that pays cash for homes as is, shortly before listing them back on the market.
After purchasing, Opendoor handles all the repairs or minor renovations that a home may need to be market ready, such as painting walls and carpeting floors.
“What appealed to us was not having to do that,” Gilkes said. “We didn’t want to go through all the hoops and formality of putting it on the market.”
Gilkes is far from alone.
Opendoor was the top buyer of properties in Wake County since January 2020, scooping up about 500 single-family homes through the first quarter of this year, an analysis of tax data by The News & Observer shows. The company paid just over $250,000 for the typical home during that time period.
Opendoor bought almost four times the number of properties as Zillow and almost six times the number as Offerpad, both major competitors.
And for the most part, Opendoor was able to turn those properties around quickly, selling about 400 of the homes it bought from January 2020 through March 2021 for about $14,000 more than it paid, on average.
The company’s pandemic-era buying spree was actually a marked decrease compared to the prior year, when the company bought more than 900 properties across Wake County. That buying, data shows, slowed significantly in the spring of 2020 as the virus spread and the company temporarily suspended purchases.
A spokesperson for Opendoor told the N&O in an email that the company would not comment on market specific sales or inventory data. The company also declined an interview for this story.
But in an emailed statement, Jon Enberg, Opendoor’s regional general manager in the Raleigh-Durham market, said that with recent announcements that Google and Apple are coming to the Triangle, the company wants to stand for local buyers who may find themselves falling below a rising median salary in the region.
“Market supply is at an all-time low, and new construction as well as resale supply is not keeping pace,” Enberg said. “New jobs are significantly above the median salary for the area, and buyers are moving from more expensive markets. All of these factors are making it tough to find a home traditionally in Raleigh-Durham and Opendoor wants to help local buyers stand out, especially in a competitive market.”
Opendoor under FTC investigation
The company is relatively new to the Triangle market, buying its first home in Wake County in late December 2017.
It has faced some regulatory scrutiny on the national level since then.
Public filings from the company show the Federal Trade Commission was negotiating a legal settlement with Opendoor as recently as May following an investigation into the company’s advertising claims.
In its March filing with the Securities and Exchange Commission, Opendoor said the FTC believes the company’s claims about offer amounts, repair costs charged to home sellers and price comparisons to selling homes on the open market were “inaccurate and/or inadequately substantiated.”
Opendoor also reported that if the FTC couldn’t reach a settlement with the company, the agency intends to pursue action against the company and some of its officers.
Opendoor is not making any public statements on the FTC investigation beyond what it reported in SEC filings, the company spokesperson said in an email.
The FTC does not confirm or deny investigations into any company, individual or business practice, the agency said in an email.
Roberto Quercia, a professor who studies low-income homeownership at the University of North Carolina at Chapel Hill’s Department of City and Regional Planning, told the N&O in an interview that as a blanket statement, it may not be accurate that a seller can make the same money with Opendoor.
“There may be some instances in which maybe you break even, going either way to Opendoor or a real estate agent,” Quercia said, “but there are a lot of moving variables to say one way or another.”
Quercia did say though that for some sellers the convenience may be worth the potential monetary loss.
“There are no repairs, no showings. So to some, the expediency is appealing,” he said. “They may need the money quickly.”
Several Wake County homeowners who sold houses to Opendoor over the past year told The N&O they were happy with their offers — and the convenience of the service.
Last year, Milton Shields Jr. was ready to sell his Garner home and retire to his home state of Michigan to live closer to family. But amid the pandemic, showing the house would be complicated. And after more than 30 years in the property, getting it ready to sell would take time.
“I’d lived there so long and had so much to do, it was kind of overwhelming,” Shields said.
He closed a deal with Opendoor in December through Mark Spain Real Estate, a national realty firm that has partnered with the tech company. Less than a month later, Opendoor sold the home to another family for $14,000 more than it paid.
But the offer was good enough for Shields, who said he got what he was looking for from the sale.
“If I would have waited it out, I probably could have gotten considerably more,” Shields said. “If you have a number in your mind and you’re ready to move, that’s more important sometimes.”
How the Opendoor business model works
Opendoor’s co-founder and CEO, Eric Wu, told The New York Times in 2018 that the company’s goal is to make moving as simple as the click of a button.
In its initial SEC filing, Opendoor argued that selling a home through a real estate agent complicates the process. By going through an agent, it said, sellers typically get the house ready for sale by making necessary repairs, listing the home and showing the house to potential buyers, among other things.
Opendoor’s selling point is to streamline this process.
The company makes cash offers on homes as-is if they meet certain criteria, although it does charge a service fee that averages 5% to 8%, according to Opendoor’s 2020 annual filing from March. The service fee varies from market to market.
Opendoor points out that brokers charge 5% to 6% and that sellers will face additional unforeseen costs selling traditionally.
Of the sellers intent on selling their homes, the company says in its public filings that 30% take Opendoor’s offer and don’t list their homes.
For the seller, the process starts with a preliminary offer from the company. Homeowners then set up a video call, where they walk an Opendoor representative through the home on a smartphone.
A few days after their own virtual walkthrough, someone from the company came to Jay and Sara Averitt’s home to look at the outside of the property. They had a final offer within the hour.
“All the showings, the inspection — basically all the diligence you’re holding your breath through — that’s all being skipped,” Jay Averitt said. “Not having someone physically walk through your house at all and selling it to them is a strange phenomenon.”
There are potential costs in addition to the service fee — the company holds money back for basic repairs. Anything from the repair fund that goes unspent returns to the seller.
Sellers can also opt to lease back their property after closing for a daily fee if they need more time to move.
For the Wake County homes Opendoor bought and sold from January 2020 through March 2021, the company was typically able to sell them in about 75 days on average. That’s in line with the national average for the company, which according to Opendoor is 70 to 110 days.
And for the most part in Wake County, Opendoor is selling for more than it pays — 86% of the homes the company bought and sold during that 15-month period were sold at a higher price.
Jay Averitt, who sold his home to Opendoor in May, noted the property was still for sale last week, nearly two months later. He said that’s unusual for his neighborhood of Renaissance Park, where homes often sell in days.
That’s one reason he and his wife chose Opendoor — they needed to move quickly to close on a new home just around the corner.
“I couldn’t have been more happy with the situation,” Averitt said. “I don’t fully understand their business model or why they paid what they paid. But for us, it worked out great.”
Triangle is a good market for Opendoor approach
A combination of factors have led to the success of Opendoor and other real estate companies over the past year, Quercia said.
He said that the Triangle’s universities, hospitals and expanding job markets attract people to move here.
Lower interest rates increase demand for mortgages, and the high cost of lumber makes it more difficult to build housing in a market with already short supply.
Quercia said this has created a “perfect storm” where Opendoor can afford to pay cash for this limited supply and sell it quickly as many are looking to buy in the area.
And Opendoor can out-compete low-income families.
“There is always going to be that challenge when families are competing with somebody who can make a cash offer,” Quercia said. “For families that live on a fixed budget, like most of us, they have to compete with investors that have access to capital to pay out the price of homes.”
He said when Opendoor and other companies then sell those homes at a profit, it can potentially increase prices for low-income families, especially when firms target homes in the mid-price range.
“We need to look at this more as a systemic issue,” Quercia said. “How do we come up with policies that are complementary or supplementary to the attraction of big business like Apple that can help ameliorate some of the potential negative impacts on the rest of us that really live here?”
This story was originally published July 21, 2021 at 6:00 AM with the headline "California tech company bought more Wake County homes than anyone else during pandemic."