Opendoor has been losing big lately in Sacramento since the market shifted. I thought it would be interesting to take a look at their activity over the past few months since I’m getting so many questions about them. This is not about throwing shade, and I’m not writing as a fanboy either. This is objective analysis to help parse what is happening. Enjoy if you wish.
UPCOMING (PUBLIC) SPEAKING GIGS:
8/25/22 State of Housing Brunch & Learn (sold out)
9/08/22 SAFE CU “Stats & Mimosas” (sold out)
9/15/22 Market update in Midtown (details TBD)
10/07/22 Market update with SAR (Sign up here – On Zoom)
THE MARKET SHIFT HASN’T BEEN KIND TO OPENDOOR:
When looking at Opendoor listings and current pendings, they’ve clearly been struggling in Sacramento over the past few months since the market shifted. I think the general public and real estate community has been in tune with this because we’ve all seen lots of properties listed below their acquisition price. On average the current list price is down about $12,000 from the acquisition price. This doesn’t seem like much, but it also DOESN’T include future real estate fees, credits offered to buyers, the cost of improvements, additional price drops, etc… In short, Opendoor is poised to have an ugly third quarter since 65% of their current actives are listed below the acquisition price.
OPENDOOR OBSERVATIONS:
- The company did much better before the market shifted (see below).
- Opendoor had a few unicorns where they were able to sell for substantially more after buying from an owner. The highest difference over the past few months was $192,000 between acquisition and resale. This means a few owners sold to them WAY BELOW market value.
- Their closed sales spent about 40 days longer on the market compared to other sales in the region.
- The median price has ticked down about $40,000 since May in the region, and that’s been brutal for Opendoor’s profitability.
- Opendoor routinely has a higher percentage of price reductions compared to the rest of the market.
- Opendoor was struggling to get offers on their listings, but that appears to be picking up. For instance, a few weeks ago 83% of what they had on the market was active, but now that number is 71% in light of more properties getting into contract.
- A mom-and-pop flipper couldn’t sustain losses like this, but a tech company with massive financial backing might be able to pivot.
RECENT LOSSES
Here is a sample of Opendoor active listings right now in the Sacramento region. They currently have almost 250 active listings, and this portion is representative of the trend.
ACTIVE LISTINGS:
Here is a different way to look at Opendoor listings. Anything above the zero percent line is still listed above the acquisition price, whereas anything below is currently below acquisition.
GRAPHS FROM TRAVIS WRIGHT:
I shared Opendoor data with Travis Wright, who I know from Twitter. I asked him if he wanted to collaborate on this post, and he said yes. So, here is what Travis came up with to help show days on market trends and potential profitability has gone down over time. These visuals divide the closed sales price into the acquisition price, so it’s a potential return. In other words, the images do NOT consider real estate fees, credits, holding costs, repair costs, etc…. Thanks Travis.
OPENDOOR DID BETTER BEFORE THE MARKET SHIFTED:
On average Opendoor came out about $25,000 above their acquisition price when considering sales since May. Does this mean they were profitable? Well, it’s hard to speak to that without knowing their numbers. I’ll just say this looks really tight when considering the gross figure doesn’t account for the following yet: real estate commissions, holding costs, improvements made, and credits. The part that really stands out to me is an average of 155 days from acquisition to closing, which means Opendoor has been holding properties for about five months. If someone has specific insight on profitability, you are welcome to comment below.
CLOSED SALES:
Here is a look at the difference between the acquisition and closed price for sales between May and August so far. This looks much different compared to what is happening with their listings right now. Anything above the zero line represents properties that sold for more than their acquisition price. Again, this doesn’t automatically mean the company was profitable.
OPENDOOR HAS BEEN STAYING ON THE MARKET TOO LONG
Properties took an average of 18 days to get into contract over the past few months in the region, but Opendoor listings took an average of 59 days. Some have wondered if staying listed longer is a marketing strategy to keep the sign in the yard longer. Whatever the case, it’s been blatant in my opinion that they’ve had an issue lingering on the market for too long. I suspect listing at a lofty level worked a little easier during an appreciating market where value could maybe catch up to a higher list price. Can it work in a changing market today with less demand? We’ll see.
CLOSING THOUGHTS:
Opendoor has been trying to crack the code, and the market shifting in recent months has been a monkey wrench in their operation to say the least. The median price dropped a little more than 6% since May in the Sacramento region (about $40,000), and this type of market change has dealt a massive blow to Opendoor’s current holdings at least.
It’s easy to bash Opendoor because they’re trying to challenge the traditional model, but I wouldn’t write them off yet because they recently partnered with Zillow, they’re spending a ton of money on marketing, and they have a war chest of greenbacks at their disposal. In fact, Mike DelPrete states “Opendoor’s advertising spend has skyrocketed this year, higher during the first six months of 2022 than ALL of last year.” Don’t get me wrong, it’s well-publicized that this company has lost over a billion dollars thus far. I’m just saying the future hasn’t happened yet, so it’s important to keep watching.
Are things starting to turn? Opendoor was struggling to get into contract, but it looks like they’re starting to attract more buyers to their listings. For instance, a few weeks ago 83% of what they had on the market was active, but now that number is 71%. Are price reductions making a difference? Or is it the $3,500 incentive they announced a few weeks ago? We need time to understand.
Let’s keep watching, and I’ll keep reporting stats and perspective. If this post does well, I’m glad to follow up again.
RESOURCES:
- Mike DelPrete puts out the best iBuyer data. I highly recommend subscribing to his blog. Mike was kind enough to trade some emails with me this week. Here’s his latest talk (WTF 2022).
- Tyler Okland puts out lots of Opendoor analysis. In fact, he recently wrote about Opendoor’s struggle in Phoenix. I follow him on Twitter, and a few weeks back Tyler affirmed Opendoor numbers were lackluster in Sacramento.
I hope this was helpful.
MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.
Thanks for being here.
Questions: What stands out to you the most above about Opendoor? What did I miss? Anything else to add?
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Looks like they are going down the same road as Zillow !!
We’ll see. They were just starting to turn the corner to profitability recently as a company, but then the market shifted. I’m anxious to see how / if they pivot in coming time.
OpenDoor is a pain in the arse. Not only are their “intake” phones in another country, they are trimming cooperating commissions before they reduce prices.
Thanks Jay. Good communication is so vital.
Zillow and Opendoor appear to be good examples of bad business models !!
I’m an appraiser but analyze the data and notice with OpenDoor:
-Lower than typical commissions
-Usually no effort at marketing. For the longest time the total marketing verbiage was “Single-story house in Folsom with two-car garage.” [or change one-story to two-story if you must and don’t forget]. You might as well put nothing. To me, they fail in their fiduciary duty, except that duty is to themselves, and they don’t care…so who’s going to complain?
-Slow or no response to inquiries (I’m told by agents).
Agents of course prefer to steer clear, and with a softening market it’s all the easier to do so. Why deal with the can’t-be-bothered middle man offering sub-par compensation? Oh, that’s right, the home will just sell itself. Maybe sometimes in the last year or two, but no longer…
Thanks John. I hear similar things. At some point Opendoor could take their listings private off MLS in their Opendoor Exclusives program, but that won’t solve communication issues we frequently hear about. The margin for profit is razor thin, so I get having to cut expenses to maximize profit. We’ll see who ends up winning…
I agree, and don’t forget that they PAINT OVER EVERYTHING.
We saw a Roseville property with black mold coming through fresh white paint over a bedroom window, with (of course) no mention in Disclosures (because they have never occupied). I have requested copies of work done, but it is a crap shoot.
Thanks Heather. If they know about issues, I’d like to see more transparency. There is a promise with technology of having more efficiency, but let’s add transparency to the list. Granted, I get if they don’t technically have to disclose issues they don’t know about if they have not occupied the property, but if they are aware of issues and/or paint over issues, that sounds relevant to me as a non-broker.
Hey Ryan, very interesting analysis. Thanks for putting this together. This jives with the handful of properties I’ve seen in my market. Does Open Door charge sellers fees for repairs or transaction fees in the purchase? That would help with profitability
Thanks Joe. I don’t know if it always goes one way, but there are instances where they get a credit for repairs from the seller during the initial purchase. I don’t have access to have rampant these credits are, the size of the credit, and whether repairs are done or not. But this is one factor that can help make the numbers work. Let’s remember if they can minimize fees and own different steps in the process, this is where they can also theoretically win.
Their profits will also be reduced by the soft costs of carrying the homes for items such as property taxes, insurance, water, sewer & garbage, gas and electric. In addition to marketing and selling fees. I believe their losses are much greater as a result.
Thanks Brian. It’s no joke. Their average acquisition to sold time has been about five months recently, so these fees can really add up.
Thanks Ryan! The Mike DelPrete talk at Inman was good
Thanks Maureen. Yeah, he is a great speaker and source for iBuyer stuff.
Seems the same here in Los Angeles
Thanks for sharing.
They use low budget escrow and title companies to handle their transactions (terrible, slow, assembly line style operation with rotating employees on single transactions), there’s no way in an increasing borrowing rate environment that even before the downturn they were coming out much ahead. Last year they were at 2% buyer coop commissions, this year as low as 1.25% (Sac area). They also hand out credit towards buyers closing costs like candy for repairs. They only make money off the back of homeowners underselling- although this isn’t unique to Opendoor, this is primarily how mom and pop flippers turn a profit on their flips as well.
Thanks Xavier. Yeah, it’s all about acquisition price. If there hold times are going to be about five months total, they’re going to have to acquire even lower if the slowing housing trend continues.
Your data and analysis is amazing. So much work goes into gathering all of that. Well done and thank you.
Thank you Gary. I really appreciate it. This was fun to do. I hope it goes over well.
Opendoor bought the house across the street from me. They paid $387K for it and after painting inside and out, yardwork, etc they have it listed for $392K. I don’t see how they could be making any significant money off this deal. And I’m only seeing a few people view the property.
Thank you for sharing Alvena. I hear you. It’s possible they got a credit from the owner during the original transaction that makes the numbers work. But it’s also very possible they are losing money here.
No they probably actually paid closer to $350K for the house, after fees, closing costs and repairs paid by the seller.
I’m a realtor in Los Angeles. Opendoor is managing their business horribly. Their flips are subpar and their marketing is even worse. I’ve had clients request to view these properties, I call Opendoor and someone in India gives you a code to open the front door. The problem is of the last five properties I visited three of them didn’t have a keypad to actually use the combo that was provided. It’s kinda hard to sell a house when the buyers can’t get inside.
Thanks for sharing, Matt. A local realtor essentially told me the same thing yesterday about access problems.
Your data is skewed. The acquisition price and the actual price they paid are much different. The seller pays 5%, closing costs and repairs. That could be $40,000 depending.
Thanks Mike. Fair enough. I definitely mentioned the unknown factors, and any credit is something that has to be considered. Yet Opendoor enthusiasts are even conceding that Opendoor is not doing well in Sacramento right now (and Phoenix especially), so it’s important to watch the stats. We also have to consider other fees such as credits to buyers, future price drops in a market with less demand, an additional $3,500 credit announced by Opendoor a few weeks ago, real estate fees, holding costs for five months on average (including taxes), any cost to actually repair the house if that was done, etc… So no matter what, these stats are not pretty for the actives, which reinforces my title perfectly I think.
And let’s not forget that the Federal Trade Commission put the screws to Open Door’s Misleading Claims about its business model at the beginning of August (finally!)
https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-takes-action-stop-online-home-buying-firm-opendoor-labs-inc-cheating-potential-sellers
Super interesting! Thanks Ryan
Thanks Adam.
I am in the industry and had some genuine fear a couple years ago when these big companies swaggered in, promising to cut costs and improve efficiency. Their failure, in the midst of the easiest time in history to make money in real estate, tells me that the process of selling and buying a home is much more nuanced, coordinated, and subject to regional variation than was expected. Maybe our jobs aren’t rocket surgery, but they also aren’t templates that can be scaled and outsourced.
Thanks Joda. It’s amazing to watch big tech companies and investment funds salivating over residential real estate and trying to get a piece of the pie. There is certainly room for more models. I wonder at times if some of the bigger companies have underestimated how important personable communication is in the real estate space.
I complete two appraisals last week that were Opendoor resales and both were selling around 20-30% under the prior sale price. These situations were strange since the value seemed to be much higher than the contract prices. I started to wonder if they are doing a large sell-off just to get out of the houses to cut the losses.
Hmm, interesting to hear. Thanks Kyle. Keep me posted if you see anything changing in your market.
Thanks Ryan. Great post. As always you nailed it.
Thanks Rick. I was excited about this one. I’ll likely do a follow-up in a couple of quarters to see what happens. Opendoor is in the thick of working through lots of inventory that won’t be profitable. I suspect they’ll have to shift their buying strategy, and I’m anxious to see how it plays out.
Open Door needs to walk through it and get outta town! They lowball sellers by shameful amounts on beautiful properties. Not an ethical company!
Thanks August. To be fair, convenience is worth something to some sellers, so there is a place for the instant model. But some of the unicorns that were purchased for $100K+ lower are jaw-dropping. That seller left some serious money on the table. Sellers get to do what they want, but wisdom says to check in with a real estate agent too. I find sometimes sellers have no idea what their home is actually worth.
Fortunately Ryan, we knew we were being taken advantage of and got the realtor. I realize real estate is a business transaction, but does it need to be and insult?
Glad it worked out for you. Bottom line. It needs to be ethical, and I despise people being taken advantage of. There is certainly a place for multiple models in real estate, but everything needs to be upright.
This is a very interesting post, Ryan. I’ll have to look up some stats on Opendoor in my area. What I have seen in Birmingham over the past year is that Opendoor purchases a home, does very little work to it, and then prices it way over the competition. I don’t understand how they have been in business as long as they have. Whenever I add listings to my reports I always try to avoid the Opendoor listings because they are so overpriced and in my opinion do not give an accurate picture of the competition. I’m curious now to see what their numbers look like in my market. Thanks for sharing your research, it’s obvious that you put a lot of work into it.
Thanks Tom. It is a weird dynamic where we have to take some sales with a grain of salt or even ignore them. I’ve done similar things with a local mom and pop flipper that constantly sold below everything else (due to quality in my opinion). It’s a strange dynamic though where a big tech company has hundreds of sales that we have to sift carefully or not use as comps. We’re living in strange times when it comes to data. Opendoor has about 5-6% of all active listings in the Sacramento region, so they don’t have enough to really sway the stats, but they are large enough that we have to pay attention to what they do. I found in the fall season that iBuyers were listing more on the market compared to everyone else who was hibernating so to speak, and that’s where we really had to pay attention to iBuyer data. Anyway, this is a major tangent. Hope you’re well Tom. And thanks for the kind words. This was lots of work, but now I’m excited to build on this in the future now that I have some spreadsheets built.
https://www.barrypopik.com/index.php/new_york_city/entry/we_lose_money_on_every_sale_but_make_it_up_on_volume
This website link tells a history of the old joke. iBuyers Opendoor and Zillow have invested billions as if the joke were a sound business practice.
Classic. Thanks for sharing. On a different but related note, if they can own different parts of the process and get consumers to use their pieces, then they can theoretically make less on resale and maybe make the numbers work. To be determined. For now it hasn’t worked and nobody has cracked the code yet. I find consumers are really against investment funds, but it seems like iBuyers are tending to get more of a pass. It’s so important to watch what is happening in front of us right now.