Review of all things Real Estate
Last updated 4/26/2023 at 7:47pm
As reported by Don Nichols of Inman News on April 18, amid a slower market and an internal pivot, iBuying giant Opendoor on Tuesday, April 18, announced that it was laying off 22% of its workforce. In total, the company cut 560 positions, according to a statement Opendoor provided to Inman.
The cuts, which were announced internally April 18, primarily focused on operations roles. In the statement, a company spokesperson described the move as a “very difficult decision” but said that it comes as “we’ve been weathering a sharp transition in the housing market.”
“We’re taking these actions now to better align our operational costs with the anticipated near-term market opportunity, while maintaining our critical technology investments that will continue to drive the business long term,” the statement added. “While this was a hard decision, it was necessary to ensure that we can continue to deliver on our mission and serve our customers for years to come.”
The statement goes on to cite last year’s historic rise in mortgage rates as driving “an approximately 30% decline in new listings from peak levels last year.” Opendoor didn’t specify how many employees remain, but 560 is 22% of about 2,545, meaning the company should have around or just under 2,000 workers remaining after the cuts.
The layoffs come amid a bruising time for the broader housing industry. After two years of record low mortgage rates during the coronavirus pandemic, the Fed’s efforts to combat inflation last year sent rates soaring. That tamped down demand for new loans, and existing home sales ultimately fell every month in 2022.
That trend reversed course in February of this year, with sales spiking 14.5% compared to January. But even with that reversal, sales in February of this year were still 22.6% lower than at the same time in 2022.
The fallout from this situation has been dramatic, with thousands of workers in mortgage companies, brokerages, tech firms and other real estate sectors losing their jobs. Big-name companies including Zillow, Compass, Keller Williams and many others have all cut workers over the last year.
In Opendoor’s case, the company previously cut about 550 jobs; or 18% of its workforce at the time, in November 2022. Both the November layoffs and those announced April 18 indicate the challenges facing iBuyers right now. Higher mortgage interest rates and slower home price appreciation over the last year have made it increasingly challenging to buy, renovate and sell homes for a profit.
As a result, Opendoor suffered a net loss of $399 million in the final quarter of 2022, as well as a loss of $1.4 billion for all of last year. On average, Opendoor lost $28,000 per home it sold in the final three months of last year, which is a stark reversal from the $16,000 in profit it made on average from each home sale in the final three months of 2021.
Other iBuyers have similarly wrestled with challenging conditions. In November, Redfin announced the end of its own iBuyer program, following in the footsteps of Zillow that made a similar move one year earlier.
Offerpad, Opendoor’s chief remaining rival, lost $121.1 million in the fourth quarter of 2022, and $148.6 million for the entire year. The company additionally burned through $24,100 for each home it sold during the fourth quarter of 2022 and is currently under the threat of being delisted from the New York Stock Exchange if it can’t improve its share price.
In previous articles, I have spoken critically of the iBuyer programs because I feel that the consumer isn’t satisfactorily protected. There are no disclosures provided to the seller or the buyers (state law) and no accountability, and any business model which loses the amount of money it does in each transaction can hardly be deemed a good business model.
I take no joy in the loss of people’s income and jobs, but a flawed model that loses investor money and exposes the consumer to risk shouldn’t continue, and apparently market forces are seeing to that.