Redfin Shuts Down Its iBuyer Unit. Will Opendoor and Offerpad Survive This Down Market?

The big news in real estate last week was the announcement by Redfin that it was shutting down its fix-and-flip unit called Redfin Now and has terminated 13% of its employees.

The end of the seller’s market has left iBuyer outfits like Redfin’s with homes they paid too much for and can only sell for a loss. A good example of that is Opendoor’s listing at 2090 Braun Drive in Applewood, which I mentioned in my column on August 11, 2022, under the headline, “Looking for Good Deal? Opendoor Is Slashing Prices to Clear Its Inventory.” As the MLS chart below shows, Opendoor purchased that home on Sept. 3, 2021, for $638,300, tried to flip it 4 months later for $652,000, and had already reduced its price to $620,000 by August. That home is still sitting on the market in November, now priced at $562,000 — $76,300 less than Opendoor paid for it over a year ago.

Opendoor currently has 165 unsold listings on REcolorado, the Denver MLS, and the median days on the MLS without selling is 115 — nearly 4 months. Once a home has been active without selling for about a month, Opendoor starts reducing the price, and pretty soon, their profit margin has disappeared.

In the last 30 days, Opendoor has closed on 68 listings, and the median days on the MLS for them was 90.  That median listing that was unsold for 3 months was purchased by Opendoor for $692,700, listed at $760,000 and sold for $650,000, representing an even bigger loss when you factor in the co-op commission paid to the buyer’s agent, renovation costs, and staff costs, not to mention the carrying cost of their investment in the property, property taxes, and more.

The company reported a $928 million loss for the third quarter ($573 million of which was from revaluing its unsold inventory), laid off 550 workers, and saw its stock price fall to just above $1. If it falls below $1 for a month, it will be delisted from NASDAQ.

How much longer can Opendoor and Offerpad, its one remaining competitor, (whose stock price is already under $1), sustain such losses? We’ll see, won’t we?