Opendoor Ends Free Lunch as House-Flipping Competition Heats Up
Opendoor Ends Free Lunch as House-Flipping Competition Heats Up
(Bloomberg) -- Opendoor popularized a new way for consumers to sell homes online, raised $1.3 billion in equity backing, and forced companies across the residential real estate industry to rethink their business models. But now, as it targets more growth in an increasingly competitive industry, the company is reshuffling staff and scaling back on a time-honored startup perk: free lunch.
Opendoor, most recently valued at $3.8 billion, began firing almost 50 of its roughly 1,300 employees in June, according to people familiar with the matter. It has also asked between 200 and 300 people in offices across the country to relocate to its Phoenix location, said the people, all of whom asked not to be identified because the company is private. Those employees will have about six to nine months to decide whether to make the move or leave the company.
A spokeswoman for Opendoor said the company was "streamlining operations in our Phoenix office" to improve customer experience as it continues to grow. The startup plans to double the number of employees in Phoenix to more than 500 next year, and will continue to hire in all of the markets in which it operates, the spokeswoman said. Real estate news site Inman earlier reported some details of the transfers.
There’s also some news for the tech staffers who have grown unaccustomed eating out: Opendoor has ended its policy of offering free lunch, according to the people.
The company did not comment on the job cuts. A spokeswoman said Opendoor will provide subsidized lunches all of its offices with more than 100 people. "We provide benefits -- spanning parental leave, medical coverage, a growth fund and other perks -- that exceed those found across the market," she said in a statement.
The staff changes come on the heels of a big year for Opendoor. The spokeswoman said that the company had almost doubled the size of its staff from one year earlier. The total value of homes sold by Opendoor -- a metric known as gross merchandise volume -- was up more than 150% last year from the year before, she said. If it kept up the level of transaction value it had during the month of May, it would sell $5 billion worth of houses over the next 12 months.
This spring, Opendoor announced a new $300 million fundraising round that brought the company’s total equity funding to more than $1 billion, on top of the $3 billion in debt financing it has raised to operate its capital-intensive business. Its investors include SoftBank Group Corp.’s $100 billion Vision Fund.
As the company has grown at a rapid clip over the last several years, it has also not appeared to shy away from spending. At a recent National Association of Real Estate Editors conference, Opendoor gave away a gift bag that included branded Apple AirPods and a jar of barbecue rub.
Opendoor has seen some executive turnover in recent months. In December, the company lost one of its founders, JD Ross. In May, Chief Financial Officer Jason Child left for publicly traded Splunk Inc. And its vice president of engineering, Bali Raghavan, also recently left, multiple people said. Raghavan did not respond to a request for comment.
Founded in 2014, Opendoor’s platform allows homeowners to upload information about their house and receive a cash offer on it from the startup within 48 hours. If the seller accepts, Opendoor makes minor repairs to the property and puts it on the market. In exchange for the convenience, users pay a fee that is slightly above what traditional real estate agents charge to broker a sale.
In recent years, the company has encountered increasing competition. Its tech-enabled, big data-driven spin on flipping homes has been widely imitated, with startups like Offerpad and Perch, as well as established brokerages like Redfin Corp. and Keller Williams Realty Inc. adding similar services.
Zillow Group Inc., best known for its home search tool, has been especially ambitious in its efforts to ramp up the new business model. Zillow started buying and selling houses last spring, then replaced its longtime CEO Spencer Rascoff with co-founder Rich Barton, saying the latter would be better equipped to lead the moonshot effort. Now the company is aiming to purchase 5,000 homes a month within five years.
Something that none of these companies have yet faced is a housing crisis, with each of them starting these services well after the housing market collapsed in 2008. A price war among all of them could make it so there are no winners in the space.
So far, no company has been able to match the transaction volume of Opendoor, which sold 7,200 homes last year, according to estimates compiled by real estate tech strategist Mike DelPrete. That’s more than twice as many home sales as its largest competitor, Offerpad, which sold 3,500.
That scale is important, particularly because many sellers are willing pay a small price for convenience, but not a large one. "Everyone is pouring a lot of money into this," said Andrew Eisenson, an analyst at Bloomberg Intelligence. "They think, ‘We can scale this, and once we scale, then we can operate profitably.’"
--With assistance from Prashant Gopal.
To contact the reporters on this story: Patrick Clark in New York at pclark55@bloomberg.net;Julie Verhage in New York at jverhage2@bloomberg.net
To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, Anne VanderMey, Mark Milian
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