Monday, August 22, 2022 / by Bryan Baylon
There is currently an interesting difference between the strategies of the two main iBuyers in the Greater Phoenix area.
Opendoor has roughly 2,520 homes in inventory and only sold 151 in July. That means they have almost 17 months of inventory. Holding costs start to mount when you have that much in stock, to say nothing of the interest on the money tied up. You can see that they are motivated to sell, because they are disposing of many homes well below cost and giving some buyers substantial closing concessions.
For the 47 homes sold since August 10, the average gross profit made (the difference between the purchase price and the sale price) was -4.4%. The average concession was 0.61% and the average buyer broker's compensation was 2.24%. This means an overall gross margin of -7.25%. This does not allow for the fee charged to the seller, which is not public information.
In the same period we saw only 7 sales by OfferPad, since they seem to be less willing to take a write-down on their homes for sale. We calculate that they have roughly 495 homes in inventory, which represents 11 months of supply at their July sales rate of 45. However this strategy means their sales volume in August is very low. The average profit made on homes that sold since August 10 is more healthy at +5.8%. They are being more generous with their buyer broker compensation at an average 2.75% and less generous with their buyer concessions at 0.27%. Overall their gross margin stands at about +2.8% - still positive.
So based on affidavits filed since August 10, OfferPad are making positive gross margins but not recording many closings. Opendoor are closing far more but are doing so by accepting substantial negative gross margins.
OfferPad is achieving an average 95.7% of their original list price while Opendoor is only achieving 87.9%. This is because Opendoor cuts prices more aggressively and more frequently. Their average hold time is 130 days and average days on market is 76. OfferPad has an average hold time of 105 days and 63 average days on market. These figures only count homes that closed, not homes that are for sale or in escrow.
We see signs that both iBuyers are getting far less aggressive with their buying and expect to see them get far more aggressive with their selling.
With over 3,000 homes owned and almost 2,100 active listings, the iBuyers represent 11% of the active listings on ARMLS. They only represent 3% of ARMLS closings. They will probably be trying to get those percentages to be closer to each other in future.
Market insights provided by The Cromford Report.