Precise unit economics for iBuying are a bit opaque. One thing is pretty clear though: Opendoor isn't making much money (if any) per transaction at its current stage. Above is an illustrative representation of a typical transaction, using data from their public filings and past analyses.
Buying lots of houses for very little money, while exposed to the risk of home price within their roughly 20 day holding period sounds like a risky business proposition. It probably is. However, there is reason to be encouraged that the unit economics stand to improve materially from (1) the introduction of ancillary higher margin services, (2) further leveraging economies of scale, and (3) the maximization of pricing power.
Opendoor has already demonstrated success attaching ancillary services to their core offering and the path to adding more is clear. They've added Title & Escrow with an 83% attach rate, adding $1,500 (or roughly 0.6%) to contribution margin. In the pipeline already, they have home loans and buy/list services, and they have identified home warranty, upgrade & remodel, home insurance, and moving services as opportunities further ahead. In all, they think they can juice another 8% or $20,000 of contribution margin out of these services, and map closer to a business model of a trade-in vehicle business, like Carvana, which generates a 50/50 composition of ancillary vs core vehicle fees.
Leveraging economies of scale on massive real estate portfolio is a popular investment strategy. Opendoor should continue to expand margins through better financing terms, a growing network of contractors and service providers, and beyond. The problem here is that the benefits of these effects are limited. Relative to a theoretically endless amount of services you can charge for, you can only optimize financing or rehab costs so much.
One of the more interesting aspects of Opendoor's unit economics is their pricing power. A slide (#14) in their public filing references their conversion at different fee levels, demonstrating their price elasticity of demand. They indicate that they are currently optimizing for conversion in their pricing, choosing 6% fee / 44% conversion, but that even at 10% fee, they can still achieve nearly a 25% seller conversion. As we'll see in an examination of their flywheels, this makes sense - the more transactions they process, the more valuable their real estate engine becomes. This bodes well for Opendoor's pricing power down the line, providing another path toward margin expansion for each transaction.