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October 14, 2022 Market Update

Friday, October 14, 2022   /   by Bryan Baylon

October 14, 2022 Market Update

Our second largest iBuyer, OfferPad is headquartered locally and has adopted a very different approach to the market downturn compared to Opendoor.

They too found themselves with excessive inventory after their second quarter purchases. They bought 446 homes between April and June, but sales dropped off alarmingly from May onwards and by the end of August they had 496 homes in stock. Their average monthly sales had dropped from 217 in March to only 31 in August. This means that at the start of September they owned 16 months of supply.

They reduced their buying activity dramatically from August onwards and purchased only 22 homes in September. This is down 86% from September last year. They put more effort into sales, but did not make the huge cuts in asking prices that we saw from Opendoor. They maintained their high level of buyer broker compensation (again unlike Opendoor) but have not reported large concessions to the buyer (again unlike Opendoor).

As a result their sales have picked up only slightly and numbered 43 in September, down 51% from the year before. With 43 sales and 22 purchases, their inventory did shrink during September, but only from 496 to 473. This still represents over 11 months of supply. 11 of their 43 sales were in bulk to institutional investors and handled outside the MLS.

This strategy has led to a huge drop in sales and purchase volumes, but it has avoided the large negative gross margins experienced by Opendoor. In September, OfferPad sold 43 homes for $18.8 million which had cost them $18.8 million. 56% of homes were sold for less than they cost and 44% sold for more. They still have the 5% fee they charged the original seller, and we estimate they paid 4.7% in buyer broker commission and bonuses plus concessions to the buyers. This leaves them with a slim but positive contribution margin of 0.3%. It's not much but it is a lot healthier than the -10.2% we calculate for Opendoor using the same methodology.

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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