Executives at the iBuying pioneer see tremendous opportunity if they can negotiate today’s challenging “in-between” phase where buyers and sellers are on the fence.

​​This is the latest in a series of 9 reports on the challenges the country’s largest brokerages, portals and iBuyers face in 2023. Check back as Inman dives into the biggest obstacles of the new year for RE/MAX, Zillow and more all this month. And look back at the challenges they faced in 2022 here.

Vulnerabilities in the iBuying business model crystallized in 2022, with big players like Zillow and Redfin pulling out of the business as rising mortgage rates slowed home price appreciation and sales.

For iBuying pioneers like Offerpad who remain determined to forge ahead, keeping the lights on will mean staying on good terms with creditors as they work to pare down inventory purchased at the peak of the market.

Offerpad executives say that with a transition from a seller’s market to a buyer’s market now underway, they’re resigned to the fact that they’ll have to sell many of the homes they’ve already purchased at a loss.

But they also see a tremendous opportunity — if Offerpad can negotiate today’s challenging “in-between” phase, where both homebuyers and sellers seem to be on the fence.

Since Offerpad’s 2015 launch, most of the U.S. has been a seller’s market. But the shift to a buyer’s market should ultimately benefit Offerpad, Chairman and CEO Brian Bair said on a November call with investment analysts.

Brian Bair

“When sellers can’t go from listing to pending in days, and instead it takes weeks or months, iBuying becomes even more attractive,” Bair argued. “And if we are smart about how we underwrite homes in the market, there is an opportunity for enormous growth.”

But, Bair conceded, “we aren’t there yet. Right now, we are in between a seller’s market and a buyer’s market and expectations between the two parties are vastly different.”

At the moment, “sellers are holding on to the idea 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.”

In the short term, Offerpad plans to rely less on flipping houses and more on providing “asset light” services that streamline transactions and facilitate sales directly to buyers — without ever having to take title of the house.

In the long run, executives at Offerpad say they’ll also grow revenue by expanding the roster of ancillary products and services beyond basics like mortgages, titles and escrow.

The company’s end goal remains the same — to “remake the home selling and buying experience” — for both buyers and sellers, by providing a comprehensive suite of real estate solutions that streamline the process.

An Inman analysis of public disclosures, such as quarterly earnings reports coupled with insights from company executives and investment analysts sheds light on five challenges facing Offerpad in 2023.

Table of Contents

Managing inventory purchased at the peak of the market

Offerpad started out in 2022 with the best quarter in company history in terms of homes sold, revenue and net income. But things went downhill fast.

“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,” Bair said in November on Offerpad’s third-quarter earnings call. “The downstream impact left residential consumers in a temporary state of shock.”

Offerpad homes sold

Offerpad homes sold by quarter | Source: Inman analysis of Offerpad regulatory filings

Offerpad sold 3,602 homes during the first quarter of 2022, capping six consecutive quarters of growth. But home sales then declined 37 percent over the next two quarters to 2,280.

The decline in sales meant that the value of Offerpad’s unsold inventory quickly soared above $1 billion. While that threshold had also been crossed at the end of 2021, homes were selling faster at the time, and a big chunk of the company’s unsold inventory ($404.8 million) was under contract at the time.

Offerpad inventory

Dollar value of Offerpad inventory by quarter | Source: Inman analysis of Offerpad regulatory filings

By the end of September, Offerpad had homes valued at $815 million on the market, up 302 percent from the end of the first quarter and only $230.3 million in homes under contract to sell.

Ryan Tomasello

“I think probably the biggest task at hand remains dealing with inventory that was purchased at or near the peak of this housing cycle earlier this year,” said Ryan Tomasello, an analyst with Keefe, Bruyette & Woods who covers Offerpad. “We expect the company to continue to be in defense mode, rather than playing offense through the early part of next year, as they’re working to sell that inventory.”

The total value of Offerpad’s unsold inventory peaked at $1.289 billion at the end of June, shrinking 8 percent during the third quarter to $1.184 billion. But that’s largely because the company had scaled back its home purchases. By the end of September, Offerpad had just $138.8 million in homes being prepared for sale, down 68 percent from mid-summer.

“We are keenly focused on selling our existing inventory that was acquired in the first half of the year before the disruption in the housing market at the best available price,” Offerpad Chief Financial Officer Mike Burnett told investment analysts on the company’s Nov. 2 earnings call.

Mike Burnett

“We are making tough decisions in uncertain times with a commitment to aiming for the best outcome given the circumstances,” Burnett said. “Right now, that often means accepting losses on homes that we believe may decline further in the short term to be able to conserve or redeploy that capital more effectively. We are making these decisions on a market by market and home by home basis to optimize the outcome at the same time we have temporarily but significantly reduced the number of homes we are acquiring during this period of transition.”
Return to table of contents

Managing debt and funding operations

The iBuying model is inherently capital intensive — buying and selling thousands of homes requires hundreds of millions in financing. Keeping the lights on, let alone expanding into new markets, generates expenses that may not be covered by revenue if homes aren’t flipped fast enough.

Offerpad revenue and net income

Offerpad revenue and net income (or less) by quarter | Inman analysis of Offerpad regulatory filings

Having racked up losses during seven of the last 11 quarters, Offerpad had $1.15 billion in outstanding debt as of Sept. 30 after posting an $80 million third-quarter net loss as revenue declined for the second consecutive quarter to $821.7 million.

On the company’s November earnings call, Burnett said Offerpad laid off about 7 percent of its workforce in September, and that staffing was down about 12 percent from last summer’s peak due to a hiring freeze.

Although the company had cash and cash equivalents of $196.8 million on hand, and a total undrawn borrowing capacity of $748 million, Offerpad’s ability to continue borrowing — and to avoid margin calls on its existing debt — could hinge largely on how fast it’s able to pare down its inventory.

“Offerpad’s financing facilities are structured with deleveraging requirements that are triggered by the amount of time that homes are owned on the balance sheet,” Tomasello told Inman. “So essentially the longer the company owns these homes, the less ability they have to finance these homes with their existing facilities. It’s a balancing act — between fire sales to offload these homes and avoid margin calls, while also getting a decent price that limits losses and impairments.”

Over the years, improved workflows and favorable housing market conditions have helped Offerpad trim the average time it takes to renovate and flip a house from 138 days in 2016 to 76 days in 2021.

Offerpad has achieved its target of flipping homes in an average of 100 days or less for nine straight quarters as of Sept. 30. But the average “time to cash” gradually crept up in 2022 to 83 days in the second quarter and 97 days in the third quarter.

“The company has said they’ve been in compliance with all of their debt covenants,” Tomasello said. “We don’t have a lot of visibility into the precise metrics that define those debt covenants in terms of minimum liquidity and leverage, but I think the issue [in 2023] is going to be navigating the maturities of these financing facilities as they come due.”

In mid-December, Offerpad announced that it had amended the terms of two loans with one of its creditors, giving the company leeway to borrow more money and also take longer to pay it back.

With just $14 million of its $99 million in borrowing capacity remaining on the loans, Offerpad negotiated $28.5 million in additional borrowing capacity with its creditor, while also extending the terms of the loans to March 31, 2024.

While Tomasello said the amended agreement is “a positive indicator of their ability to manage some of these facility maturities,” he also noted that the loans were with a “related party that is a large investor in the company.”

As other debts come due and need to be amended and extended, Tomasello said Offerpad could face “more onerous structures and costs” from its creditors.

“Without a doubt these periods are when you need to be in regular communication with your financial partners and your banks and we do that regularly,” Burnett said in November of Offerpad’s outstanding credit facilities. “We’ve got a great team in the finance and treasury group over here, we’ve got good relationships [with creditors] and built up a very good working group on the debt capital side of the equation.”

Another factor that could limit Offerpad’s ability to raise additional funds is the potential for the company to be delisted from the New York Stock Exchange. On Nov. 15, Offerpad received a noncompliance notice from the exchange after the average closing price of the company’s stock fell below $1 during a consecutive 30-day trading period.

“It was not a delisting notification,” a spokesperson for Offerpad told Inman via email of the notice. The company has 6 months to regain compliance, and notified the New York Stock Exchange on Nov. 16 that Offerpad “intends to cure the stock price deficiency and to return to compliance,” the spokesperson said.

While a reverse stock split is one option for getting the share price back over $1, investor demand for the company’s shares could also bring it back into compliance.

After falling below $1 on Oct. 14, shares in Offerpad continued to slide, hitting an all-time low of 37.5 cents on Dec. 29. But since then, shares in Offerpad have nearly doubled, surging past 70 cents on Jan. 13.
Return to table of contents

Pivoting from iBuyer to transaction facilitator

After shrinking its “buy box” and capping Offerpad’s maximum purchase price at $1 million in select markets during the second quarter, Offerpad has now applied those tighter parameters to all of its markets.

“At times of considerable market dislocation, we narrow our buy box to limit the homes that we are evaluating, and adjust the input variables in our underwriting model to be more conservative,” Burnett said in November. “This results in us acquiring fewer homes, but acquiring homes that we feel will generate the underwritten return in this market.”

During the third quarter, Offerpad acquired 1,847 homes, a 50 percent reduction from the second quarter.

“Given the current outlook, we expect that our fourth quarter acquisitions would again be less than half of what we acquired in Q3,” Burnett said.

But instead of turning away sellers whose homes fall outside of the new parameters, Bair said the company is offering them its Flex listing service, in which Offerpad renovates and lists a seller’s home for sale.

“Leaning into our Flex listing service has allowed Offerpad to continue helping customers through the current market conditions while lowering the financial risk to the company,” Bair said. “Customers working with one of our local, licensed agents can receive free show ready services, including landscaping and cleaning services, in addition to a home improvement advance.”

Bair said Offerpad’s Flex listing and buying service has grown from 7 percent of the company’s transaction volume in the second quarter of 2020, to 29 percent of transaction volume in the third quarter of 2022.

Tomasello said that figure overstates the impact of the Flex service on Offerpad’s bottom line, since the company earns less in commissions representing a seller than it does when it flips a property.

[Offerpad says its Flex listing service generates higher margins than its “Express” offering, in which it buys homes and flips them, but acknowledges that Flex accounted for less than 1 percent of the revenue in 2020 and 2021.]

“I think that’s also a product that the value proposition resonates less than the traditional iBuying product,” Tomasello said. “It’s not necessarily providing that same certainty of pricing and closing. And so at that point, you’re competing more with a much broader array of traditional housing players. Scaling that product is less constrained by capital, obviously, but it remains to be seen if they can scale that in terms of actual client demand.”
Return to table of contents

Augmenting revenue with additional services

As part of its strategy to be a one-stop shop, Offerpad offers ancillary products and services, including a concierge listing service, home loans with bundled rewards incentives and title and escrow through partners, including First American Title.

But why stop there? Offerpad says it’s also considering offering additional products, including stand-alone remodel services, energy efficiency solutions, smart home technology, insurance, moving services and home warranties.

While “further developing these products and services will require significant investment,” the company said in its third-quarter earnings report, “growing our current offerings … will strengthen our unit economics and allow us to better optimize pricing.”

Like its Flex listing service, ancillary products and services can be expected to generate a smaller average revenue per transaction than flipping homes but higher profit margins, the company says.

Tomasello acknowledged that “from the get go, Offerpad has had this vision of being a one-stop solution center beyond just the typical instant cash iBuying product.”

But because they still have “a sizable base of operating expenses to cover,” companies like Offerpad and Opendoor face a kind of this Catch-22, he said. As they pull back their transaction volumes in what has been their main business — iBuying — that only worsens the capital destruction issue, Tomasello said.

A company spokesperson told Inman that “Offerpad was built with a team and structure that is agile and innovative. When conditions change, we look for ways to adapt and meet the changing needs of our customers.”

Offerpad has been testing a new service called MyWay, which lets buyers choose upgraded paint, flooring, countertops and appliances from a list of options that appeal to their tastes. The cost of the upgrades can be rolled into their mortgage and the work completed before they move in.
Return to table of contents

Entering new markets and growing market share in existing ones

After expanding into seven new markets in 2022, as of Sept. 30 Offerpad operated in over 1,800 cities and towns in 28 metropolitan markets across 16 states — about one-quarter of the total addressable market.

“Given this current coverage, we believe there is significant opportunity to both increase market penetration in our existing markets and to grow our business through new market expansion, although new market expansion typically generates lower initial margins as we begin operations that increase as we scale volumes,” the company said in reporting third-quarter earnings.

Offerpad executives see the biggest challenge in expanding into new markets to consist “largely of capital needed to expand operations,” and how quickly consumers embrace the company’s services.

Another avenue for growth is to capture a bigger market share in places where Offerpad already operates. In 2021, Offerpad estimates that it had less than 1 percent market share across the 21 markets where it was operating.

“Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple buying and selling services to meet the unique needs of customers could lead to continued market share growth and accelerated adoption of the digital model,” Offerpad said in reporting third-quarter earnings. “We have demonstrated higher market share in certain markets, providing the backdrop to grow our overall market penetration as our offerings expand and evolve. By providing a consistent, transparent, and unique experience, we expect to continue to build upon our past success and further strengthen our brand and consumer adoption.”

While Tomasello doesn’t dispute that Offerpad has room to grow, he thinks the company will probably need to raise money if it’s to achieve that goal.

“We’ve said in the past that we think the company is under-capitalized to scale effectively, and that ultimately, they’re going to need to access some additional capital if they intend to scale the business model in its current form,” Tomasello said. “When the stock is trading at depressed levels, and there’s uncertainty around the viability of the business model, it obviously puts them in a more difficult position to raise that capital.”

Email Matt Carter

New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription