As of mid-June, Opendoor’s median buy-to-list premium dropped to 7.3% from its March record high of 17%.
Opendoor’s Buy-to-List Premium Returns to Earth
Due to the huge uptick in home appreciation earlier in 2022, Opendoor’s buy-to-list premium, the difference between the purchase price and the current listing price of a property, dropped spectacularly from a record high of 17% to its current level of 7.3% in mid-June.
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The fact is that Opendoor’s falling buy-to-list premium is not the end of the world for this leading iBuyer. Why? Opendoor is not overpaying for the houses it buys nor is Opendoor losing money on the houses it’s reselling.
How to Calculate Sale-to-List Premium
Calculating the sale-to-list ratio is a three-step process:
- Divide the selling price by the asking price
- Multiply the result by 100 to make it a percentage
- The result is the sale-to-list ratio
Let’s say the asking price is $300K.
Let’s say the selling price is $289K.
$289K/$300K = 0.963
0.963 X 100 = 96.3%
Looking Under the Sale’s Hood
When negotiating a home sale, the seller’s dream is to close the sale quickly and get a final price that’s at least as high as the asking price. The buyer’s dream, conversely, is to negotiate the final price down as far under the asking price as possible.
In other words, the seller wants a sale-to-listing price ratio of something like 105% while the buyer would prefer a ratio that’s closer to 90%.
Recently, sellers have had the upper hand in home price negotiations particularly since a large percentage of offers were determined by multiple buyers in bidding wars. However, as the market cools, buyers are becoming increasing powerful in these negotiations.
How far this ratio deviates from 100%, and in which direction, says it all in terms of the motivations of the buyer and the seller AND housing market dynamics.
According to real estate tech wizard, Mike delPrete, nothing defines or better indicates market dynamics and iBuyer profitability as well as the buy-to-list premium.
Opendoor’s Home Sale Prices Remain in Healthy Territory
Though the heady days of record home price appreciation appear to be over for now, Opendoor’s buy-to-list premium of 7% is still heady and in fact equivalent to its buy-to-list premiums in 2018 and 2019. Simply compare Opendoor’s buy to list premium to Zillow’s last year when Zillow was, on average, losing money on almost every house it bought and resold via its iBuying market sector.
As long as Opendoor’s buy-to-list premium remains at 7%, Opendoor will be in good shape throughout 2022. Even better, YipitData is projecting that Q2 2022 will be another record quarter for Opendoor, with average buy-to-list premiums hitting over 10%.
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Thanks to Motley Fool, Mike delPrete and Inman.
