Dropping your asking price and taking longer than expected to sell are common in the traditional process because accurately valuing a home isn’t easy. We’ll explain how we value homes and the steps we take to make our offer on your home competitive.
Over 300,000 people have requested an offer from Opendoor, and every 27 min, a home seller closes with us.
Here’s what we’ll cover in this guide:
- The Traditional way: How home values are calculated
- Your Opendoor offer: How we value your home
- Our local pricing experts: The team behind your offer
How we value your home explained in 2 minutes
After you enter your address and tell us about your home, our goal is to have a competitive, all-cash offer in your inbox within 24 hours.
We don’t try to make “low ball offers” because, unlike a home flipper, our business model isn’t based on buying low and selling high. The way we make money is charging a fee for our service.
Our fee is similar to a real estate agent commission but with more perks like the ability to choose your close date, avoid repairs, and handle the paperwork online.
The traditional way: How home values are calculated
Whether it’s a comparative market analysis (CMA), a home appraisal, or an Opendoor valuation, the basic process for calculating a home’s value involves two steps: finding comparable homes and making adjustments.
It all starts with finding comps
If you’re working with a real estate agent, they’ll likely create a report called a CMA. The process starts with a selection of comparable homes in your neighborhood that have sold recently, often referred to as “comps”.
Searching for a few comps of your own?
Here’s what to look for:
Look for homes that were recently sold—the more recent, the better.
- Feature Similarity
Choose homes that are the most similar to yours in terms of features like type of home (two-story vs. ranch), year built, number of bedrooms, bathrooms, and square footage.
When possible, choose homes in the same subdivision as your home. This is because the house a block over may not be a good comparable if it belongs to a different subdivision with different HOA rules, school district, and transit options.
If your home has a unique placement, such as on a busy street, golf course, or waterfront, look for comps that have the same placement.
The challenge is no two homes are exactly the same so you’ll need to make adjustments to compensate for each difference between your home and each comparable home.
Make adjustments and then do it again
The goal of making adjustments to find out how much a comp would have sold for if it had the exact same features as your home.
The worst way to do this is to say “I have a pool so my home is worth $10,000 more than a home without a pool because that’s how much a pool costs.” Market value is based on what buyers will pay, not how much something will cost.
A better way to make adjustments is to take each comp and compare it feature-by-feature to your home. When there are differences in features like square footage or the number of bedrooms and bathrooms, you’ll add or subtract the value of that difference from the comp.
You’d then add up all of the adjustments for each comp and take a weighted average to get a rough estimate of your home’s value.
The math is really tedious which is why we created a proprietary algorithm that can do these calculations instantaneously for hundreds of comparable homes.
→ Curious about your home value? Start with a free, cash offer to price your home.
Don’t forget about unique features and market trends
Bathrooms, bedrooms, and square footage are straightforward… but how would you handle more granular features like floor type, a finished basement, proximity to transit and schools, or something abstract like road noise? These are important features that can increase the value of your home.
Lastly, if your comps are a few months or even weeks old, you’ll want to adjust for any price appreciation based on trends in your market.
You can see how even with just a few comps, it is incredibly difficult to make adjustments precisely. It turns out computers are really good at this task, but the machines haven’t taken over yet. Real estate experts are still an essential part of the process.
→ See how the costs of selling to Opendoor compare to a traditional sale.
Your Opendoor offer: how we value your home
To make an offer on your home, we rely on three things:
- Your inputs about your home’s condition, features, and updates
- Our robust data model
- Our team of local pricing experts
Your info about your home
One of the most important parts of our valuation process is inputs from homeowners themselves. When you request an offer, you have the option to submit photos of your home along with information about any improvements you’ve made.
For example, does your home have multiple garage spaces? Have you made any permitted additions? Do you have granite slab countertops or maybe quartz or tile? How about a kitchen island or a tile backsplash? You can tell us about your appliances, flooring, cabinets, countertops, and all of the other features that make your home unique.
After we learn about your home, we pair that information with an analysis of the local market conditions and recently-sold, comparable homes.
Hundreds of comps and millions of data points
As we saw above, you need a lot of data to make adjustments precisely, and you also need to factor in market trends.
Opendoor has built a valuation algorithm that can compare hundreds of pairs of comps for any given address. We’re able to make dollar value adjustments for the finer details of your home like stainless steel appliances, granite countertops, a finished basement, and even road noise.
We asked our data science team about how it works:
Opendoor Data Scientist
“For any given market, we input as many homes as there are sales—that’s millions of data points for a single city and hundreds of comps for a given home. We also look at decade-long historical pricing trends at the local and macro level.
Still, the real advantage we have is the years of feedback from the local pricing teams in all of our markets because they are constantly authenticating, training, and improving our valuations every day.”
Experts in your market
As a full-service real estate company, we buy and sell thousands of homes a month. That means making an error in a valuation has a direct impact on our business. This is why we rely so heavily on local pricing teams, and it’s also why we work with local businesses.
Behind the scenes with the team behind your offer
Our pricing teams are comprised of former appraisers, real estate agents, brokers, property investors, and other real estate professionals. They act as a final set of eyes on our data model, ensuring we have a local perspective on neighborhood trends.
But what does it mean to have a local perspective on market data? We asked Central Pricing Manager, Sean Busby.
Sean Busby – Central pricing manager
Sean, what do you wish everyone knew about how we value homes?
We are local. The teams we hire are from your city and live in your city. This gives us the ability to know the defining features of each market. We also use these insights to improve our models and fine tune adjustments that may not be applicable in another market.
What are some of the most impressive local features that we can analyze?
One of the sections of our model that I think is the most dynamic and sophisticated is how we calculate micro and macro “time” differences between comparable sales and the property we’re valuing.
We want to credit sellers for current market trends so your offer is as if you’ve just sold your home on that day. Our model will review comps that sold at different time periods, adjust and understand granular neighborhood trends, and calculate dynamic seasonality.
What do you mean by micro and macro trends or “dynamic seasonality”?
For example, in an environment where home prices are appreciating (let’s say it’s a good year for real estate), you’d expect all properties to appreciate equally and linearly for the same value, right? Perhaps sometimes, but the majority of the time…no.
Market values are not linear as seller and buyer trends fluctuate with things like: tax refunds, moving before school starts, not wanting to move over holidays, etc. This fluctuation of price can be illustrated below:
In the chart above, we can see that this market increased in median price throughout all of 2018 a total of 2.8%, but during the spring to mid-summer we saw appreciation of 10%, then a steady decline to close out the year. Our aim is to project this value and give a fair offer to sellers.
Already requested an offer? Here’s what’s next.
If you’ve requested an offer and you have questions about your home value or the process itself, set up a call with your Opendoor Home Advisor. They’ll work with you one-on-one.
As a next step, you’ll schedule a free home condition assessment, similar to a home inspection in a traditional sale. The purpose of our assessment is to verify the condition of your home and identify if repairs are needed.
If the assessment turns up any needed repairs, we’ll ask for a credit and deduct the costs from your net proceeds. We’ll then do the repair work after you move out so you avoid the headache and can move on your timeline. And if you change your mind or disagree with our repair ask, you can cancel at any time before closing without a penalty.
→ Planning a sale? Estimate your costs and net proceeds with our home sale calculator.
Most home valuations start with finding comps and making adjustments; this is very difficult to do precisely. Opendoor’s process uses feedback from homeowners about their home, a robust valuation model, and local experts in your market.
We don’t just estimate your home value, we make a competitive, all-cash offer.
By Joseph Gomez