Opendoor Technologies and Offerpad Show Zillow How it’s Done

Opendoor Technologies and Offerpad Show Zillow How it’s Done

Opendoor’s Business Is Booming

Zillow’s (ZG) retreat from the home-flipping market may have spooked investors, but rival Opendoor Technologies (OPEN) appears to be having success with the business model. With Zillow gone, Opendoor now controls a large portion of the home-flipping market. This is one of the reasons why shares of Opendoor surged by double digits after the company reported earnings earlier this week.

Opendoor’s third-quarter revenue almost doubled compared to its second-quarter revenue. The company purchased 15,181 homes in the quarter—a 79% increase compared to the second quarter.

Zillow Rivals Turn a Profit

Offerpad (OPAD), a smaller iBuyer, is also making money. In its most recent quarter the company said it posted a profit on an adjusted EBITDA basis. Offerpad is much smaller than Zillow and Opendoor.

Both Opendoor and Offerpad were able to make money in a market Zillow could not. The two companies are taking different approaches to the iBuying market. Opendoor is focused on growing rapidly in an effort to diversify into several markets. It has homes in 44 markets while Offerpad has homes in 21 markets.

Ancillary Services Could Drive Growth

While much of the attention is on iBuyers’ flipping prowess, the companies see more value in the services they can sell in addition to selling homes. Opendoor is betting that home services such as mortgage origination, title and escrow, and other services, will boost its margins over the long term. Opendoor and other iBuyers see the shift to online real estate as their big opportunity. After all, 99% of US real estate transactions still happen offline. As that changes, Opendoor and Offerpad hope to capitalize.

That is not to say it will be smooth sailing ahead for iBuyers. Though the two companies are currently faring better than Zillow did, they could also run into trouble when it comes to accurately pricing the homes, which is what contributed to Zillow’s difficulties in the industry. Then there’s the inventory of properties which these companies are amassing. Opendoor ended the quarter with 17,164 homes with a total value of about $6.3 billion. With the real estate market heading into the traditionally slower winter months, it may prove challenging to sell all that inventory.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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