Offerpad has grown beyond the iBuyer identity consumers are familiar with.
The Chandler, Arizona-based firm's bread-and-butter is still the cash offer, in which it gives sellers a cash offer for their property within 24 hours, forgoing listings and offering flexible closing dates in as few as 3 days. The business has evolved, working more with real estate agents and growing its renovation business that completed 284 projects in the second quarter and generated $4.9 million in revenue, according to a recent earnings report.
Offerpad founder and CEO Brian Bair.
Courtesy of Offerpad
The nearly decade-old company's financial performance has waned with the sluggish market. It disclosed a $13.8 million net loss and $251.1 million in revenue for the second quarter, with 742 homes sold. Those figures are far from the $1 billion-plus in revenue, and thousands of homes sold, in the few quarters following Offerpad's initial public offering in September 2021. Offerpad stock, which peaked at $207 per share that month, has since dwindled to $3.36 per share as of Monday.
Founder and CEO Brian Bair today said his company is leaning on a strategy of less volume in favor of wider margins from Offerpad-renovated properties. In the discussion that follows, Bair describes Offerpad's outlook and how the cash offer player is geared to adapt to a changing real estate market. He also described Offerpad's effort to integrate in-house lending with its expanding products.
The following questions and answers have been edited and condensed.
In a recent earnings report, you said Offerpad would focus less on volume and more on wider margins per home, given changing market conditions. Could you explain that?
What we've seen over the last two or three months is that even though there's fewer homes being put on the market, they're sitting on the market for a lot longer. You're seeing people pull back their listings because they're not getting the traction they thought they were going to get. What we've been doing is staying very disciplined and being more specific about the inventory we're buying. Making sure there's not a bunch of active (listings) in the area.
What I don't think gets talked about enough when it comes to markets like that is sellers, if their house isn't moving, drop their price and meet the buyer to move their home. We're leaving our homes on the market longer, and we're getting the price that is at or near listing price. We're focused on having a really nice, renovated product we can put on the market, and that's an advantage to some of the other homes in the area. New carpet, new paint, new appliances, new fixtures.
It'll be really interesting to see when rates drop, if buyers are going to come back in. Are they going to wait until the political environment settles? With the pent-up demand, I think we're going to see them jump back in fairly quickly.
I think the 5.5%, the 5.75% range, you're going to see a lot of people jump back in, and we're not far. It's not impossible to think [rates] could get down to 5%.
How does Offerpad’s renovation business work?
We do all renovations on our own behalf. We have Offerpad employees swinging hammers in our markets. There's two issues that long-term rental companies, investors, or even short-term groups have: Sourcing, can they buy homes that work for whatever their model is? And, the renovation process. We've allowed different investors to plug in.
We can get our renovation teams working on their homes. It's good for us because we make a margin on that, but they also get efficiency, and we share costs with them. They get our volume advantage even if they're only doing five homes a year. We can do, in some cases, $25,000 to $30,000 renovation jobs in less than two weeks. We really pride ourselves in some of our efficiencies.
The other part is, for some of the right partners, we'll bid on homes at the top of the funnel. But if we can get [homeowners] a higher offer, for example, if there's a [single-family rental] company that can pay more, because they're more yield-based than we are, we'll give the customer the higher offer on that. So it really works out for both the sourcing and the renovation side.
Offerpad at one time originated mortgages. Does it plan to offer them again in the future?
We definitely plan to. Integrating mortgage with some of our other technology solutions is going to be really important. We're pausing just to figure out when and how to do it, and frankly, making sure that the customer is getting the same experience with mortgage as our other products.
What's happened with the mortgage side, I feel like it's been just a little too choppy. The licensing has taken a while, most of it's already finalized. (Offerpad has active origination licenses in nine states, according to Nationwide Multistate Licensing System records.)
How is Offerpad working with real estate agents?
There's homes in certain areas that we can't buy in, or we don't want to buy in, or price points. With some of our partner agents that are part of our Max Program, we can refer them to a new customer.
With the National Association of Realtors settlement, there's still a lot of uncertainty on the buying side of a transaction. There are a lot of anxious buyers, agents and platforms that sell buyer leads to agents. So the thing we do is, if an agent has a homeowner that's interested in the cash offer, they give them two options: list their home or present the cash offer.
If they choose the cash offer that the agent brings us, we'll let the agent list the home. Once we close that home and buy it, that agent gets paid 3% on bringing us the customer and then 1% on the listing, so they can make 4%.
We want to adapt and make it a solution, so we're seeing a lot of progress there. I think agents used to look at us as a threat. Now they look at us as a springboard to help them.
Will the upcoming NAR changes affect Offerpad?
I think being on the selling side and owning thousands of homes is a good place to be. I don't think the agent is going away.
In general, I think buyers are going to get more comfortable and used to dealing with the listing agent directly. If somebody goes to a platform they want to get into a house, I think they're going to get more comfortable with it, and the listing agent is going to get more comfortable with showing the home. Whether that takes six months or six years, I don't know, but I do think you're going to see a pretty significant transition.
I think with the settlement overall, you're going to see some shuffling around. We're going to continue to be agent friendly and have really good agent products.
Why does a cash offer appeal to buyers in today's market?
When people think of cash offers, what they saw before was somebody coming in at a super low discount, buying $0.70 cents on the dollar, because some of that was a distressed situation. What I wanted Offerpad to do was the opposite. Our customers in normal times will come here for certainty and control. The cash offer provides that.
In the mortgage business, there's a snowball effect. If one person needs to close a house, if they're selling their home and their buyer falls through, they can't buy the new house. We can close on their schedule. If something happens, we can move our closing.
When affordability is tight, they don't have to worry about our financing falling through. They don't have to worry about some of the other things that they're seeing out there. Certainty and control is still the number one reason people use Offerpad.
The real estate investment trust reported a GAAP loss and thin earnings available for distribution as a result of market shifts that also affected some peers.
