The Offerpad Business Model – How Does Offerpad Make Money?

Executive Summary:

Offerpad is an online real estate marketplace that buys and sells homes on its platform. The company, which can be classified as a so-called iBuyer, utilizes technology to aid with the buying and selling process.

Offerpad makes money via the service fees it charges sellers as well as the profit it turns on the homes it sells.

Founded in 2015 and based out of Phoenix, Arizona, the company has quickly risen to become one of America’s leading iBuyers. The company has raised more than $975 million in equity and debt capital to date.

How Offerpad Works

Offerpad is an online real estate platform that purchases and sells homes. As a so-called iBuyer, Offerpad relies heavily on technology to optimize the buying and selling process.

When selling your home via Offerpad, homeowners have to fill in a few details about the property they aim to sell. Information includes aspects like location, age and size of the building, and amenities (such as a pool or bathtub).

Sellers can furthermore provide photos and a video walkthrough of their homes. Offerpad then uses a combination of machine learning technology as well as expert human judgment to come up with a cash offer within 24 hours of initial submission. Alternatively, sellers can partner up with Offerpad to publicly list their home via the company’s website.

For sellers that intend to move into another home, Offerpad provides a free moving service (only available to customers who have sold their home to Offerpad). The service is limited to moves within a 50-mile radius.

On the buyer’s side, Offerpad provides a platform that lists the available homes it has for sale. Potential buyers can inform themselves about the price as well as other characteristics of the home they’d like to buy.

Buyers can either get in contact with one of the firm’s so-called Solutions Experts or visit the home themselves. Offerpad’s Instant Access feature allows buyers to self-tour the home without the need for an appointment. Users first need to be ID verified before being allowed to access the code-locked homes.

Offerpad currently buys and sells homes in over 800 cities across the United States. Users can access the platform via the company’s website as well as its mobile apps (available on Android and iOS).

A Short History Of Offerpad

Offerpad, headquartered in Phoenix, Arizona, was founded in 2015 by Brian Bair and Jerry Coleman, who acted as the company’s co-CEOs.

Prior to starting Offerpad, both Bair and Coleman gained significant experience in the real estate industry – both on the employee and founder side.

Bair was the co-founder of multiple real estate brokerages, most notably the Bair Real Estate Group, which he operated from 2008 to 2015.

Under his supervision, the company acquired more than 950 properties and deployed over $95M on behalf of hedge fund clients.  

Coleman, on the other hand, became most-notably known for starting Invitation Homes, a home leasing company for single families.

Invitation Homes eventually grew to become America’s largest owner of single-family rental homes with a portfolio of over 80,000 properties. The company went public in February 2017, but Coleman was already off doing better and bigger things.

Offerpad’s website went live in early 2016. Because both founders brought with them an extensive financial network and decades of experience in the real estate industry, they received a $260 million head start (led by LL Funds).

The money allowed Offerpad to quickly expand its reach beyond its native Phoenix area. By the end of 2018, 3 years after the company’s foundation, Offerpad was already present in over 10 U.S. markets. Furthermore, the company facilitated $2.5 billion in annual real estate transactions.

At the beginning of 2017, Offerpad even announced a partnership with Zillow, a leading online real estate listing site. The deal would see Offerpad using its purchasing expertise to buy homes on Zillow’s platform.

That partnership was ended just a year later as Zillow decided to enter the competitive iBuyer race. In 2019, Zillow started buying up homes through its Offers program.

That same year, in July 2018, co-founder and co-CEO Coleman decided to step down from his position. He stayed on as a board member to focus on high-level topics such as fundraising and relationship building.

Today, Offerpad is one of the leading iBuyers in the United States, which in recent years saw a plethora of businesses adopt this model. The company competes against the likes of Opendoor, Redfin, and Zillow.

How Does Offerpad Make Money?

Offerpad makes money through service fees as well as the profit it makes whenever it sells a home. Let’s dive into each of these income streams in more detail below.

Service Fees

When selling your home through Offerpad, the company applies a so-called service fee that is paid by the property seller.

The service fee, on average, is 7 percent, but can range anywhere from 6 percent to 10 percent. The service fee is used to cover the cost inquired during the purchasing process, such as the real estate agent’s salary.

On top of that, Offerpad charges customers for potential maintenance costs. These are incurred whenever a home needs some renovations to be done.

Sales Profit

Offerpad’s secondary driver of income are the homes it ultimately sells. The company turns a profit whenever it sells a home for more than it was purchased for.

As an iBuyer, the company uses algorithmic technology (based on machine and deep learning techniques) to calculate what it believes to be an efficient purchasing price.

In order to be able to do that, it pulls data from numerous publicly accessible databases that document previous sales and the characteristic of the home.

That data is substituted with the survey that users fill out about their homes. With every sale that the company facilitates, its algorithms get better at predicting an efficient purchasing and sales price.

On top of that, human experts (such as certified real estate agents) will provide their input based on the video material as well as in-person visits of the home.

With Offerpad, sellers can expect a greater level of convenience and faster sales speeds. Oftentimes, this allows Offerpad to purchase homes at a lower rate.

Furthermore, the company only invests in homes that it has a lot of data points on. These are normally single-family homes built after the 1960s.

The price range is somewhere between $100,000 to $500,000. Homes above the $500,000 threshold, which are considered luxury residencies, are often harder to value.

The home buying platform it has built on top allows Offerpad to sell homes at a speedier rate compared to traditional brokerages. This is grounded in the fact that Offerpad’s website receives over 500,000 visitors every month.

Offerpad Funding, Valuation & Revenue

According to Crunchbase, Offerpad has raised a total of $155 million across 3 rounds of equity funding, mainly led by LL Funds. The company raised another $820 million in debt from Citi Group, which brings its total funding to $975 million.

Offerpad has not disclosed any valuation or revenue numbers since its foundation. Looking at other startups in the space, most notably Opendoor, it can be assumed that the company’s valuation is somewhere in the $1 billion ballpark – while still losing money in an effort to expand its business.  

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..