Such a great, well thought-out post Chris. I work in the Raleigh market and haven't been able to figure out how Opendoor is still hanging on, not to mention still actively buying houses. I've had 2 situations with OpenDoor recently.
1. Beginning of September, I represented a client buying a house from Opendoor in the Margots Pond subdivision of Wake Forest. Opendoor had purchased the property for 570k. The original buyers before Opendoor had only purchased it for 535k, 4-5 months beforehand. With Opendoor having a 5% fee when they buy from you, it pretty much allowed the original owner to break even. Opendoor did zero updates, if anything the house looked cleaner when they bought it vs when they listed it. They originally listed for 612k in May, my buyers closed on it for 545k in early September. It's important to note that although Opendoor was only losing money on the deal, or their investors were, they were fairly smooth to work with.
2. I made an offer on a house in Durham that Opendoor had also offered on. Needed a complete cosmetic rehab, HVAC, roof, kitchen and baths updated, flooring, paint. Seller had smoked in the house for 5-10 years as well. Completely fixed up/flipped, the house was worth maybe 315-330k. We were trying to buy at around 80% of ARV minus repairs. I believe I came in somewhere around 200-210k. Opendoor offered like 285k. It seemed like they were buying the property at ARV minus repairs, potentially just focusing on appreciation. This closed out less than 5 weeks ago, right around Halloween. I'm sure they charged the seller that 5% service fee as well.
This second situation was very surprising to me. I follow the MLS everyday in the Triangle area and am constantly looking for deals, I see the price drops on Opendoor properties every week. Most of those price drops are now below what they paid for it, some significantly below what they paid. At the time they made that offer, their stock was at an all time low. How could they logically be making that offer? I wasn't surprised we got outbid, it was just the amount we got outbid by. It reminded me of that scene in War Dogs when Jonah Hill gets outbid. There's little to no profit on the flip, especially paying out a buyer's agent commission. I would love to know what equations and criteria they use to buy their deals. Not that it affects me, but hopefully on that one they have a different exit strategy in mind.
I understand that throughout parts of 2020-2021, early 2022. You could buy deals and after 5 months they might appreciate 10% just sitting, or more. Then inventory was so low, you had buyers offering even higher amounts just so they could win the bidding wars. But that is not the current market in late 2022. Like you said that, buying a property for $318,500 and selling it for $300,000 is not a sustainable business model. It seems to me they're still doing it. The only thing you can additionally account for is that 5% service fee they charge, but they still turn around and pay a 2.4% buyer's agent commission on most of their deals. I tend to just study their situation deal by deal, but they're obviously losing money as a whole too.
With Redfin done buying, Zillow done for now too. Opendoor just did layoffs, changed a handful of their leaderships roles. I can't see Opendoor continuing on too much longer.
