Source: Wired —
OPENDOOR IS TAKING a pounding. Forty-two percent of the homes it sold in August made a loss, according to an analysis by market research firm YipitData. In places like Phoenix, Arizona, where cookie-cutter houses have attracted so-called iBuyers en masse, the numbers are even worse. Here, three out of every four homes Opendoor sold in August lost money.
The company blames its current struggles on “the most rapid change in residential real estate fundamentals in 40 years.” It’s a change that’s hitting Opendoor and its competitors hard right now—and it could be coming for millions of homeowners next.
Like the housing market on steroids, iBuyers more keenly feel small shifts in house prices, both up and down, as they try to squeeze profits out of tiny margins. These companies use algorithmic pricing powered by reams of big data to offer house sellers a below-market average deal in exchange for completing sales quickly. They then flip the properties and bank the profit. That’s the theory, anyway.
Dod Fraser, Opendoor’s chief capital officer, confirms the company is losing money but disputes the numbers. He says Opendoor actually made a loss on just 20 percent of sales in August, not 42 percent. Fraser declined to give an official number because the company is in a closed financial period. YipitData spokesperson Nico Wada stood by the 42 percent figure, saying the firm’s statistics don’t include Opendoor’s service fees, because historically they have been offset by resale costs Opendoor faces.
Whichever way you slice it, iBuyers are vulnerable to swings in the market. So what amounts to an undetectable tremor for individual buyers can become an almighty rumble for iBuyers. And while Opendoor’s algorithm might not be smart enough to stop overbidding on houses that are dropping in value, it is smart enough to see into the future—and what it’s seeing right now doesn’t look pretty.