Opendoor Faces an Expensive Path to Profitability in Real Estate

The startup Opendoor raised billions of dollars by convincing investors it would reshape the U.S. housing market to work better for consumers. Sure enough, its method of high-volume house flipping has proved popular with home sellers and inspired copycats throughout the industry, paving the way for it to go public through a merger with a special purpose acquisition company. But before it can declare success, the company needs to stop bleeding cash.

Opendoor, whose shares increased 5.9% on its first day of trading on Dec. 21, is built around the premise that many people who want to sell their homes will be willing to accept a smaller profit if offered a quick transaction that allows them to avoid hiring a broker, opening their houses to and haggling with strangers, and waiting weeks for their buyer’s mortgage to be approved. The company uses algorithms to come up with an offer within hours and, if the owner accepts, buys the home, makes light repairs, and puts it back on the market. Unlike traditional flippers, Opendoor isn’t trying to buy low and sell high but seeks to profit by charging sellers a fee—usually a 6% to 9% commission—for simplifying the process.