COVID-19 has made seeing and showing and buying homes arguably more difficult.
Cuz it used to be a physical go visit things process.
That’s harder today.
But that’s happening at the same time that low interest rates and a lot of new desire to leave and cities and move somewhere with more space is spiking.
Those two tend to go against each other.
And all of that against a backdrop An industry that frankly has resisted digital transformation more than many others, quite the little stew.
In Wong’s got some ideas for us, he CTO and co founder of open door, one of the big digital real estate pioneers out there.
You know, you’re in San Francisco.
I’m in San Francisco.
So you and I know the same lingo.
Everybody describes our company as something of something The Uber of food, the Amazon of banking, what are you guys?
You’re the what Of what?
Yeah, it’s an interesting analogy.
It’s what we’re trying to do is to bring a marketplace a fluid marketplace to housing.
So I think the closest one of what would be carmax of real estate And that you’re able to drive a car in and sell your car at a fair market value.
You can also buy a car super easily from that marketplace as well.
But that doesn’t exist and housing and what we’re trying to do is to make that a lot more frictionless and delightful for our customers.
Starting with the seller, what do you do differently than if I were to call a realtor and say I want to sell my house.
Now if you want to sell a home in your homeowner, what you can do is just come to open door.com and get an offer on your home within the same hour.
And so as opposed to, you know in the right now if you want to sell a home the process is it takes about 60 days.
You have to pay a five to 6% fee.
There’s a one seven chance to get in and find a buyer.
And by the way, you have to do all sorts of open houses.
You have to do all the different maintenance that you’ve been putting off for months if not years on end.
And as opposed to going through all that hassle, that emotional rollercoaster of selling your home.
You can just come to a website get an offer and that offer looks right you can accept it and it can be well on your way to selling your home.
We’ve all seen some version of this on lampposts and stuff all around anywhere we live.
We see these handbills that say I buy ugly houses, and there’s a phone number.
And those seem like.
Okay, this is gonna be a distressed lowball offer.
I know you can’t quote a given property or whatever but how are your offers compared to I mean, I’ve obviously I’ve got to take a haircut because you’ve got to resell it.
But how do you make that attractive to the seller.
To your point we buy ugly houses calm, they’re really trying to move on target distressed sellers.
And the traditional process is not exactly cheap, either.
So there’s actually a lot of room to innovate here where we actually strive to give market value.
Now our fees right now are actually more expensive than traditional process.
Traditionally, like I mentioned some five to 6%.
Our fees are on the order of 7 to 71/2 percent.
So, for the customer you’re really trading off Hey is my convenience.
My freedom of choice in terms of what I can do with my home.
My peace of mind is that worth that extra half a percent.
But even within those economics is actually a quite viable business and it just goes to show how inefficient the industry is.
So let’s talk about what it’s like for the, you know, we talked about the seller, they have a much easier path if they wish to just say, look, you guys buy it, you deal with it.
What about for the buyers?
What do you do to make this?
The markets always crazy?
It’s such a local provincial market.
I mean even using any of the various real estate sites out there, you know, it’s you can tell it’s this realtor has this neighbour Neighborhood and another realtors got this one.
And it all seems very localized, are you doing anything to make it more universal the way everything digital tends to be?
No, it’s both the seller and buyer side that we’re trying to democratize the access of buying and selling homes to more and more people.
I’ll talk about the buyer side and maybe return to that theme.
Someone by your side.
We allow people to browse homes in our app, which is a really beautifully built app and experience.
You can go up to the home.
If it’s an open or home, we’ve actually installed Smart Lock systems on our own inventory.
So you can actually enter whenever you want.
And what’s exciting right now with COVID is we can also guarantee that you’re the only person touring that home at a given point in time.
So as a buyer, you can actually afford open door homes.Sign up for 30 minutes slot and know that you’re the only party that’s going to be in there.
And for non open door home, our app actually allows you to tour homes, we can give you the option to do video tours or 360 tours or 3D tours rather.
And that’s also super popular right now.
And the last thing is if you’re ready to actually close on a home, we can help you with financing closing Doing everything purely additionally, which is something that buyers really crave right now because everyone wants to stay safe as they’re buying a home.
Alright, so you guys are clearly in what I guess is called the prop tech sector, not the fin tech sector.
You’re not financing differently, you are marketing differently.
Is that right?
We are doing both.
I think it’s hard to classify something like open door because we are what we’re doing is really a combination of many different things.
So I’ll tell you one more product that we’re launching, which is our trade end products when we call that home reserve.
So what’s really exciting about that product is.
Look one of the toughest.
The toughest things for homeowners who are looking to buy a home is figuring out how to do that those two transactions simultaneously, right, I have to sell my home then I have to get the equity than to place a down payment for my next home.
And a lot of times people can’t actually negotiate the transaction to happen simultaneously.
And so what we can do is using FinTech capabilities, what we can do is we’ll buy your next home all cash will list your current home.
You moved in, but we’ll transfer the ownership of that home once we conclude the sale of your current home.
Now interesting, okay, so you guys can kind of become sort of a, A two sided escrow you can hold all of it and my all my transactions in one place.
That’s exactly right.
And the reason why we’re able to do that is because we have this capability built up in valuing homes accurately knowing exactly how much a home would be selling for
but then when we get to the valuation, which is obviously such a huge thing, Pull hits still this black art I mean, I’ve been sniffing around the market I just refight I kind of a good feel for how things are going right now.
And they’re not going any differently than 20 years ago, at least in terms of the traditional market.
There’s this Wisp
And then there’s the then there’s the high price.
There’s a low price.
There’s the price you might get if you can find things during escrow to bring the price down.
It’s still like the 1920s.
In that respect, can you make the whole haggle cleaner because that’s just so tedious.
really one of the the ambitions of the company is to make the process much more transparent and seamless and straightforward.
You know what a lot of what I spent my time working in as CTO, I wrote a set of pricing algorithms that could really turn this asset both liquid and transparent.
The way I think about real estate technology right now is kind of how people used to get loans, they go to a loan underwriter or a loan officer and depending on the mood of that officer he might get.
A bigger loan or smaller loan, and there’s very little standardization.
There’s very little data driven decision making, when in fact actually there’s a rich wealth of datasets that you can tap into to make real estate much more accessible, much more transparent.
So, right now when you price real estate to your point, depending on the person you ask you might get a different price.
But what we can do is we can actually deploy a modern machine learning algorithms to study the data and say, hey, here’s what high probability what the price of that home is worth when you wanna sell it.
And so that’s what we use to really buy and sell homes internally at open door.
So for example, I mean, most home assessments when you have someone come appraise your house.
They don’t, I can say they have their own opinion but they also don’t take into effect a lot of soft factors, let alone do they mean once that appraisal is done, it’s done.
It doesn’t get adjusted in 10 days.
Once there’s a herd rush to that Zipcode cuz everyone wants to live in that school all of a sudden, it’s a real fluid market week to week in terms of people’s site Geist, and yet the appraisals never reflect that.
Can you get into those soft factors?
And can you be very dynamic in your valuation?
That’s one of the beauties of using algorithms to do this is that it can no human being like you, I mean, you can account for maybe we can hold six to 10 things in our heads at any given point in time
But with a machine you can really count infinitely many.
And so what we do we obviously look into the property details like your basic square footage, number of bedrooms and bathrooms, etc.
But we also look a lot in terms of the neighborhood in terms of things that are actually both obvious like transactions in the past and non obvious like street noise.
Like the foliage, external obsolescence Is there a powerline cutting across your backyard?
But we also get down to the level of, hey, what is the feeling of when someone enters your home?
Now that becomes a really tough challenge and we spent a lot of energy internally trying to figure that out.
How do you model something that is sensory, like when you step into the home how the sunlight shines into The property or the quality of the countertop or the quality of the flooring.
And so there are we actually also employ our human experts to actually help us tag some of that data.
And we also leverage, A lot of ml algorithms like computer vision techniques to distill that into a structured data sets that our algorithms can learn from.
But, you know, a lot of it is to your point quantifying enumerating the things that matter and value home and letting the machines do what they do best, which is to count up all the permutations of how they would add up to a valuation for a home.
Interesting, sounds like you’ve got your own Pandora logic, if you will.
Let me ask you about the MLS, friend or foe?
I think they’re part of the ecosystem.
They are, in many ways, what they were able to do is create a listings platform that didn’t exist before.
Cuz before the MLS, there was really nothing.
Now one of the challenges that MLS however, is that there are hundreds of them in the country.
And so actually becomes very hard to argue that data to share that data.
And one of the tough things is that only agents have access to MLS, right and so becomes harder for everyday consumer to understand what the latest listings are Having said that, in today’s day and age, the consumers don’t really have to care.
You don’t really have to care about MLS, in many ways because consumers now can go to open door.com, zillow.com, revenue com, realtor.com and you know all these different portals to figure out the latest and greatest.
And in fact, I think the stat was 95% plus of home shoppers now start their home, search online.
And so they might not even be aware of.
I’m surprised that low.
[LAUGH] Who wouldn’t start online?
Who would first call a realtor and have never looked online?
That’s that even That’s bizarre although 95 very high.
So I mean, the point is that yes MLS, there could be a million things I can Could be better about the system.
But from a consumer standpoint, I think at this point it may not matter as much-
Let me ask you a couple things here.
These are some nuggets I pulled from an economist report just a few months ago pre COVID.
However, about the market and one of the things they say in America the fees to sell a home including the brokerage fees we’ve talked about, but also taxes and and title insurance and all the rest I think the cost of moving expenses also can exceed a 10th of the price of the actual home now, probably not in San Francisco in New York, but in most of the country.
I was surprised that it’s that it’s that much.
But then when I thought about it, yeah, it starts to roll up into a big number part of our goal over time, that open door is
Today our cost structure and our fees are higher than traditional processes at seven to seven half percent, like I mentioned, but there’s no reason why it can’t be at 6% as we get more efficient, and once we get to 6%, which is a cost parity, there’s no reason why it gets to below six.
If you think about a lot of what has happened in the system, I’ll give you maybe two stories about how to illustrate how ineffective or inefficient the system is today.
I remember when I was still starting the company and I was trying to understand how title and escrow works.
And so I went to the title and escrow company and try to understand like what happens in the office.
Was it purely surely at this point in the history of United States, like this thing is a one click process where it’s all you know, it’s a paperwork, right?
It’s just information transfer.
And you walk into the office and I remember every single cubicle had a different setup.
For handling paperwork, every single title and escrow officer have their own system for doing title escrow, which is the foundation of land ownership in this country, which has existed for hundreds of years.
And it’s just mind boggling how backwards the entire system is.
And so what’s exciting about a company open door and many players that are now trying to disrupt the real estate space There’s a lot of room to improve and make things more efficient.
If you look at that cost structure of five or 6% of a transaction costs and you mentioned other things that go in there, a lot of that are purely informational problems that should literally have zero marginal cost and be done with a click of a button.
So there’s a lot of room to go Another quote from the economist along those lines, that expense could help xplain why owners are staying in their homes for longer.
In the 1950s, 20% of people in the country moved each year and that was in the US.
Today, 9%, I was surprised to hear that.
I would have thought Especially with historically low interest rates and some degree of digitization that we’ve seen that things have only gotten more lubricated, but it sounds like in the big picture, they’ve gotten more ossified.>> A lot of innovation around to your point, making things more frictionless.
making things more accessible hasn’t really reached the single largest transaction in people’s lives.
If you think about if I want to pay or you want to request payment from me, there are like 10,000 different ways at this point for me to transfer payments one that’s free, right?
I can show you a QR code right now you can pay me I can send you bitcoins or like a whole host of all sorts of options.
When it comes to housing however, it’s still this really long and painful process And to your point, whenever you have all this friction, it really prevents people from actually exploring what’s appropriate for them into their lives.
There’s actually a whole host of people in this country that were previously locked out of the ability to sell easily.
And I didn’t really appreciate this until I spoke with a customer In Charlotte, and she was looking to move her family to rally and asked her hey, what’s going on?
Turns out she had an elderly mother that she was taking care of in her home, and they just couldn’t do open houses.
It just wasn’t a thing that they could do, given that she had to take care of her parent in that house.
But with a service like open door, she’s able to get an offer and she’s able to then move to rally Right.
And that’s not something that I even considered as a really good use case.
And there are so many stories like that..>>Let me ask you in closing then, Ian,as we move into a more normal world at some point.
What are you guys doing, to set up to make sure that you don’t have a big snap back of a lot of current customers saying, you know what, we can go back to the old way now, which a lot of businesses are talking about now, whatever their sector is.
What are you doing to maintain Maximum covid market share post covid>>Yeah, so what we’ve seen with covid is up the off consumer expectations I’ve just been fast forwarded.
And so things around wanting to safely view a home wanting to digitally transact entirely online.
We actually think a lot of these things are here to stay.
And I think what’s exciting is actually pulled forward a lot of our product development around actually virtualizing assessment like we talked about around making self tours a default option.
I think the goal over time is to give consumers more options.
I think, frankly, with COVID.
A lot of those expectations have been accelerated.
I think what would have otherwise taken place in real estate Over five or 10 years have now all been accepted to this moment in time.
And I do think that’s a law that is here to stay and to the extent that customers want more, more offline interactions, which I doubt they would really want to much more of, but to the extent that it goes back that way, no, that’s where we were and we’d be more than happy to provide that option to our customers.
And we’ve been talking to in Wong who is the co founder and CTO of open door.
COVID-19 has made seeing and showing and buying homes arguably more difficult.