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October 7, 2022 Market Update

Friday, October 7, 2022   /   by Bryan Baylon

October 7, 2022 Market Update

Opendoor increased their selling efforts during September. Based on affidavits of value recorded in Maricopa and Pinal counties, Opendoor disposed of 503 houses in total, a massive 144% increase on the 206 they sold in August. This can be regarded as a sales success, but it came at a significant cost. Almost 88% of those homes were sold for less than Opendoor paid for them, in many cases significantly less. Here are some statistics based on the county filings:

  • The average sales price was $431,077 down 5.8% from the average in August.
  • The homes Opendoor sold had cost them an average of $475,697, meaning that Opendoor lost an average of $44,620 on each home, or $22.4 million in total.
  • The gross margin was -10.4%, so although they had charged the original seller a fee of 5% of the purchase price, the loss on sale was about double the gain on purchase.
  • Some of the sales included financial concession from Opendoor to the buyer, adding $2,56 million, or 1.2% to their losses
  • They spent $5.2 million on buyer broker commissions and bonuses, adding 2.4% to their losses.

The average time each home was owned was 125 days (over 4 months), so with the slower turnover, holding costs start to mount. These include property taxes, HOA dues, utilities (they have to be air-conditioned for showings), insurance (empty homes are higher risk than occupied homes) and interest on the capital used to buy the homes. They also incurred refurbishment costs, even though in many cases, these were minimal, and transaction costs although those are reduced by them using their own in-house title company.

Some sales (we counted 30) were made to institutional investors, which eliminates the need to pay buyer broker commissions and concession to the buyer, but it also tends to make for lower sales prices.

From even a cursory glance, it is clear that in a sudden market downturn such as the one we have experienced in Greater Phoenix during 2Q and 3Q 2022, it is hard for Opendoor to generate a positive gross margin, never mind a net profit after operating expenses.

They have not stopped buying, adding another 159 homes to their inventory during September according to filings. However their offers are now far less aggressive than they were prior to July and they have a better chance of achieving a positive gross margin with their more recent purchases than with the homes purchased before August. Total inventory is down to about 2,100 from almost 2,500 at the start of September. This is a significant step forward, but they still have excessive inventory considering the state of the market and their monthly sales rate.

As another measure of their sales success, during September about 1 in every 16 sales in Maricopa County was by Opendoor. But because they represent such a significant slice of today's market, and their sales pricing is measurably lower than the market as a whole, they are contributing more than their fair share to the fall in prices. This is a feedback loop, since their sales efforts tend to reduce the value of their remaining inventory.

Market insights provided by the Cromford Report.
Keller Williams Northeast Realty - The Baylon Group
Bryan Baylon
2005 W. Happy Valley Rd #150
Phoenix, AZ 85085

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