iBuyers struggle in third quarter while operating at ‘maximum uncertainty’

The cooling of housing markets in the third quarter of 2022 has not been kind to iBuyers open door and Block of offers. Or, as Carrie Wheeler, Opendoor’s chief financial officer, put it: “We are currently operating in maximum uncertainty, with an expectation of continued house price depreciation.”

As with the second quarter 2022, the days leading up to the release of Opendoor’s third quarter results were quite topical. While there was excitement around the new Opendoor Exclusives platform for door-to-door sellersthe firm’s announcement on Wednesday that it would be elimination of 550 positionsor 18% of its workforce, set the tone for Thursday’s earnings call.

Opendoor: difficulties in unloading stocks

Although Opendoor managed to record $3.4 billion in revenue at T3up 48% year-over-year, iBuyer lost nearly $1 billion ($928 million), up significantly from a net loss of just $57 million in the third quarter of 2021. Opendoor executives attributed the company’s struggles to its attempt to offload inventory purchased in early Q2 2022.

“We are focused on improving the health of our inventory by accelerating the resale of the homes we made offers on during the second quarter,” said Eric Wu, CEO and co-founder of the company, to the. investors and analysts during the Opendoor. third quarter earnings call Thursday evening. “Although this comes at the expense of short-term margin losses, we anticipate that this will allow us to put these losses behind us as quickly as possible and re-book inventory, with lower risk and better performance. “

According to Wu and Wheeler, by the end of Q3, the iBuyer had sold or was in resale on more than 40% of the Q2 deal cohort – and they expect to have about 65% of that inventory by the end. of 2022.

As Opendoor worked to get through its old inventory, executives said it reduced the time it takes to complete repairs and prepare a home for resale. This time frame fell from an average of 23 days in Q1 2022 to 15 days in Q3 2022. In addition, it slowed the pace of home acquisition, buying 8,380 homes in Q3, or 45% less than a year ago, while the rate of home sales rose 42% year over year, with 8,520 homes sold in the third quarter.

Optimism for the future

Looking to the future, executives were optimistic about their current real estate acquisitions.

“We’re happy with the new inventory book we’re building right now, and we’re pricing appropriate for the macro environment,” Wheeler said.

Wu also noted that he believes the company’s newly announced platform, Opendoor Exclusives, will play a vital role in Opendoor’s future growth.

“Our sellers can now connect directly with our buyers to transact without the hassle and complexity of a traditional listing. This benefits both buyers and sellers,” Wu said. “For home buyers, they’ll be the first to see unique homes before they hit the market.”

According to executives, at the time of the earnings call, 20% of homes listed on the Exclusives platform were under contract within two weeks.

Offerpad: higher revenue and higher net losses

Like Opendoor, Block of offers recorded higher incomes in Q3 2022 and a higher net loss than a year ago. In the third quarter of 2022, Offerpad earned $821.7 million, up from $540.3 million a year earlier, and posted a net loss of $80.0 million, up 423% from the third quarter. quarter of 2021. However, executives noted that the net loss included an inventory impairment charge. of $27.5 million.

“Since launching in 2015, most of the United States has experienced the seller’s market, but the value proposition we offer is even stronger in the buyer’s market, where sellers can move from listing to waiting in days, and it’s going to take weeks or months, (so) iBuying becomes even more attractive And if we’re smart about how we underwrite homes in the market, there’s a huge growth opportunity, but we’re not there yet,” Brian Bair, President and CEO of Offerpad, told investors on a call Wednesday night.

“Right now we’re between the seller’s market and the buyer’s market, and the expectations between the two parties are very different. This intermediate phase is the most difficult period for the entire real estate market, including iBuyers.

As it navigates this market shift, Offerpad, like Opendoor, has slowed the rate at which it acquires new inventory and increased the rate at which it sells existing inventory.

During the third quarter, the iBuyer bought 1,847 homes, down 33% from a year ago, and sold 2,280 homes, up 36% year over year. Additionally, executives said the average time from home acquisition to sale fell to 97 days, below the company’s 100-day target, and only 5% of existing inventory was more than 180 days old.

“We use real-time market data, analytics and our years of real estate experience with thousands of transactions in our individual markets to do this. We make tough decisions in uncertain times, with a commitment to aim for the best outcome given the circumstances,” said Michael Burnett, the company’s Chief Financial Officer. “Right now, that often means accepting losses on homes that we believe may decline further in the short term, so that we can retain or redeploy that capital more effectively. We make these decisions market by market and house by house to optimize the result. At the same time, we have temporarily but significantly reduced the number of homes we acquire during this transition period. »

Bair also noted that the company revised its “Buy Box” by applying the purchase price cap it implemented in the second quarter in certain markets to all markets in the third quarter. However, customers whose homes are above the “Buy Box”, but who want to work with Offerpad, can use the company’s FLEX listing services.

“Our FLEX SEO service has allowed Offerpad to continue to help customers in current market conditions while reducing financial risk to the business,” Bair said.

Executives said FLEX’s referral and shopping services grew from 7% of volume in Q2 2020 to 29% of volume in Q3 2022.

To advance

To entice more buyers to consider an Offerpad home, iBuyer has begun testing a customizable home improvement offer, called “My Way,” in its Phoenix marketplace.

“With My Way, homeowners can select paint, flooring, countertops and appliances from a list of options that match their personal style,” Bair said. “The update will be completed before they move in, and the cost of upgrades can be rolled into the mortgage.”

Going forward, executives remain optimistic about Offerpad’s future and view its geographic diversity as a key factor in ensuring its future success.

“Our presence in 28 markets across the country provides another risk mitigation opportunity. While markets like Phoenix, Denver and Las Vegas are still experiencing rapid and significant pullbacks, we are starting to see signs of stabilization in some of the more affordable markets,” Bair said. “The diversification we have today was built thoughtfully and intentionally over the past seven years, supporting the resilience of our business. In the third quarter of 2022, no market represented more than 10% of our turnover.

Carol N. Valencia