A contractor hammers building wrap onto a house under construction at the Lennar Corp. Tree Tops community development in Lancaster, S.C., on Jan. 8. Lennar is an investor in Open Door Labs Inc. Photo: Travis Dove/Bloomberg News
Laura Kusisto
Updated May 22, 2018 6:25 p.m. ET

Soon it may be nearly as easy to trade in an old home for a new one as it is to dispense with a used car.

Open Door Labs Inc., a San Francisco startup that buys homes in cash and turns around and flips them, is getting into business with home builders. The partnerships will offer new-home buyers a “trade-in” feature that will allow them to buy a new home without having to worry about the hassle of selling the old one.

If the idea catches on, it could pose a threat to the residential brokerage industry. Traditional real-estate agents wouldn’t be needed in the kind of deals being contemplated.

Opendoor has been piloting the program in select markets, starting with Las Vegas in 2017 with Lennar Corp. , the country’s largest home builder by revenue, which is an investor in Opendoor. Opendoor said it facilitated the purchase of $40 million of homes last month through its partnerships with Lennar and other home builders, including Meritage Homes Corp.

Now, Opendoor is rolling out a larger program in which any customer buying a new home will have this option in any of the nine markets where Opendoor operates. Opendoor expects the program to be available in roughly 20 markets by the end of the year.

“Very often there’s the friction involved in figuring out how to sell the first home,” said Stuart Miller, chief executive of Lennar. This program “takes the friction out of the transaction.”

Nate Harbacek, Opendoor’s head of corporate development, said the aim is to replicate the experience of buying a new car. He pointed out that the current process of buying a new home on the contingency of selling an existing one can be pricey and have a negative stigma. Opendoor will give a cash offer for a house within 24 hours, he said. The program appeals to home builders because a large share of their customers already own a home and many of them need to use the equity from that property to help with a down payment for a new one.

Mr. Miller said buyers delay trading up for a new home because they don’t want the hassle of painting, fixing things up and showing their home.

“Now we can speak to potential customers and say, ‘You don’t have to procrastinate. We can help facilitate a group that will buy your home,’” Mr. Miller said.

Opendoor offers cash to homeowners based on a market analysis, and turns around and resells the homes, aiming to make a profit in fees and potential home-price appreciation after making modest improvements. The company will work with new-home buyers to allow them to wait until their new home is ready before they move out, which can take months.

That introduces a welcome degree of flexibility for sellers. But it also potentially introduces more risk for Opendoor because there is a longer lag time than normal between when Opendoor makes an offer and takes possession of the home, leaving open the possibility that home prices flatten or decline.

Adam Bruder, a 36-year-old maintenance technician, said his wife, a teacher, wanted to buy a new home closer to the school where she works and the couple’s 7-year-old daughter goes to school. He was reluctant. “I really never planned on moving again,” he said.

They found a home in a Taylor Morrison Home Corp. community outside Phoenix, where homes start around $300,000, he said. The home he picked out is 500 square feet bigger than their former home and much more expensive. They needed the equity from the prior home for the down payment.

When Mr. Bruder heard about Opendoor he was skeptical, convinced it sounded “almost too good to be true.” A real-estate agent warned them Opendoor would offer a high price upfront but nickel and dime them on the inspection.

In the end, he said, he sold the house to Opendoor for $8,000 more than the agent was planning to list it for. They closed on the sale of their house the same day as they purchased the new one.

“I was really skeptical going into it,” he said. But in the end, he said, it was “significantly easier” than his prior experiences selling a home.

Write to Laura Kusisto at email@example.com

Appeared in the May 23, 2018, print edition as 'Startup Opens Door For a Home Trade-In.' Who needs a down payment? Trade in your old home instead

Opendoor offers to take the hassle out of selling an old home to buy a new one
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