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iBuyer Offerpad remains profitable, plans to ratchet up purchases

The firm is not looking to "dump inventory," in fact it's looking to grow in "satellite markets"

For the third quarter in a row Arizona-based iBuyer Offerpad turned a profit. During the second quarter of 2022, Offerpad recorded year over year revenue growth of 185% for a total of $1.1 billion in revenue. The company’s net income came in at $11.6 million, up 26% from a year prior.

Offerpad, founded by CEO Brian Bair in 2015, went public through a special-purpose acquisition company, or SPAC, in September, at a valuation of $2.7 billion. The company’s market cap has since sunk to $512 million.

But Bair, whose firm is considerably smaller than chief rival Opendoor, remains ever the optimist.

“We sold more homes in the first half of 2022 than we did in all of 2021,” Bair told investors during the firm’s second-quarter earnings call with investors on Wednesday evening. “We continue to see increased customer interest in our solutions. More people visited our website during the second quarter than ever before and requests for an express all-cash offer also hit an all-time high.”

In the second quarter, Offerpad purchased 3,792 homes an increase of 87% compared to a year prior and it sold 2,888 homes up 129% from a year ago. These increases are in line with a recent study from Realtor.com, which found that in April 2022, iBuyers became net sellers of real estate. During the month, iBuyers increased their sales of homes by 186% year over year, resulting in the iBuyers selling 1,600 more homes than they purchased in the month.

Bair stressed, however, that the iBuyer was not looking to “dump inventory.” At the end of the second quarter the firm owned 3,561 homes, and Mike Burnett, the firm’s CFO, told investors that Offerpad expects its stock of homes to increase in the second half of the year.

Like other firms in the real estate industry, Offerpad’s executives are well aware of the shifting market conditions, and say they have tweaked strategies to stay profitable in an uglier market.

At the end of the second quarter Offerpad was operational in 28 different markets across the country, which Bair views as a major operational strength.

“Not all markets are seeing the same magnitude of change,” Bair said. “In general, the markets that have seen the greatest rates of price appreciation are being impacted the most. This is a good example of how our geographic diversity mitigates risk during the transition between market cycles.”

With housing market conditions remaining uncertain for the foreseeable future, Bair said most of Offerpad’s market expansion will occur in “satellite markets” or those close to its current market centers.

“We are moving into these markets with an eye to risk management because we have had a lot of discussions about how the HPA [home price appreciation] environment has been very strong for a long time and it is going to slow down some time soon,” Bair said. “So, satellite markets are much more efficient for us to get into as they are close to some of our hub markets and we can leverage our existing management teams there, so from a cost perspective they are also more affordable.”

Other strategies Bair and Burnett told investors the firm was using to maintain a stable balance sheet were putting a cap of the purchase price of homes in some markets and making sure to purchase homes that were at or below the median price point for the market.

In addition, Bair said the firm plans on increasing the quality and scale of renovations it does on the properties it purchases.

“Our team has increased the amount of upgrade on certain properties to ensure our homes have the inviting look and feel buyers want,” Bair said. “When inventory increases and multiple competing homes are available to choose from, we want our homes to sell first. This helps limit our exposure to extended holding times.”

In the second quarter, Offerpad spent an average of $17,000 per home on renovations, with an average renovation time of 20 days. During the quarter, the firm completed over 3,500 home remodels. But while the firm is ready to invest more in renovations, it believes pricing strategy will be key to its success in the second half of the year.

“In a lot of these markets you are seeing more inventory and more importantly you are seeing sellers that have more equity in their homes,” Bair said. “As the market shifts we are seeing inconsistencies in pricing and you are having sellers reduce prices because there is more inventory hitting and they ware to sell first so they are being more aggressive. We are watching active inventory more closely than pending or sold inventory and we are pricing our homes accordingly.”