Real Estate

Offerpad Posts Net Loss Of $80M, Ending Profitability Streak

The iBuyer brought in higher-than-expected revenues but racked up a much higher net loss than the previous year, according to a Q3 earnings call on Wednesday.

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IBuying startup Offerpad posted a net loss of $80 million for the third quarter, a huge jump from a $15.3 million net loss a year ago and ending its three-quarter profitability streak, according to earnings results released Wednesday.

The company brought in $821.7 million in revenue, up 52 percent from $540.3 million in third-quarter 2021 and considerably higher than expected.

“Since [the second quarter], the economy, consumer sentiment and the real estate market have changed significantly,” Offerpad CEO Brian Bair said during an earnings call.

“An increasingly hawkish Fed, persistent inflation, substantial increases in mortgage rates, and further escalation of global conflict have put the financial and credit markets on edge. The downstream impact left residential consumers in a temporary state of shock.”

Bair noted that the majority of people buying and selling are those who have to move. “The nice-to-moves are not happening right now.”

However, he said that Offerpad’s value proposition is even stronger in a buyer’s market, when homes typically take longer to sell, and therefore he sees “an opportunity for enormous growth” ahead if the company is “smart” about how it underwrites its homes.

“But we aren’t there yet,” he said. “Right now we are in between a seller’s market and a buyer’s market and expectations between the two parties are vastly different. Sellers are holding on to the idea that their home is still worth what it was six months ago, and buyers aren’t willing to engage at those prices. This in-between phase is the most challenging period for the entire real estate market, including iBuyers.”

After debuting on the stock market last year, Offerpad’s share price has fallen from a high of more than $13 in September 2021, to an all-time low of $0.77 in mid-October.

Offerpad’s stock price closed at $0.85 Wednesday. While briefly trending a few cents higher after closing, the price seems to have settled back at $0.85.

Source: Google

The company’s stock price has not been above $1 since October 26. In order to remain on the New York Stock Exchange, where Offerpad is traded, companies are required to have a share price of $1 or more. If the price dips below that threshold and stays there for a month, the company can be delisted — making it much harder to buy and sell shares and potentially warning off investors.

According to the company, Offerpad bought 1,847 homes in the third quarter, down 33 percent from third-quarter 2021. The company held a home for an average of 97 days from acquisition to sale in the third quarter, below Offerpad’s 100-day target. The company sold 2,280 homes in the third quarter, up 36 percent from the same quarter a year ago.

“We continue to navigate through this period of market dislocation by appropriately managing down our inventory levels and strategically acquiring homes that reflect current conditions,” said Mike Burnett, CFO of Offerpad, in a statement.

“We are already seeing homes acquired later in the year performing better than those acquired prior to the market dislocation.”

In its fourth-quarter forecast, Offerpad said it expects to sell between 1,425 and 1,850 homes and bring in between $500 million and $650 million in revenue.

“Over the next two quarters, we are focused on selling the remaining homes acquired before market conditions deteriorated,” Bair said in a statement.

“Homes that we have acquired more recently are performing well and are expected to drive improving margins and profitability in 2023.”

The company expects to finish selling the homes it acquired in the first half of 2022 by sometime in the first quarter.

The share of transactions made up by Offerpad’s Flex listing and buying service rose from 7 percent in second-quarter 2020 to 29 percent in third-quarter 2022, according to Bair. The company calls Flex “asset light” because it involves selling a home on the open market through a partner real estate agent, rather than Offerpad buying the home directly.

In markets where home sales prices are volatile, Offerpad is pushing more and more sellers toward Flex and being selective about the homes the company chooses to buy, according to Bair.

Offerpad also recently launched its “My Way” custom renovation service in Phoenix, which allows buyers who just purchased a home to choose the paint, flooring, countertops and appliances from a list of options, have those repairs completed before they move in, and roll the cost into their mortgage. The company plans to expand the service to other markets.

Offerpad laid off about 7 percent of its workforce in September and its staff is down about 12 percent from peak employment due to a pause in hiring instituted earlier this year, according to Burnett.

Editor’s note: This story has been updated.

Email Andrea V. Brambila.

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