Future of US-style ‘iBuying’ hanging in the balance
Unforeseen turmoil in the US property market sees stock value of iBuying pioneer Opendoor plummet and CEO Eric Wu makes sharp exit.
iBuying was once hailed as the great disrupter including by several leading estate agency groups in the UK – the basic premise of flipping property but on a mass scale and with a twist.
In the US the market boomed with the 2014 launch of San Francisco-based Opendoor. Under that model property owners bid to sell their properties on the online platform. When a bid is accepted, Opendoor purchases the property as-is, charging an agency comparable fee – becoming the iBuyer. It then jazzes up the property before re-listing it.
PEAK
At its peak it was feared that if the model really took off it could spell doom for more traditional estate agents. But as is often the case when it comes to tech platforms, not everything goes according to plan.
Opendoor relies heavily on past housing data to price homes and make future predictions.
But the technology wasn’t good enough.
Speaking last month to Ben Thompson of Stratechery during a podcast interview Opendoor co-founder and chief executive, Eric Wu, said unprecedented events in the housing market over the last few yearsmeant his company’s algorithm missed the mark.
While the company forecasted for higher interest rates, it didn’t factor in the speed of house price changes.
We’ve seen a once-in-a-40-year move in home prices on top of a move in velocity that we’ve actually never seen in housing.”
“We’ve seen a once-in-a-40-year move in home prices on top of a move in velocity that we’ve actually never seen in housing,” Wu told the podcast.
The company lost $928 million (USD) last quarter, its market cap fell to under $1 billion (USD) from a high of $18 billion (USD) and its stock price has fallen 90% to $1.32 as of Friday pm.
And it seems that wasn’t the only thing Wu didn’t predict. Earlier this month he stepped down as CEO, to be replaced by CFO Carrier Wheeler, while Opendoor president Andrew Kee resigned.
THE REAL DEAL
Mike DelPrete (pictured), a residential technology analyst, told US news outlet The Real Deal: “iBuying has had a difficult year. iBuying was designed with recessions and cooling housing markets in mind, and buyer’s markets and sellers markets, all of that. No problem. But [a] global pandemic?
“Not so much. And the effect that that has had on the real estate market over the past two years has just been insanity. It is a roller-coaster where the highs have never been higher, and the lows have never been lower.
“It’s the velocity — you can go up, you can go down, but if it just drops off a cliff, you’re in trouble. And this business model, when you have tens of thousands of homes in inventory, um, you don’t go off a cliff really well.”
Read the full article HERE.
Zillow in America ceased its ibuying side in November 2021, a smart move.
Opendoor continued with the madness of the ibuyer (flipping property) model and posted $928m losses last month.
All this nonsense from Wu that his alogarithms were wrong, is jokes, the truth is that the business model is wrong. Buying in inventory and selling it at a profit works … if the market rises for ever, and when it stops, within a year you no longer have a business.
These plonkers do remember we had a far worse property crash in 2008. How stupid do they think people are?! When this model launched (by in the Us & here) everyone with an ounce of sense warned of the risks- especially when taking on the acquisition of a property, for a typical agency fee, on the hope they could be flipped. Small margins with huge risk. I bet Eric Wu has still done alright though! The only fools are the ones that DIDNT see this coming.