Opendoor riding hot housing market to peak premiums

Opendoor is looking to avoid the hazards that helped take down Zillow’s iBuying business, riding the wave of appreciation in the housing market.

The San Francisco-based iBuyer is listing its homes at a median premium of 17 percent above what it paid for the homes, according to data compiled by University of Colorado Boulder scholar-in-residence Mike DelPrete. The median premium works out to about a $60,000 gain on the flip, per DelPrete.

That doesn’t mean Opendoor is making precisely that much revenue on its home flips. The iBuying business involves purchasing a home from a seller before making repairs before quickly putting it back on the market, meaning a slew of expenses involved in the flip beyond the closing of the initial transaction.

Nevertheless, the premium represents a historic high for the company, according to the data collected by DelPrete, which also uses YipitData’s historical analysis. The findings are based on 1,700 listings as of March 15 and excludes Texas.

Timing couldn’t be better for Opendoor’s potential upswing into a big quarter. The company’s stock fell more than 25 percent one February morning, despite reporting revenue and earnings better than Wall Street’s expectations.

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The selloff was attributed to a drop in the company’s contribution margin, which factors in the costs of carrying and selling home inventory. In the fourth quarter, it declined 9 percentage points year over year to 4 percent.

Opendoor’s net losses for the quarter, meanwhile, amounted to 13 cents per share, 5 cents better than the consensus estimate for the iBuyer. Revenue increased threefold in 2021 to $8 billion after the company sold nearly 22,000 homes during the year, more than double what it sold in 2020.

Zillow’s struggles with its algorithm and nonexistent premiums are part of what sank the company’s iBuying business. After home price growth came in below expectations, an analysis by Insider of activity in late October showed the company was listing almost 64 percent of the homes in five markets for less than what it paid for them.

At that point, the writing appeared to be on the wall for Zillow, which had already paused its iBuying operations. Days later, it was revealed the company was leaving the iBuying business for good, with plans to cut 25 percent of its staff.