Opendoor Business Model Flaw Drives Losses on 42% of August Deals

Opendoor Technologies reported it lost money on 42% of transactions in August as the U.S. housing market falters for builders, flippers and others looking to sell houses, Bloomberg wrote Monday (Sept. 19).

Opendoor has warned investors that it thinks it’ll lose as much as $175 million in adjusted earnings before taxes, depreciation and amortization in the third quarter.

The losses don’t include fees charged to customers or expenses incurred in renovating and marketing homes, and the losses been mounting since the housing market has been declining as mortgage interest rates rise.

The company’s business model, often referred to as iBuying, relies on acquiring homes, making light repairs and reselling the properties, often soon after the purchase.

Opendoor was doing well as the home prices rose early in the year. But by June, with median home prices falling, Opendoor had to offload thousands of properties it agreed to buy not too long before.

“We provided third quarter guidance in our last earnings to reflect lower-than-normal transaction volume and home-price appreciation, as well as longer than normal hold times for our inventory associated with the most rapid change in residential real estate fundamentals in 40 years,” an Opendoor representative said in a statement. “We have moved quickly and decisively to prioritize inventory health and risk management.”

Opendoor didn’t respond to a request for comment from PYMNTS.

This comes after Opendoor has faced a fine from the Federal Trade Commission over reportedly tricking customers into thinking they could make more money selling their homes to Opendoor, PYMNTS wrote.

Read more: FTC Fines Opendoor $62M for ‘Misleading Claims’ About Home-Buying Service

The company reportedly pitched potential sellers with “misleading and deceptive” information — with most customers making “thousands less” than they would have with a more traditional approach.

FTC Bureau of Consumer Protection Director Samuel Levine has said Opendoor built its business  “using old-fashioned deception about how much consumers could earn from selling their homes on the platform.”