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Opendoor’s iBuyer Model Is a Canary in the Economic Coal Mine

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And now, Opendoor’s actions, based on the data they see, portend bad news. “Now they are trying to sell as much of their inventory as fast as a human being can,” he says DelPrete. One possible story is that, based on the data Opendoor has seen, the company believes things could get worse. “They read tea leaves,” he says. “They just have better tea leaves than you and I.”

But the data Opendoor has access to may tell only half the story. Description of iBuyers 1.3 percent are all-time highs for all U.S. home sales in 2021, but some regions are more popular than others. “Their model is such that only a fraction of the market can really succeed,” says Amit Sel, a finance professor at the Stanford Graduate School of Business. iBuyers operate in areas where housing stock exists. relatively new and uniformSo it’s overrated in cities like Phoenix and Las Vegas, but ignored in states like: Parts of Missouri and Texaswhere old houses dominate.

Fraser disputes the notion that Opendoor has no insight into the broader market. The “buy box coverage” that offers homes in the markets in which we operate is 65%. “This is a mainstream product, not a niche product,” he says.

Phoenix prices increased during the pandemic, but $445,000 in August 2021 and $549,300 in August 2022the time the property spent on the market before the sale 30 percent increase This shows that the buyer was serious about their purchase. This is a problem for iBuyers who rely on fast sales.

Analyst weather Opendoor saw a soft market in September and that came true. Seru believes that the current struggles iBuyers face represent some form of economic headwind due to the way iBuyers work. When the time is right, win big. And when it comes to hard times, they’re the first to struggle.

According to Columbia Business School’s Tomasz Piskorski, who is also a member of the National Bureau of Economic Research, iBuyer’s total transaction profit is in the 5% range. When that margin is squeezed, iBuyers are the first to drop out. Their business model is based on the assumption that they will sell their homes quickly and make a profit. “Opendoor knows that if you buy this home (remember, you can buy it at a discounted price), you could be stuck with it for months,” he says.

DelPrete cites iBuyers like Opendoor and short-term equity traders as examples. For decades, people have bought shares in companies with the goal of holding them for years and getting a steady return on their investment. People did the same with real estate. Moved homes, lived in them for decades, then sold them to trade up or downsize as needed, often banking a substantial profit. iBuyers have accelerated this process, reselling homes in months instead of years and generating tighter profits. “It’s a volatile business model that doesn’t work well when prices are uncertain,” he says.

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