First: Get with the program. It remains to be seen if I know more about iBuying than the iBuyers, but it’s for sure they won’t give you the straight dope. So connect or follow. I’ll show you everything the iBuyers never knew to think about.
◊◊◊ Spanking the Phoenix iBuyers: OpenDoor, OfferPad, Zillow, The Bottom Line.
Torquing iBuyers as a buyer’s agent is just plain easy, so you know. Not many agents are doing it yet, but if you look at their low-Days-On-Market closings, you’ll find sharks on the buyer’s side. Their numbers will increase – with or without my tutelage.
iBuying is financial flipping regardless of the utterances of its big-wigs. It is flixxing to some degree – ideally not very much. It inherits a lot of its day-to-day business practices from the REO-listing world, perhaps because many early hires came from there. In any case, iBuyer turnovers resemble REO turns – and so do their listing errors.
For today’s exercise, we’re looking at the 15 most-recent OpenDoor closings at the time I checked – last night. All 15 closed on July 18th, which is a remarkable accomplishment for any rainmaker but is just another Thursday in retail real estate.
That’s a good number for smoothing out spikes, though – enough to see what’s up, not so much as to overwhelm. Taking the 15 most-recent closings eliminates any cherry-picking biases (all you have to do is sort by DOM to see all the dried-up cherries you can stand), so we’ll work the same way when I do OfferPad and Zillow.
For the next 30 days, the consumer-view of the listings I used can be seen at this link. I’m going to be glossing everything, so you might want to see for yourself what I am talking about.
OpenDoor is doing a full trashout on every house, very REO. The tell is the missing window treatments. This is bad for the buyer – more money unexpectedly out-of-pocket on move-in – but it’s bad for the house, too, by inviting vandalism. Every experienced listing agent knows all of this – the inversion of which statement is useful for stock-market investors, I should think.
Decent landscaping spruce-ups, squeaky clean inside. They’re painting the interiors in every house and replacing flooring cheaply where they have to. Everything looks to be turnkey VA/FHA-loanable, possibly allowing for the window treatments.
Call it $5,000 in rehab costs, each. That’s not flixxing, from my point-of-view. It’s just everyday listing-preparation, putting your best foot forward.
Which OpenDoor does badly, anyway. The photos are pedestrian, proficient but frosty, even belligerent, in their head-on depictions of space. Zero staging. The listing copy is terrible. If you tell me it was written by a robot, at least the robot can spell. The main purpose of the descriptive copy in an OpenDoor listing is to boast clumsily about the newly-installed cheap flooring.
Oof. And we haven’t gotten to the good part yet.
How does profit work? Buy low, sell high, right? I didn’t price these homes, so I don’t know how any of these numbers compare to FMV. But I think any serious lister can see what’s going on: They’re trying to buy below FMV and to sell above it.
Buying below FMV is hard and getting harder for iBuyers: They’re all competing for the same tricky sellers, who are better than buyer’s agents at figuring out how to make iBuyers squeal.
Selling above FMV is almost impossible. I can make extreme-outlier exceptions for extreme-outlier listing agents (I’m married to one), but most over-priced listings end up selling at or below FMV – after a long time on market.
The carrying costs on iBuyer properties are around 2 percent of the value of the home per month, tallying everything, but the carrying period is far longer than the DOM value. I call this number DOOP – days-out-of-pocket, the days from bought-it to sold-it, the days the funds are borrowed – but I’m not calculating it here. I won’t know the ultimate ROI on iBuyer deals until Thalia can account for everything, but I expect all of these properties will have lost money. Nice.
And all that was before we talked about how to spank them on price.
So the Original List Price is another source of frequent mistakes. I like prices that end in 0,000 or 5,000. Any other style of pricing seems to communicate guile, which just sets up competitive loops – where every delay is death to the bottom-line.
OpenDoor is not as bad about this as another iBuyer we’ll discuss, but some of these prices defy logic: Who is qualified to borrow at $154,000? Who at $262,000? At $358,000? These numbers miss well-known lenders’ qualification tiers, but they also miss buyers’ well-understood searching tiers. They are not just fishing with their bait out of the water, they planned it that way.
And DOM tells all, don’t it? The DOOP on these houses can be much worse – and OpenDoor has owned some bad buys in Phoenix for years.
But how do you price against them? Too easy, isn’t it? As discussed above, this is not a full post-mortem of iBuyer deals, just a quick-and-dirty praxis to figure how low you can go as a buyer’s agent.
The data in the dark blue columns comes from the MLS. The red column is the Purchase Price the iBuyer paid, derived from the tax record. The purple columns combine those two data sources, and light blue is further elaborations on the MLS numbers.
How much should your buyer pay for an OpenDoor listing?
- Offer the purchase price.
- Too bold? Offer 95% of the current list price.
- Too easy? Offer FMV.
They didn’t cave – this time? Try again next Tuesday at 10:30 am – “last call” for the weekend’s hopes. (That last bit is just Bad-Boyfriend Game for any over-priced listing.)
True fact: It’s all even easier than that. Amending this article from the comments below, while I might build a ‘cave-now price’ calculator for the iBuyers – taking PP, OLP, LP and DOM, finding their just-can’t-seem-to-say-no number is doable, just as it was with REO listings – but OpenDoor makes matters much simpler.
We’ll come back to this idea with other iBuyers, but Thalia’s presumption is that the markup on iBuyer listings is double the rehab costs – flixxer logic. The iBuyers call that kind of fudge-factor software “machine learning” – apparently designed by the Emperor’s former tailors. A safe bet is that the Listing Day cave-now price at OpenDoor is PurchasePrice + (Markup/2). So I would start at around 97.5% of that number, expecting to split the difference. As DOM goes up, the cave-now price goes down predictably, just as with REOs.
And while I have a big chart with a lot of data, all you need to spank OpenDoor is the Purchase Price and the Current List Price. Split the difference and start somewhere south of there. Then, as Brian Brady has pointed out, spank ’em again on repairs. They will be very reluctant to let you fall out.
So: Do you want to tell me that you are afraid of iBuyers? After looking at this facile resale pricing strategy – please tell me why.
My take, as a by-now demonstrated expert on iBuying: If you plan to be working in the housing industry five years from now, you should be attending to me now.