
The Stack That Helped Opendoor Buy and Sell Over $1B in Homes - lukehamilton
https://stackshare.io/opendoor/the-stack-that-helped-opendoor-buy-and-sell-over-$1b-in-homes
======
yourapostasy
Just as interesting to me as the tech stack is the business stack. There have
to be some really tightly-managed pipelines of deals because Opendoor is
fronting capital to buy up the houses. Interesting scaling challenges there on
the capital side.

If Opendoor works out how to quickly vacate the newly-bought property, then
automate much of the project coordination activity that is done to flip the
property by automatically scheduling and bringing in contractors and
inspectors, that could lead to some really interesting returns. Even if the
sprucing up is not to flip for huge amounts, just the usual repairs and
freshening changes, combined with an empty house to show, could easily lead to
semi-automation of a buy-low sell-high, high-volume business of conveniently
buying a lived-in house, and selling a nice-looking, nice-smelling, high-curb-
appeal house for much higher than the original property owners could bring.
Automate the scheduling of staging and unstaging, and goose the numbers even
more. I can see all sorts of other follow-on monetization streams from this
simple change in the process you guys introduced, thanks for the thought-
provoking write up, I look forward to reading much more about your successes
in the future.

~~~
frgtpsswrdlame
But it basically is flipping isn't it? Maybe they can work out how to flip a
little cheaper with technology but this model only works because flipping is
so hot right now.

[http://www.housingwire.com/articles/39523-home-flipping-
hits...](http://www.housingwire.com/articles/39523-home-flipping-hits-10-year-
high-in-2016)

~~~
azirbel
It looks similar, but we're actually very different than flippers.

House flipping is about finding underpriced houses (either by having a sharp
eye, or by buying distressed houses), and then optimizing the amount of money
invested vs. the return.

Opendoor is much more focused on the customer experience, trying to give fair
offers to every home - everyday homes, not distressed ones. We typically don't
spend very long renovating our homes. We'd rather reinvent the buying and
selling experience itself, and do a larger number of transactions.

More info: [https://www.opendoor.com/blog/flipping-the-real-estate-
indus...](https://www.opendoor.com/blog/flipping-the-real-estate-industry-on-
its-head)

~~~
frgtpsswrdlame
That's defining it a bit narrowly isn't it? You guys buy homes, do a (little)
work on them and then sell them for more, all in a short time frame. Maybe
your innovation is in doing lots of small flips but it still seems like
flipping to me.

~~~
wtvanhest
I'm going to speak for OpenDoor here so someone from them can probably jump
in, but the company I started and shut down was around financing house
flippers and I have a background in both capital raising and real estate.

There are many types of 'house flipping' and most of the differences are just
various shades of grey.

For illustration purposes:

At one extreme: Focus on buying dramatically undervalued assets, putting in
minimum work and reselling. (Do this using lots of people labor in looking for
deals.) - IMO, this is the only way to make money consistently flipping

At the other extreme: Buy houses, put dollars in to them and acheive an ROI
(lots of people labor in rehab). This is what you see on "house flippers" or
other TV based flipping shows. Typically these systems work when the market is
appreciating, but the value the 'flipper' puts in is really questionable vs
the market appreciation. Most of the people that do this strategy eventually
end up getting hammered in a downturn.

Opendoor is basically disrupting the first group. They are using a
quantitative process (automated valuation models), then overlaying a
fundamental process on top (having someone look at the data to make sure it
makes sense.) That is how they make sure they are buying undervalued assets.

The disruption happens because they are eliminating the huge amount of man
hours it takes to find undervalued deals, by paying slightly more, and
building a good brand and well as fine tuning their marketing channel.

At the end of the day, a certain percentage of people need to sell their house
very, very quickly and OpenDoor will be able to pay more than flippers in the
first extreme so they will gain a ridiculous amount of market share.

Downside risk: The risk is that they need to scale their operation so large to
get economies of scale that when a downturn happens, they are too top heavy
and end up getting financial destroyed. Many people may also assume that they
could systematically missprice houses (pay too much), but I doubt that is a
real risk.

~~~
frgtpsswrdlame
It seems to me that they actually disagree with you, see the comment further
up this thread.

>Opendoor is much more focused on the customer experience, trying to give fair
offers to every home - everyday homes, not distressed ones.

So do you think that this response is being a bit coy and they are in fact
buying deeply discounted homes?

Also, I guess I don't understand where they actually make money. If someone is
unable to sell a home for a long period of time and then sells it to OpenDoor,
why are they able to then turn around and sell it for more? In this very
thread they attest that they're not flippers because they're not adding much
real value to the home.

~~~
wtvanhest
It is a nuance.

Opendoor: Targets sellers that want to sell quickly without any hassle.

Flippers: Targets sellers that want to sell quickly without any hassle. Some
of them are distressed. Some of them are just in a hurry.

There really is no real distinction. How they make money is clearly laid out
on their website. They buy for low, sell for higher than the bought. I believe
they also cut out realtors.

~~~
amorphid
There's inherently wrong with wanting to sell quickly. If grandma died,
leaving me her house 3,000 miles away from where I live, the last thing I'd
want to be saddled with is trying to sell it. I know nothing about selling (or
owning) a house, the real estate market in that area, etc. A fair enough price
ASAP is what I'd be looking for.

~~~
brianwawok
Why not make one call to a local agent and have it sold for 5% more money?

I'm all for paying $2 for convenience if coffee on the run. Not sure I would
pay $20k to save a few hours work around selling a house.

~~~
BadCookie
Agents are not free! Around where I live, you can expect to pay 3% to each of
the two agents involved. Selling the house for 5% more doesn't help you if you
have to give 6% of the sales price to the agents. I wonder how much of what
Opendoor is trying to achieve involves removing or reducing the agent
involvement.

~~~
brianwawok
I never said they were free.

If getting an agent on your own cost 5%-6%, and opendoor is charging 12%...
you are losing 6-7% by using opendoor. That is a LOT of money.

------
panabee
the business model is fascinating. the capital requirements make opendoor seem
crazy on the surface, but it is not at all insane if you dig deeper.

the short term model is predicated on managing inventory like a retailer and
diversifying holdings like a trader. mastering both functions, let alone one,
is very challenging, but far from impossible. if opendoor can acquire data and
predict transactions better than competitors, the mountain top becomes
eminently more climbable. from a portfolio perspective, the early stages are
actually the least risky because opendoor can cherrypick the best real estate
markets, and within those markets, cherrypick the best homes, where "best"
means the properties most likely to sell quickly and profitably.

the long term vision has not been articulated, but it seems like opendoor
could grow into a platform for homes much like amazon is a platform for
consumer goods. opendoor would provide the buyers, product guarantees (e.g.,
home inspections passed), the open house experience, and predictive analytics
(e.g., home X has a 80% chance of turning over in 30 days if priced at $1M)
while others manage financing and inventory risk. if this conjecture is right,
look for opendoor to (a) lower prices and (b) streamline real estate
transactions with automation where possible and where not possible, to empower
untrained (i.e., cheap) individuals with computer vision and smart software to
perform tasks like certified professionals. if neither happens, consider the
conjecture wrong. :)

~~~
azirbel
Thanks for the comment -- and it's very accurate in terms of where we'd like
to go.

On a tangential note: empowering untrained individuals is important, but we
often do the opposite too. Many of our internal tools are designed to make
trained professionals/experts as efficient as possible.

For more speculation on Opendoor's business and where we might take it, I
think Stratechery has a good writeup. [https://stratechery.com/2016/opendoor-
a-startup-worth-emulat...](https://stratechery.com/2016/opendoor-a-startup-
worth-emulating/)

~~~
panabee
yup, i also wrote a deeper analysis after someone posted about opendoor in
december.

what will be super interesting to watch is how the market size (i.e., annual
real estate transactions) changes in response to reduced friction.
historically, disruptive technology like uber widens the market substantially
because it unlocks all this demand artificially suppressed by friction.
because of opendoor and similar startups, will transaction volume increase by
10%? 50%? 200%?

opendoor is the classic VC investment: huge upside with controllable, sane
risks.

~~~
nickjarboe
It would be great to move as a home owner and be able to avoid the 5-6%
realtor cost on both ends (10-12% total). This could enable millions of people
choose better living arrangements. Unfortunately for people in California,
Prop 13 will still create huge costs to moving.

------
mruniverse
It would be more interesting to know why this stack helped the business.

Otherwise it's just a list that doesn't have much connection to the $1B part
in the title.

~~~
azirbel
I'd say the main direct effects were (1) we were able to iterate very fast on
our internal tools, which are used by internal operators to manage each
transaction; and (2) our data science setup has allowed us to price homes
incredibly accurately. Many companies have estimates of a home's value, but
Opendoor puts its money where its mouth is ;)

Happy to answer any more questions about it.

~~~
conanbatt
I am actually building a business on real estate appraisal in Argentina
(reva.com.ar), building many of the tools you mention to get the most accurate
representation of values of homes. Im quite surprised you got it so well that
can build a business around buying thehomes yourselves.

Would you be willing to share an email so i can ask you a couple of questions
if appropiate?

~~~
azirbel
Sure! My email is alex@opendoor.com.

------
kandalf
I'm a software engineer at Opendoor- happy to answer any questions!

~~~
6stringmerc
Can you please write an email to your Marketing Department and pass along a
note?

Here's the text:

"While effective in your goal of creating Brand Recognition of 'Open Door'
please be informed that the blitz campaign with the radio ad featuring the
sound of a doorbell ringing, followed by the company name, 'Open Door,' was
one of the most unabashedly Pavlovian ear-worm manipulation techniques I can
recall. It almost makes 'Head On - apply directly to the forehead' look like
high art. DING DONG - OPEN DOOR! DING DONG - OPEN DOOR!

Because of this tactic, I will never, ever reflect upon the brand of Open Door
with anything but disgust. Yeah, you got market share, good for you. How you
did it, however, makes me want to puke."

It might sound extreme, but I have a sensitive brain. That goddamn commercial
was everywhere. And terrible.

~~~
jdross
I am sorry about that ad. We cut it after two weeks, and modified it after the
first week to be less intrusive.

I'll take fault for letting that through review; I got your email the first
time it went live. I learned a lot from it, as did the team.

~~~
6stringmerc
Yeah it was really bad and hurt the brand. Subsequent ones are a lot more
appealing and, not kidding, very high quality and effective.

Glad you've decided to take a more mature tack in advertising, but as we all
may well know, you only get one chance at a first impression. As such, I don't
intend to brow-beat you or your team, just let you know that certain choices
have consequences. That commercial was essentially a landmine and if shrapnel
happened to take off a limb or two of yours in the process, I hope it's a good
learning experience.

~~~
jdross
Always appreciate the feedback.

Like most companies, we used an agency and gave them a brief containing
benefits we want to convey, which they turn into a script and produce. We
learned that getting closer to the ads is quite important. We don't work with
that agency anymore.

------
amalag
What an amazing business model. Not something I would have considered as I
would consider the capital requirements too high to purchase almost any house.
They will walk a fine line between being too picky and excluding an average
consumer or having too high a price and losing money. But regardless it is
very cool and potentially disruptive, much more than Redfin. A silicon valley
version of "We buy your homes for cash"

EDIT: As commentors on BiggerPockets are saying, it is just like Carmax.

------
aecorredor
As a senior computer science student, who constantly tries to learn and keep
up to date on his own time, I felt a little overwhelmed after reading this
article. I know that they are just tools that can be learned, but my question
is about junior devs. How do you go about hiring (if it is the case that you
do hire junior devs) and training them?

~~~
azirbel
Ah, they're just tools that can be learned. I had to run around the company
quite a bit to make sure I got all the information right.

We don't require experience in any of these tools to get a job at Opendoor.
Most programming experience can be transferred between different technologies.
We do a lot of pair programming to bring people on board, plus feedback in
code reviews.

~~~
aecorredor
Thanks for the answer! If there is any resource that you remember had an
important impact in your learning path as a scalable application programmer
I'd very much appreciate to hear about it. Cheers.

~~~
cnnrjcbsn
I'm just a little over a year out of school myself, so I'm far from an expert,
but happy to share some things that come to mind.

I haven't had a chance to look through it in-depth yet, but this looks pretty
interesting: [https://github.com/donnemartin/system-design-
primer](https://github.com/donnemartin/system-design-primer)

As far as things that have had an important impact in my learning path, I do
have a few Ruby books I really like (the key here is to get your hands dirty
with code as you read along): \- [https://www.amazon.com/Ruby-Under-
Microscope-Illustrated-Int...](https://www.amazon.com/Ruby-Under-Microscope-
Illustrated-Internals/dp/1593275277) \-
[https://www.amazon.com/Metaprogramming-Ruby-Program-Like-
Fac...](https://www.amazon.com/Metaprogramming-Ruby-Program-Like-
Facets/dp/1941222129) \-
[https://gumroad.com/l/rebuilding_rails](https://gumroad.com/l/rebuilding_rails)

I think reading about (and looking at the code) for things you use and trying
to understand how they work under the hood has been super useful:
[http://aosabook.org/en/index.html](http://aosabook.org/en/index.html)

Having smart people around to learn from is extremely helpful too.

Happy to chat more if you'd like. Just drop me a line:
connor[at]opendoor[dot]com

------
bradknowles
So, OpenDoor == CarMax for homes?

~~~
zan2434
Data scientist at Opendoor here. That is a very accurate analogy.

------
rodionos
I wonder, if the stack would be radically different if a) interest rates
increase to 'old normal', and/or b) price trend reverses in the opposite
direction.

Global housing prices:
[http://www.economist.com/blogs/graphicdetail/2017/03/daily-c...](http://www.economist.com/blogs/graphicdetail/2017/03/daily-
chart-6)

------
safeharbourio
this looks quite clever, opening doors via a code? nice. that would certainly
get my attention. One thing, are you guys doing any modelling using graphs? or
is all your data normalized and stored in relational DBs?

~~~
cnnrjcbsn
I can't speak for the data science stack, but everything in the web stack is
Postgresql (with the exception of Redis for background jobs and things of that
nature).

------
NicoJuicy
For anyone who was wondering, they use smart locks from Schlage.

But i'm curious for two things:

-why they use those except for the different models Schlage has.

-where is Schlage api's documentation :p

~~~
zain
Hey! Zain from Opendoor here. We actually just switched to using Kwikset 914
locks instead of the Schlage ones. API docs are basically nonexistent for
both, but the Kwikset is a lot easier to reverse-engineer than the Schlage!
Feel free to email me if you have specific questions about either lock.
zain@opendoor

~~~
NicoJuicy
Wow, that's seriously open of you guys! Thanks

------
hitekker
Forgive my ignorance: does "buy and sell $1B in homes" mean your total GMV to
date is $1B?

------
segmondy
Buying and selling over $1B in home is not impressive when done by a computer.
If someone did it single handedly maybe. I hate when people quote numbers to
impress and confuse others. At $100,000 that's 10,000 homes. Selling 10,000
items is not impressive. So why should I care what stack you used?

~~~
JohnJamesRambo
Have you done it?

~~~
segmondy
Sell 10,000 items? Yes, on a daily basis.

~~~
crooked-v
Buying a home is much, much more complicated than buying "an item", even if
you leave out the complications of a mortgage.

