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iBuyer Financial Losses Mount

March 11, 2021

The two largest iBuyers—Opendoor and Zillow—lost a total of $607 million buying and selling houses in 2020, according to new research from Mike DelPrete, a tech strategist for the real estate industry. DelPrete says that amounts to a loss of about $40,000 on each home bought and resold.

DelPrete also says that $607 million in losses in 2020 is on top of $650 million in losses in 2019.

The pandemic has given this newer instant buying model’s first true test in how it navigates changing housing markets. Home sales have boomed over the last few months and homes are selling at some of the quickest paces ever. The iBuying model is centered on offering quick, convenient sales through cash offers, but that may be losing some pull with buyers who may be confident of a quicker sale on the open market.

Opendoor’s losses quickened during 2020, but a big reason is—like Zillow—it stopped purchasing houses in the early stages of the pandemic. It saw a large decline in the number of homes sold over this year compared to 2019.

However, DelPrete believes it is a temporary setback. Opendoor has ramped its inventory as of late 2020 and should lead to a large uptick in the first quarter of 2021 in sales.

Opendoor has also looked for ways to increasingly monetize its transactions by revisiting its service fees, price appreciation, renovation expenses, and ancillary revenue streams. Opendoor has reached a record low selling cost of 2.1%, DelPrete notes. But the bulk of that was from lowering its brokerage commissions and continuing to push down the buyer agent commissions offered on its houses.

Source: 
Massive iBuyer Financial Losses Continue,” Mikedp.com (March 10, 2021)