The iBuyer model got destroyed last year when the housing market shifted, but is Opendoor starting to turn things around? Today I want to look at some stats in the midst of a market full of drama.
SERIOUS REAL ESTATE DRAMA
It’s been drama this past week with debt ceiling conversations and rates above 7% again. It honestly feels like a soap opera at times with plot changes and big cliffhangers. My advice? Stay grounded in the stats, don’t get swept away by the flavor of the week, stop listening to voices that perpetuate fear, and be patient since we need time to see the trend.
UPCOMING (PUBLIC) SPEAKING GIGS:
6/1/23 Thrive in Real Estate (register here)
6/07/23 SAFE Credit Union event for agents (sold out)
6/08/23 Made 4 More event (in-person & Zoom)
7/20/23 SAR Market Update (in-person & livestream)
OPENDOOR’S CHANGING STRATEGY
One year ago, Opendoor owned over 300 units in the Sacramento region, but right now they only own 50 units. It’s tempting to think they’re selling everything due to failure, but they’ve acquired 12 units since April, so they are still buying. Look, this company is not a poster child for health, but they’ve dealt with loss on their books, they’ve slowed acquisitions, and it looks like they’re being more discerning about what they buy. In short, they are pivoting. To be fair, Opendoor has had the benefit of a more competitive market lately, which helps.
LISTINGS ARE LOOKING BETTER:
As of last week, Opendoor had nine active listings in the Sacramento region, and nearly all listings are still above the acquisition price. Honestly, this wouldn’t even be newsworthy for a typical flipper because selling at a profit is a basic part of business, but the iBuyer model has been notorious for overpaying and selling at a loss. Ultimately, assuming their listings are not overpriced, this tells us Opendoor has been buying at a discount. Or put another way, sellers have been selling at a discount to Opendoor.
Some of these units might still sell at a loss, but four listings are currently over six figures above the acquisition price. Opendoor is known for doing modest improvements at best, so it’s unlikely these properties had extensive upgrades to increase their value.
GETTING DESTROYED THIS PAST YEAR
There is a flicker of hope for Opendoor when looking at their listings, but this past year has been brutal. Since September 2022, only 25% of Opendoor’s properties in Sacramento sold above the acquisition price. Numbers like that are not something a mom-and-pop investor could survive, so still being here is a testament to Opendoor having deep pockets. To be fair, my graphs show the difference between the sales price and acquisition price, and I did not include a 5% credit that Opendoor likely got when acquiring properties. However, these visuals also don’t include holding costs, real estate fees, credits to the buyer, and money spent on repairs. In short, a 5% credit during acquisition doesn’t really change the outcome here. It’s been ugly.
CLOSING THOUGHTS
1) Failure & Pivoting: The iBuyer model hasn’t cracked the code yet, and other iBuyers such as Redfin, Zillow, and Offerpad have all left the Sacramento market. We’ll see if Opendoor is successful or not. For now, they are trying to pivot to survive (something every real estate pro needs to do).
2) Selling for less due to convenience: Sellers can very likely make more money on the open market right now in light of a shortage of supply creating so much competition. However, sometimes convenience is more meaningful, so sellers will leave money on the table for the sake of a smooth private transaction (I hope they know how much they’re leaving though). On that note, I’ve been hearing about more private transactions off MLS lately where sellers have not wanted crowds going through homes, or where buyers found a property to purchase before it hit MLS. This just goes to show a segment of the market wants to transact privately.
I hope this was interesting.
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 are you seeing with the iBuyer model right now? Why do you think some consumers would sell at a discount to an iBuyer?
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thanks Ryan. Always helpful to know what’s going on in the market
Thanks so much Bill. It’s fascinating to watch and to catch trends as they are just starting to happen too.
I love that you’re always keeping an eye on so many parts of the market. It’s a good reminder for my staff and I to keep our eyes open and not just focus on the same few metrics.
Thanks Gary. I appreciate you. One of these days I hope to hang again. It’s been a long time.
If you type in “sell my house” in Google, the Google autofill is telling of changing consumer demand: sell my house fast, sell my house for cash, sell my house online, sell my house without a realtor, and despite that they shuttered years ago – sell my house to Zillow. There’s a growing segment of homeowners who want a certain and convenient home sale. Opendoor provides both. I believe their value proposition will keep them alive and agent-led iBuyers such as Zoodealio will continue to serve homeowners and agents alike. Thanks for sharing your thoughtful analysis.
Hi Kala. It is interesting what we can find when looking online. Ultimately, there is room in real estate for multiple models. It’s just the truth. The iBuyer model is a very tiny sliver of the market right now in Sacramento and in most places. Nobody has really cracked the code yet, and most have failed to date. We’ll see if Opendoor can make it happen. I’ll keep talking about the model because I think it’s important to follow the market.
Any data on current cost to sell your home to Opendoor? I’ve heard varying stories about what a Seller will actually pay in fees and commissions. Thanks Ryan!
Hi Kris. I don’t have those numbers, and I suspect the offer would vary based on many factors. As an example, I just talked with a local agent who said they charged a 5% commission, asked for $12K in repairs, and also asked for a discount below value. The agent I talked to alluded to the offer being about $100K below value. I suspect offers vary substantially though, so this one example isn’t meant to be the template. I will say this example lines up with some of what I’m starting to see in the listings though with offers below value rather than the truly lopsided stuff happening over a year ago when iBuyers were paying absurd prices that didn’t make any sense.
Open Door, at least here in So Cal, was its own worst enemy. Good riddance in my book. They were an absolute nightmare to get information, access and anything else in the transaction. They have significantly dropped in presence and because they were so obnoxious when they were going strong, agents won’t work with them now. Furthermore, as the market realizes the really bad deal they give you for your house, people reject it; unless your desperate, which is not a market sale. I recently did an appraisal where one of the comparables had a DOM of 217 days when everything else was under 60. Looked up the prior sale and what the price, and it was an Open Door. In my comments I stated that was the reason for the long delay. Agents wouldn’t touch it. As the market stabilizes, one needs someone who can get the deal done and that IS NOT Open Door. Reputation is everything and they blew it. Given they are fighting several class action lawsuits for excessive fees, I don’t see much Wallstreet investment going forward. That will put a severe dent in those deep pockets. There will always be room for different models but the iBuy model tries to make something easy that never is an easy process. At least at this point in time. Zillow and Redfin at least were cooperative in their dealings and still had a human finger in the pie. If they ever jump back into the market, they will blow Open Door out of the water because they were easier to deal with and agents will potentially work with them. One should never annoy agents in a market, bad attitudes will bite you in the end.
Thanks Lynn. I appreciate your commentary. Now that you have an approved comment, please pitch in whenever without moderation. Communication is so important. I think one thing the iBuyer model and tech companies have underestimated is how emotional and personal real estate is. There are many moving parts in a transaction, and human emotions can be complex on the buying side. Granted, one of these days someone is going to crack the code to make the real estate process more efficient, but it still won’t be a process void of emotion and complication in light of humans still being involved. Ultimately, just because you have a ton of money doesn’t guarantee success in real estate. We’ll see what this company does in the future. Right now their listings locally look so much better. I don’t say this as an advocate in any way. Just being objective. I’ll follow up in a number of months to see where they are at. Since I wrote this post a couple of weeks ago, Opendoor now owns 45 units. Their inventory keeps shrinking. Yet, they’ve continuing to close on properties too, so it’s not like they are stepping back. If they find a rhythm of buying low and selling quickly, they’ll naturally have lower numbers too. Time will tell.