The Big iBuyers Are Getting Brutalized In The Stock Market

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After a long period of steady declines, the big three iBuyers — Offerpad, Opendoor, and Redfin — all hit an unfavorable milestone on Friday: their shares fell to all-time lows.

The share price decline came amid a deteriorating real estate landscape, with prices steadily weakening and mortgage rates spiraling higher and the broader stock market plummeting. Real estate company stocks have generally taken it on the nose during these turbulent times — shares of Compass, eXp World Holdings and Anywhere are also well down — but on Friday it was ultimately iBuyers who set records for their worst-ever share prices set up.

Redfins dip was the steepest. Early last year, the company’s shares approached $100 amid booming stock and real estate markets — trends that also boosted the share prices of many other real estate companies. But since then, Redfin’s stock price has steadily fallen until the close of trading on Friday, when it touched $5.20.

Credit: Google

Although Redfin’s losses have been the most dramatic of iBuyers over the past year and a half, Friday’s Offerpad was arguably the most at risk. After debuting on the stock market last year, the company’s share price has fallen from a high of over $13 last September to just $1 during Friday’s trading.

Credit: Google

Offerpad ended Friday’s trading at a share price of $1.01, a cent above the company’s all-time low.

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The reason for this problem is that in order to stay listed on the New York Stock Exchange, where Offerpad trades, companies must have a share price of $1 or more. If the price falls below that threshold and stays there for a month, the company can be delisted — making it much more difficult to buy and sell shares and potentially scaring off investors.

Offerpad’s share price is now flirting with this threshold. It hasn’t fallen below it yet, and even if it did, the company still has 29 days to turn things around. But the ongoing downtrend has been going on for more than a year, pointing to more potential hard times ahead.

Finally, there is Opendoor, which went public in December 2020. Like Redfin, Opendoor benefited from the surge in real estate company stock prices that occurred in early 2021. At its peak, Opendoor made more than $34 per share. But since that time, the iBuyer has also seen a general downtrend, until its share price touched just $2.74 on Friday.

Credit: Google

At the close of trading on Friday, Opendoor’s share price came to rest at $2.81, a slight improvement from its all-time low earlier in the day.

To be clear, a big part of what is going on is that the markets are generally bearish. And the stock price charts for other real estate companies like Compass look similar, with months of downside — although Compass recovered slightly from its own all-time low in late September, while iBuyers did not.

But investors may view iBuyers with additional skepticism. Speaking to Inman Friday, real estate veteran Russ Cofano — currently CEO of marketing startup Collabra — pointed out to Inman that Opendoor and Offerpad both started at a time when property prices were steadily rising and interest rates were low. But now rates are higher, and “we’re seeing projections that prices will drop significantly in some places, along with fewer transactions.”

Russ Cofano

“If the investor community isn’t already convinced that the iBuyer model can work in a falling price market, then you’re going to have an impact on investors,” Cofano said.

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In other words, investors may be wondering right now if iBuying is here to stay.

That question previously arose when Zillow — once the second-largest iBuyer after Opendoor — announced it was exiting the sector, a process that was just about to complete. The other iBuyers at the time all said their business was strong and that Zillow’s stumble was only to do with his own version of iBuying. And indeed, Opendoor later achieved its first ever profitable quarter. Offerpad has been profitable for three consecutive quarters — a fact investors may have missed.

Still, iBuyers’ earnings reports are backward-looking, meaning they represent performance at a time when the market wasn’t as rough as it is now. Meanwhile, potential questions from investors about the iBuying model are forward-looking.

“That’s the problem right now, can iBuyer’s business model thrive in a rapidly declining market?” Cofano said. “We haven’t experienced that, and that creates uncertainty.”

Redfin is ranked here because its stock has suffered along with those of Opendoor and Offerpad, and because it’s also an iBuyer. But the company also has a much more diversified business model.

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“Redfin is an iBuyer and a brokerage firm and a mortgage company,” Cofano noted. “So right now they have kind of a trifecta of insecurity. More than anyone because their business model touches on all three things.”

Cofano also noted that Redfin’s agent pay model means it faces fixed expenses even when transactions fail. This is not the case with traditional brokerage transactions, which only take place on a commission basis.

“With the classic broker model, there is no income without sales, but there are also no costs,” emphasized Cofano with a view to personnel expenses.

None of this means that Redfin, along with Opendoor and Offerpad, are doomed. Cofano, for example, was positive about Redfin’s user experience. And the public won’t know how these companies have fared over the past few months until the next round of earnings reports in November.

Redfin, Opendoor, and Offerpad all declined to discuss their stock market performance with Inman Friday.

But there are consequences for companies that fall sharply in value. Aside from the specter of a stock market delisting, Cofano pointed out that any company with a consistently falling share price becomes a cheaper and easier target for private equity firms or even hostile takeovers. Whether such a future awaits big real estate companies remains to be seen.

But Cofano ultimately believes more market pain may be on the way.

“I don’t think we haven’t bottomed out yet,” he concluded. “I think we will continue to have downward pressure on the entire industry. And since we haven’t seen the bottom yet, it’s impossible to tell the impact of falling stock prices.”

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