Opendoor is bringing its iBuying operation to Long Island, the lower Hudson Valley and New Jersey after expanding to the opposite coast earlier this year.
San Francisco-based Opendoor, the dominant iBuyer among the three that remain after Zillow’s dramatic withdrawal last fall, will look to purchase single-family homes and condo units priced from $300,000 to $950,000 in nearly 500 zip codes across the two states, the company said Tuesday.
“This was a natural progression for us as we enter more complex, deeper markets,” Will Holmes, the firm’s head of agent growth, said in an email. “Now that we have launched in major markets like Los Angeles and the Bay Area, we have the technology and systems in place to serve more customers.”
In New York, Opendoor will focus on 230-plus zip codes spanning five counties just outside New York City: Suffolk, Nassau, Westchester, Orange and Rockland.
The company is not saying when it will get to the five boroughs. “We hope to expand to additional zip codes and serve as many customers as we can,” Holmes said.
In New Jersey, Opendoor will buy homes across 260-plus zip codes in 12 counties in the northern half of the state, from Sussex County at the north end to Monmouth County in the middle of the state’s eastern border.
With the expansion, Opendoor operates in 46 markets, up from 21 at the end of 2020.
Opendoor and its iBuying competitors, Offerpad and Redfin, “robobuy” homes using proprietary algorithms to estimate their market value. They attract sellers with the allure of a cash offer and a quick close, then renovate the homes, aiming to resell at a profit.
The iBuying business model is only about a decade old — Opendoor, founded in 2014, pioneered the model — and is theoretically more difficult in expensive, coastal markets where the housing stock is older, more variable and unique. Homes often have traits that can be hard for an algorithm to value, like bespoke design elements, a one-of-a-kind view or famous neighbors.
The Hamptons, in Suffolk County, are home to seven of the nation’s 100 priciest zip codes, including two in the top 30, Sagaponack and Water Mill, according to PropertyShark.
Zillow’s experience proved just how risky the business can be. The company’s algorithm, by its own admission, proved to be poor at estimating homes’ present and future value, and the firm had trouble marshaling the resources and labor to renovate and profitably sell them.
Opendoor, which went public in late 2020 via a SPAC merger, says its investments in engineering and data science, along with the experience it has gained in pricey coastal markets including San Francisco and Los Angeles, have helped it better manage risk.
Scale has helped, too. The company sold some 22,000 homes last year, more than its two main competitors combined. But while its revenue tripled, the company struggled to turn a profit given the high costs of carrying and selling its inventory.
CEO Eric Wu has said 2022 will be a “defining year” for the company, but rising mortgage rates and the specter of a recession could complicate the business, which has not been tested in a bear market.
Investors remain wary. As mortgage rates shot up again April 5, the company’s stock fell nearly 8 percent to around $8.35 per share — down nearly 17 percent from the $10 SPAC buy-in price.