iBuying on the brink: Where does the controversial homebuying model go from here?

Industry analyst Mike DelPrete on Opendoor's shakeup and the future of the business

Eric Wu, formerly of Opendoor and Mike DelPrete 
Eric Wu, formerly of Opendoor and Mike DelPrete

iBuying was feared to do to real estate agents what Expedia did to travel agents — render them extinct. So far, however, it’s the iBuyers that are facing extinction, one by one.

First it was Zillow, which bowed out of the iBuying game after racking up $900 million in losses and getting bruised on the stock market. Then, Redfin, which said last month it could no longer remain competitive in the space due to rising interest rates. Meanwhile, Offerpad was threatened with delisting by the New York Stock Exchange after its stock price fell below $1 (it’s currently at $0.66).

The pioneer of the model, Opendoor, is still standing, barely. The company lost a whopping $928 million last quarter, its market cap has fallen under $1 billion from a high of $18 billion and its stock price has plummeted 90 percent so far this year, to $1.54. These are all ingredients for a C-suite shakeup, which is what happened last week. The company’s co-founder, Eric Wu, stepped down as CEO, to be replaced by CFO Carrier Wheeler, and president Andrew Kee resigned.

To make sense of the news and to put iBuying in perspective during this wacky housing market, I enlisted the help of Mike DelPrete, a residential technology analyst whose columns and original research have been crucial in helping me to understand the model. What follows is an edited and condensed version of our conversation. (You can catch the full chat in video here)

Opendoor is at the forefront of what I call “the home as a commodity” challenge: Turning the single-family home into a markable, tradeable asset like a barrel of oil. But they’ve had consistent losses.

What attracted me to this business back in ’15, ’16, was it was the only business trying to redefine how real estate is transacted right at scale. Everyone else was trying to digitize the process. Opendoor was coming to the party with a totally different way to get from Point A to point B.

This idea of commoditizing a house was a pretty radical departure. But iBuying has had a difficult year. iBuying was designed with recessions and cooling housing markets in mind, and buyer’s markets and sellers markets, all of that. No problem. But [a] global pandemic? Not so much. And the effect that that has had on the real estate market over the past two years has just been insanity. It is a rollercoaster where the highs have never been higher, and the lows have never been lower. That’s what killed Zillow last year, and that’s what punched Opendoor in the face this year. It’s the velocity — you can go up, you can go down, but if it just drops off a cliff, you’re in trouble. And this business model, when you have tens of thousands of homes in inventory, um, you don’t go off a cliff really well.

Where does Opendoor go from here? What’s your take on Eric Wu’s tenure?

The business has grown tremendously. We’re talking about activity in the billions of dollars, we’re talking about homes in the hundreds of thousands, thousands of employees. So this business has gone from nothing to a very significant player in this space. Obviously right now, it’s a total struggle. On the one hand, this is Eric kind of waking up and saying, “alright, I’m done. I want to focus on something else.” On the other hand, it’s pretty easy to believe it’s a company in crisis. The stock is down some god awful percent. To be fair, the whole market is down, but it’s kind of leading the pack. You can easily imagine a scenario where Opendoor’s investors, and perhaps more importantly, their creditors, have simply lost confidence in the business.

The other thing was this idea around the whole transaction: We’re going to be buying and selling homes. We’re also going to attach mortgage and title and escrow and all these adjacent services. Opendoor shut down its entire mortgage operation last month when they laid everyone off. So you look at that and you’re like, wow, there’s some significant pivoting going on at that business.


Out of any industry or asset class, houses must be the hardest to commoditize simply because they are not commodities.

Let’s take a step back from the short-term crises that companies like Opendoor have faced since the pandemic. If we just kind of ignore those and say, those are all solved, we’re in a normal market for a moment. You go back to where we were in 2019. There was no credible path to profitability. The path to profitability was supposed to be going to scale, adjacent services, improving unit economics. I think it’s fair to say those really haven’t panned out yet. They were profitable last year in a crazy market where home prices were just going nuts. But that’s not normal. So what does normal look like and can they achieve any semblance of profitability in a normal market? We’re yet to see it.

Sign Up for the undefined Newsletter

The next big question becomes investor patience — how long can they stomach such losses?

That’s what’s great about capitalism in the public markets. You have the wisdom of crowds to give us a quantifiable answer to that question, which is the stock price. If you’re measuring Opendoor just on its stock price, then investors have run out of patience and they’re pretty pessimistic on the future of the business.

What about its third-party marketplace product, which Wu is now going to helm?

The guys at Datadoor track this and as of right now, there’s 34 Opendoor listings on it and five third-party listings. So this is a baby. It’s still really, really early in terms of what that can do for the company. It makes sense from a narrative standpoint to say, “this is the future, it was always the plan to get into the marketplace, this asset-light product.” But when you hear somebody describe it, it just sounds a lot like the traditional process.

Let’s get to the emotional stuff. There was a lot of fear among real estate agents about what iBuying would mean for their future. There’s probably a fair bit of chest-thumping going on now in the agent community.

I’m sure there are agents that are like, “I told you, this would never work.” And that’s really disappointing. It’s great to see innovation and disruption in this space. And just because something has always been done a certain way doesn’t mean it should always be done that certain way. Let’s try to constantly improve and do so in a way that’s good for consumers. So celebrating the failure of any company in this space, I think that’s a little bit of a low blow. But we should acknowledge it — like you can’t go to the other side here. You can’t just believe all the hype and the press releases from these companies.

How far do you think this commoditization of the home can go?

To commoditize something, there needs to be low differentiation: The products are all the same, the price point is low. If all the options are the same, I’m just going to choose the lowest price option. I can’t answer the question to say, this is how far we can go in housing. But what I can offer is that out of any industry or asset class, houses must be the hardest to commoditize simply because they are not commodities. Every piece of real estate is different by definition. My house is different from the house next door. It’s also worth a lot of money. Real estate is the largest transaction a consumer will undertake in their lifetime — how do you commoditize that? I’d put that last on my list of industries that are going to get disrupted really quickly with technology. The evidence proves that there’s more people using agents now than ever before. We’ve had billions of dollars come into this industry [to disrupt it through technology], but the gravitational field of the traditional industry and agents and expert advisors is really strong.


It’s the velocity — you can go up, you can go down, but if it just drops off a cliff, you’re in trouble.

Opendoor had 1.3 percent market share last year. That’s huge, that’s really big business. But that’s a company that has billions of dollars going out there and buying up houses. It’s straightforward to get to that market share if you have a lot of capital and a lot of reach. But in terms of a winning business model that’s going to succeed, to make money and that consumers are going to use outside of a niche offering, that’s a bit trickier.

What other models are working or have promise?

Any new model that’s trying to innovate how people buy and sell homes, it’s usually from a financial perspective more than anything else, right? If I gave you a billion dollars, what could you do with it? Well, you could pull an Opendoor and just buy houses from people, that’s cool. You could pull a Compass and acquire agents and brokerages and build market share, that’s cool, too. Power buyers — you could let people buy homes with your money so they don’t have to worry about getting pre-approved in a certain amount of time, that’s pretty cool, too. What we’re going to see now is [models targeting] home affordability. Prices are just crazy. And with rising interest rates, people can’t afford them. So I’m keeping an eye on solutions that are trying to address the affordability issue. That’s where we’re going to get some interesting innovation over the next 12 to 18 months.