The dominant iBuyer has taken extraordinary steps to survive this period of upheaval, writes real estate analyst Mike DelPrete, who dug deeper into last week’s Q1 earnings exclusively for Intel.

This analysis by Mike DelPrete is available exclusively to subscribers of Inman Intel, a data and research arm of Inman offering insights and market intelligence on the business of residential real estate and proptech. Subscribe today.

Opendoor is rapidly recalibrating its business to a new environment: Operating expenses have been cut in half while purchase volumes are down to levels not seen since the early pandemic.

Why it matters: A sustainable future for Opendoor revolves around tight cost control and operational efficiency, reducing customer acquisition costs through partnerships and finding the right balance between offer quality and purchase volumes.

Opendoor’s monthly purchases have dropped eightfold, to levels not seen since early 2020.

Chart by Mike DelPrete

Opendoor is purchasing fewer homes by choice — and doing so by offering less-competitive offers to homeowners.

  • This creates a greater “spread” and improves Opendoor’s ability to resell the homes for more on the open market, giving it a buffer against future market uncertainty — and exposure to profitable upside.
  • For example, in the Zillow + Opendoor seller options marketplace, Opendoor’s cash offer is usually considerably lower than Zillow’s estimated market value.

Screenshot from Zillow

This quarter, Opendoor invented a helpful new financial metric, Adjusted Operating Expenses, which excludes variable costs related to selling a property: Broker commissions, holding costs, and transfer fees and taxes.

  • What it reveals is Opendoor’s fixed operating expenses, a helpful measure when thinking about cost control, expense management and operational efficiency. 
  • The net result is clarity around Opendoor’s recent cost-cutting: Fixed operating expenses are down $100 million, or 50 percent, from the second quarter of 2022, driven through a reduction in advertising spending, layoffs and other cost-cutting measures.

Chart by Mike DelPrete

Opendoor invested $200 million in advertising during 2022, including a significant shift to brand marketing. (Opendoor’s marketing team visited my class this semester.)

  • But in a shifting environment, Opendoor has slashed its advertising spend by half during the first quarter of 2023 compared to the same time last year.

Chart by Mike DelPrete

A side effect of this shift is skyrocketing customer-acquisition costs, as measured by total advertising spend divided by the number of homes purchased in a period.

  • Compared to 2022, Opendoor’s customer-acquisition cost has tripled to $16,000 during the first quarter of 2023 — a very unsustainable number in the long term, but one reflective of sustained brand marketing coupled with markedly fewer purchases.

Chart by Mike DelPrete

The bottom line: With $1.3 billion in cash, Opendoor has the time and space to retreat, regroup and realign the business to not only stem its losses but position itself for future growth.

  • The evidence shows that Opendoor is making significant changes to become a more efficient operation.
  • Just cutting expenses at the current purchase volumes is not a sustainable strategy — but it is an important first step as the company reorients for the future.

    Mike DelPrete is a strategic adviser and global expert in real estate tech, including Zavvie, an iBuyer offer aggregator. Connect with him on LinkedIn.
iBuyers | Opendoor
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