iBuying takes further hit with Opendoor’s $928m loss

The business of using algorithms to quickly buy and sell homes has suffered another setback as volatility in US house prices exposed one of the sector’s biggest players to substantial losses.

Opendoor, which went public via a SPAC at the end of 2020, said it would lay off 550 people on its team – 18% of its workforce – after losses rose to $928m in the third quarter, compared to $57m in Q3 2021.

The company set out to “reinvent life’s most important transaction” by using algorithms to work out the value of a house, give prospective sellers a quick offer, take on any needed repairs and then sell the house.

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But as the economic outlook worsened with expectations of further house price falls and lower transaction volumes, Opendoor’s inventory was valued down by $573m. Suddenly, the price that the company could realistically get for its houses looked significantly less attractive.

Meanwhile, business slowed down with the number of homes it bought falling 45%, year-on-year, to 8,380 in Q3.

Eric Wu, co-founder and CEO of Opendoor, told investors in an earnings call that the company would accelerate the resale of homes that it made offers on last quarter.

He said: “While this will come at the expense of marginal losses in the short term, we expect that it will enable us to put these losses behind us as expeditiously as possible and proceed with a fresh, lower risk and better performing book of inventory.”

In a statement about its results, Wu said that Opendoor is “well-capitalised with the balance sheet to weather this rapid market transition and emerge even stronger.”

Market exits

While Opendoor is trying to turn around its business, others in the sector have abandoned iBuying altogether.

In the US, Zillow shuttered its iBuying business after reporting a loss of $328m in Q3 2021.

Having relied on predictive analytics to price the homes it bought and renovated, Zillow could not navigate the volatility of the housing market during the pandemic, resulting in huge losses.

In the UK, a digital estate agent called Emoov had lined up an iBuying business in 2021 before deciding that it was too risky.

Between tight margins and an expectation that the UK housing market was overheating and heading towards a dip, Emoov’s parent company Mashroom opted to focus on the rental market, where it still saw attractive margins and opportunities for digitisation.

Alexander Badalyan, CFO of Mashroom, told PlaceTech: “In hindsight, this is a very reasonable decision and, given the balance of macroeconomic factors today, we would have had a tough time proving the [iBuyer] model in the UK.”