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Losses continue to mount at iBuying pioneer Offerpad as the company sells off homes at a loss that it acquired before rising mortgage rates cooled sales in many markets.
Offerpad said Wednesday that it sold over 10,000 homes last year for the first time in company history, but posted a record $121.1 million fourth-quarter loss as revenue declined 22 percent from a year ago, to $677.2 million.
“I’m pleased to share we’ve made significant progress on two key challenges, selling inventory acquired prior to the sharp market dislocation and securing additional capital to strengthen our balance sheet,” Offerpad Chairman and CEO Brian Bair said in a statement. “We are nearing the end of our legacy inventory disposition process, and early results from homes acquired after September 1, 2022 are showing positive returns.”
Although Offerpad managed to sell 1,865 homes during the fourth quarter, that represented a decline of 23 percent from a year ago. And while it averaged a gross profit of $29,000 on each home sold during the past three months of 2021, Offerpad lost an average of $24,100 on each home it sold during the fourth quarter of 2022.
Offerpad revenue and net income
Source: Inman analysis of Offerpad regulatory filings.
Offerpad’s $148.6 million loss for the full year included a $93.8 million charge for inventory impairments.
After seeing revenue and profits peak during the first three months of 2022, Offerpad’s net income dipped into the red during the third quarter as rising mortgage rates took a toll on housing markets. The decline in revenue came as Offerpad dialed back acquisitions of new homes by 82 percent during the final three months of the year, buying just 539 homes.
Offerpad announced on Feb. 1 that the company had bought itself more time to make the transition from a seller’s to a buyer’s market this year, announcing a plan to raise $90 million from existing investors including Bair, Roberto Sella and First American Financial Corp.
Offerpad laid off an unspecified number of employees the same day. CFO Mike Burnett said Offerpad has now reduced its overall workforce by about 50 percent from peak, which will generate total annual savings of approximately $40 million.
In Wednesday’s earnings announcement, Bair said the “investment of $90 million of new equity capital from both new and existing shareholders at the end of January further demonstrates continued confidence in our strategy.”
Offerpad executives said they expect to sell 1,300 to 1,450 homes during the first quarter of 2023. Revenue is expected to come in at between $480 million and $540 million, with earnings before income, taxes, depreciation and amoritization (EBITDA) of negative $35 million to negative $55 million.
“Our strategy this year builds upon our long-standing mission to provide a comprehensive solution center, while incorporating new approaches that further capitalize on our existing foundation and expertise,” Bair said. “Specifically, we plan to retain and build our foundational cash offer and listing service, responsibly grow our business with an increased focus on existing market penetration and expand our capital light business-to-business partnerships and services.”
On a call with investment analysts, Bair said Offerpad has reduced its inventory of homes acquired before to Sept. 1, from a peak of nearly 4,000 to less than 225 “legacy homes” active on the market. While Offerpad’s overall inventory count stood at about 1,800 homes at year end, homes acquired after Sept. 1 are recording positive returns when sold, he said.
“Early results from these homes are consistent with our expectation for returns in more of a normalized market,” he said. “I don’t believe any amount of experience technology or data could have predicted the rapid rise in mortgage rates, but navigating the climate provided valuable earnings we can use going forward.”
Burnett said Offerpad will continue to acquire homes at a slower pace during the first quarter, before increasing the pace of acqusitions in the second quarter and into the second half of the year.
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