The Offerpad Fireside Chat presentation at the Goldman Sachs Communacopia + Technology Conference. I have the privilege of introducing both Brian Bair, who's the co-founder and CEO of Offerpad, and Peter Knag, who's the CFO of Offerpad. My name is Mike Ng, and I cover Offerpad and the real estate technology sector here at Goldman Sachs. We have about 35 minutes for today's presentation. Brian, Peter, it's such a pleasure to have you on stage here with us. Yeah, thank you for inviting us. Great. Brian, I'd love to start with a conversation just on current market conditions. Could you talk a little bit about the housing market, perhaps some of the affordability challenges and pricing, economic uncertainty, and how that may impact buyers and sellers? What's your view of current trends in the market? Do you see an inflection point in the future when things will see improvement and better velocity? Yeah. I mean, everything you said is, and I know it's been talked about a lot now, but the affordability and the lock-in effect are real things. We see it every day, and so you have sellers that are wanting to stay in their current mortgage rate, and you have buyers that home prices have stayed steady and that can't afford the new home, and I think there's a stat that came out that 80% of Phoenix couldn't afford the home now with the new interest rates that they're living in, so it's all real, so we have been very our approach is to be very selective. My approach to real estate is always you look at active inventory more than even closed inventory. I talk about that a lot, but especially in moments like this, because we are seeing inventory over the last few months, especially mount up in markets that you just don't normally see inventory mount up in or areas that you don't see a lot of inventory. We've been really focused on high-volume areas, that interior high-volume, like I mean, a lot of transactions in that. We've been pretty selective about what we're willing to purchase in a market like that. Yeah, and what characteristics do you see that distinguish a higher-velocity market versus a slower one? Definitely interior. The things that we're seeing a significant slowdown are things on the outlying areas. One, you're competing with new builds out there, and new builders are very aggressive in moving inventory right now. But areas that are close to jobs, close to just so that's what you're seeing the volume. And I'll tell you that the price points that are the second and third-tier homes are moving actually more than the first-time home buyers because they're coming off, at least they have a liquidity from selling a home. They're coming off to put down as a down payment. It helps them get into that home. So you're seeing even a lower price point actually getting more pressure than normal just because of the affordability side. Right, so first-time home buyers may have a little bit more of an issue in this environment, which makes sense. It's important that just because home prices haven't come down, you still have people with a lot of equity in their current home. So that's a big leg up right now in the market. So you can obviously trade into a different home. And not having that definitely puts a lot of challenges. Right. And just while we're on the topic of macro, mortgage rates have been coming down a little bit in the last couple of months. I was just wondering if you're seeing any real impact or real-time impact, rather, on trends as a result of what we've seen in the last couple of months? So our mortgage rates hit 6.25% a couple of days ago. I think they're about 6.3% now. And just to tell you the affordability that's there and how closely people are watching it, there's definitely a pent-up demand because we see almost instantly in our showing activity when interest rates drop. And I think you get agents on the call. You get people that are watching that closely because there's definitely people that are wanting or needing to move, but they're just trying to figure out the right time. And so yeah, you can see showing activity or contract activity picks up almost instantly. And it's very, very sensitive, which I've been doing this a while, and I had never seen it this sensitive before just to the mortgage rates. But also, I've never seen the mortgage rates be this volatile either, up and down in short periods of time. Great. And kind of bringing it back to Offerpad's financials, I was wondering if you could talk a little bit about how you're tracking relative to your home sold guidance of 360 - 410 homes. What was assumed in that guidance? Has velocity been better or worse than anticipated? Yeah. Yeah, Yeah, we're on track. So nothing new on that guidance other than that continues to be our guidance, and I'd emphasize, as we pointed out in the last earnings call, we are going to pivot. Haven't quite landed on exactly how we're going to present it, but we are going to pivot from home sold to real estate transactions per quarter. So that is something to come, and it's important as we've talked about this since really we started, but the goal of Offerpad was never to create just an iBuyer and just a cash buyer. That's the foundation of everything we do, and that relieves the most friction from sellers, but the idea was to really have a one-stop transaction center or platform that people can come to and get whatever they need solved. And so just to focus on just our cash offer business, which is obviously, again, the foundation of what we do, we really want to start, especially as we're launching some of these other products, really highlighting some of the success of the products. Because transaction, there's a lot of different ways to get a real estate transaction. And what we're focused on is trying to find what's the best transaction for the seller at that time. And especially in a market like this, we're seeing sellers that have more urgency. For example, on average, probably since the history of Offerpad, sellers want to close within about 34 days. That's our average in 8 or 9, 10 years, right? Lately, it's been about 15 days. So the people that want to transact want to move pretty fast. But that's not for everybody. Then you have some that want to explore the market, and that's where we could connect them with one of our partner agents. They could list their home. And so just having that and being able to talk more about the transactions. And for us, we just focus on the overall conversion and what's going to be the best for the seller. Yeah. And maybe you can just expand on that a little bit. Why does it make sense to transition from just the express type of business into everything else? Yeah. I think it's, and there's a, so just to kind of lay it out, so we have four main products. We have our cash buying business, which people refer to as the iBuying business. We have our renovate business, which is our renovation business, which people never look at us this way, but we're one of the largest renovation companies in the country just doing renovations on our own behalf. But now we have a renovation business that will do renovations for third parties. We'll have our Direct+ business, which, think of Direct+, which is just a marketplace for other cash buyers. And then the fourth is our HomePro business. And that is if, so now when someone comes to Offerpad, they'll get a range offer. And then we'll have one of our HomePro partners in that market go down and say, what's the best thing for the customer? And lay out the foundation. For some people, here's the good and bad of a cash offer. The cash offer, you're in complete control. You can close on your own schedule. But you could be leaving a little bit on the table if you want to market it to open up to fully market on MLS. And so here's an option on that end of it. So the real focus of that is finding out what is the best for the seller. Because when the seller wins, we're ultimately going to win from a conversion standpoint. And from the renovation business alone, being able to do renovations on our own behalf is efficient as we do. Being able to let others leverage our renovation has been really, we're doing renovations now for Fannie and Freddie and renovations for other, I would say, cash buyers and markets, and so we let them really plug into our renovations and get the efficiency on that, so everything is just about the efficiency of conversion and trying to find the best solution for everyone who comes to Offerpad. I was wondering if you could talk a little bit about the competitive landscape. Your primary competitor has seen some leadership changes. I think the market, iBuying overall, has seen a renewed interest from the investment community and kind of the market writ large. So could you just talk a little bit about what that means for you and how you're operating the business and the potential for innovation and strategic change at that? Sure. No, listen, I mean, it's been a challenging time for the sector, right, for us and our competitor. And because real estate transactions have been so depressed just over the last two or three years, but it's a market environment that's been extremely challenging because there's not really one sector. Like we talk about the four different products that we have, not one of them because everyone's business is down. We're on the cash buying business. There's not other people that are buying more homes up our marketplace than we are. There's on the renovation business. Everything is depressed at the same time. But it's, so what I love the renewed interest in, because I think people understand that the real estate market's not going to be like this forever, right? And I know for us, we're going to come out of this much, much stronger than we're before. I mean, I'm going to be a much smarter CEO coming out of this with the challenge that we've had, and from an OpEx perspective, from a technology perspective, and the other products we've been able to launch through this, it's been great, and just as far as the leadership change, I love that I saw Eric Wu is back on the board of our competitor there, and I've known Eric for a long time, and I'm glad to see him back in the space, and I'd love to see the interest that's coming back into the space as well. Great. Bringing it back to the fundamentals, during the most recent quarter, Offerpad talked a little bit about some of the increased inventory in the market applying a little bit of downward pressure to home prices. Could you just talk a little bit about balancing home acquisitions with pricing, which at the very least comes with a degree of uncertainty in terms of the outlook? Yeah. The hardest challenge for us is really seller expectations because most sellers are, and I would say, I mean, there's a lot of information that sellers have now that they didn't have, let's say, 10 years ago. So there's a lot of different, but our biggest challenge is the seller expectations of what their home is potentially worth because sellers, in effect, they're not looking at all, of course, all the data and analytics we're looking at. And so they say, hey, this house sold, even just we had in some of our lookbacks last week, we had a seller that was pretty frustrated because their last comp was in December that sold for a certain price. And we're like, and they wanted the same price of something at the end of December. It's just, so the seller expectations is something that we have to have of what we want to pay. And we want to try to be as fair and pay the most we can for every home, but also making the best decision. And so what we're doing now is everything is about us versus risk, right? Anything we talk about underwriting and fancy analytics and AI and all these different things that people like to throw out, it's really about risk. It's how do you give yourself enough margin with the risk. So we're being selective about what we're buying and building in more risk into that and more range and what we're willing to pay for that home. And that helps us. And then also, it's really important going back to kind of where we started is now as the supply and demand, as a buyer has definitely more inventory to look through, so we really want to leverage our renovation to make sure our homes sell before other homes that are in that same area, so being able to give ourselves more range, but also putting a little bit more renovation in our home so people can walk in and they get a feel like new home that's highly upgraded and making sure our home sells first. And that helps our time to cash, which we want to, in normal times, we want to buy, renovate, and sell a home in less than 100 days through all the processes while we want to own it, and right now, we've expanded a little bit. It's about 120 days that we wanted just because of the market. So we want to be selective about what we're buying. We want to upgrade it. But the seller expectations is something that we're trying to communicate. But that's also where the other products are extremely helpful because they say, here's the cash offer. So you don't have to worry about the other things on the market. We have to worry about that when we buy it. But if that doesn't work for you, then we're going to try to get you somebody on the cash offer side that can pay more than we can through our Direct+ channel. And if that doesn't work, then you can list your home. So just giving them those options. And I will tell you the sellers love the choice that they can feel like what journey they can choose. One of the things that one of our challenges as we talk through that is explaining to our partner agents that we don't want you to go sell them a product. We want you to provide the solutions to them about what solution fits right for them. And again, give them the good and bad to each one of them because like everything in life, there's a positive and there's some negative depending on how they look at it. And so really making sure our agents are trained that we're partnering with when they present these options. And we make sure they're compensated the same so they're not trying to push one way or another, that they can really introduce the seller to the options that work best for them. Right. Yeah. So maybe a listing agent should, at the very least, right, check what Offerpad is offering in terms of the cash offer before they go down the route of more uncertainty by listing on the open market. Exactly. And being able to explain that and just give them, saying, hey, listen, you see five signs in your neighborhood, and if we list it, here's what's going to happen. And a little bit to the seller expectations because again, sellers want to try to do the best and make the most money for their home and on that side. And so, but be able just to explain it and understand just the path for both is really important. So I'd just add to that. So having this broader set of products, as Brian was just walking through, from a financial perspective, it gives us the ability to really not feel pressure to target a certain volume. What we target is our price point. And right now, we're pricing at a certain spread. It's an attractive spread. And we can stay there. If that pricing doesn't work, then we still, as long as we transact through Direct+ or a traditional list, which we also take a fee on, we still get to the same level, roughly the same ballpark type of fee. And so it's a very good dynamic from a profitability perspective. And I think we'll drive more consistent contribution profit over time. This is where one of the things is having other cash buyers in what we call Direct+. We have roughly around 1,500 other cash buyers that are on our platform that will buy on the platform. Now, there's not that many that are buying actively now, but just in general. And they all have different buying boxes, buying criteria, areas. For example, a lot of our single-family rental partners, they're not focused on what that home is going to sell for in 100 days. They're focused on what it's going to rent for. So in a lot of cases, they can pay more than we can because it's more rent of what they're focused on. Well, then they can pay the seller more money. And so trying to do that and letting the seller understand that when they come into Offerpad and they want a cash offer, it's not just us that's making the offer. It's we're running it automatically through our system to see if anything triggers somebody else to buy that home. And they'll get the same Offerpad experience, really high customer satisfaction. And then for us, we don't balance sheet the home. And then we make a fee on that. And so it's a really good outlet to have now. And so we're, again, that's just back into trying to find the best solution for the customer and being really customer-focused. Yeah. And single-family rentals SFR is like one type of buyer on the Direct+ platform. What are the other flavors of buyer look like? Yeah, there's a lot of them. And so everyone in the SFR, everyone knows the big five, some of the publicly traded SFRs out there. They're owning 100,000+ SFR homes, but that's only 2% of the market. Most of them, especially the rentals, think of family offices. And we'll go down to people that specialize in certain areas that fix and flip homes. And so, I mean, just a quick example, there's specialists that say, listen, they'll take homes in Tampa that are built in 1965. And their model is they're going to go put $200,000 in renovations and really push the value of that home. That's not our model. But they're willing. They specialize in that area so well they'll know what they're willing to pay for their model so they can pay more to the seller. And the one thing that we know is the more you pay the seller, the more homes that you buy. And so when it comes to a conversion, we just, again, trying to find the right path and that will lead to higher conversion across the board. Yeah. That's great. I wanted to follow up on just the dynamic of home prices. As you mentioned, you're seeing some of the interest pick up because of the declining mortgage rates. Is that enough to drive home velocity? Will that be enough to drive us back to mid-cycle? Yeah. You know, I think I would love to see, if I had a magic wand, I'd love to see rates around the 5.5 range. I think that would, for whatever reason that's in my mind of going, that would be there. I do think, and this is where we want to be, we're seeing people pull their homes off the market at rates we've never seen before, and so that's actually kind of hiding some of the inventory numbers that are out there because you have people that are either they don't really need to sell, but they're trying to test the waters, and in normal markets, they're going to end up selling at some point. They're either going out there or seeing what other mortgage rate or what their new mortgage rate's going to be or what they can get for the same price and they're pulling their home off the market. So that's definitely leading to a different kind of a different world on that perspective. But yeah, from the mortgage rate perspective, we're already seeing some declines in some areas of home prices. And home prices, residential home prices don't go down by 10%-20% overnight. And that's not what we're saying at all. But they do go down by 1% or 2% month- over- month. And so, just watching some of these areas and just naturally, I've been in real estate a long time. If you have a lot of inventory and not enough buyers, you have to be very careful that sellers don't try chasing, trying to find a buyer. That will chase prices down quicker than anything. That's where it's been very resilient. I will tell you, even surprising to us or to me specifically, that I haven't seen more of that chasing down because people are pulling the homes off the market, which is good. It's keeping home prices to where it's at, but also it's keeping the affordability a challenge as well. Right. And just given all the uncertainty, one thing that you mentioned is that you're putting in an appropriate spread, just given some of the unknowns out there. What is the normalized spread level? How varied is it? How do you approach your philosophy around spreads? I'll have him talk specifically, but I think specifically, the one thing I just want to say before Peter jumps in is it's definitely market specific and area specific. Like we talked about, everything we do is built in with risk. There are definitely some markets right now in some areas we're building much more risk in. Some areas, like Atlanta, continue to be a pretty strong market, pretty resilient, strong market. There's some areas, for example, in the Austin markets and Denver markets. We've really pulled back in those markets because you are seeing home prices come down. I don't know where that new floor is going to be. We're being very careful on that. And so, more than ever, we're passing on some homes that, especially at the higher price point that we can normally see come down at much faster pace. So we're being careful on that. But when it comes to the margins and things, I mean. Yeah. So we've moved to, as we've alluded to, we've moved to higher spreads on the cash offer. So think high single digits from a profit perspective. We price, there's more room in how we price it, but that builds in the carry cost, the interest, and everything like that. But at the end of the day, the ROI or the contribution margin, which both are very similar that we target is up now compared to some prior periods last year and before that. I would say we were mid-single digits, 4%, 5%. Now we're 300 basis points higher than that. You know, and the one thing, and I probably say it a million times a month, but just to the team is that we want to get smarter with every home that we buy. And so as we talk through that, is that this is real estate and you're going to buy a home thinking certain performance and it doesn't perform and other homes that perform better. And so you have to look at everything from a portfolio standpoint. But we also want to look at, and especially now with some of the analytics and some of the AI that we can somewhat integrate. And AI, we've been doing AVMs for a long time and machine learning, but just the simplicity that helps other people can use AI and you can really integrate into some of your systems. It makes you smarter with pricing because a lot of the, we don't have to have humans that are making a lot of those decisions. It's getting us smarter with every home that we buy and what areas we can buy and different even characteristics of homes that it can help us recognize that are going to perform better and others that don't, that a lot of times not just simply machine learning or AVMs can pick up, which has been pretty cool. Yeah. I'd love to spend a little bit more time just diving into, I'll call them like the asset light services. Maybe we can start with Renovate. What are you doing there? Is it mostly a B2B product that you guys use internally? Is there an opportunity to work with other partners, eventually turn this into a consumer offering? So, a little bit like Direct+ with our cash buying business. We've been doing Direct+ since we really started Offerpad. It's completely grown since then. But Renovate is something we launched a couple of years ago. And so we're really getting hyper growth there just by adding more and more customers. And so think of the smaller, so we really solve two things with other investors. Sourcing, which how do they find enough product? And so in most of our markets, people are coming to us first. And so we have a unique opportunity for sourcing. But the second part that they struggle with is the renovation. And so having our built-in renovations, we have boots on the ground in these markets that they can be able to plug in and tie into is key. We'll take. We have a great partnership with Auction.com now. We're their national renovation partner on that side. They have, I want to say, tens of thousands of the fix and flip people that are on their platform. They go to them for sourcing. We can help them with the renovation to people like Fannie and Freddie I mentioned, but the large SFRs have a lot of that built in. They have their own SFR. I'm sorry, their own renovations. There's a 97% that don't. We've been really able to leverage our renovation. We make good margins on that 20%-30%. For a customer, because of our scale and what we've done, even at the size we are right now with the homes we're buying, they just can't match our pricing and scale. So they can pay us, we can make a margin. And it's still a really good win for them because we handle all the operations as well. Great. One of the company's priorities has been to maintain a very predictable contribution profit margin. First, could you talk a little bit about some of the components of that and then the progress you've made in making that predictable for you all and what's obviously been a more sober macro environment? Yeah. HomePro takes us a long way. And the success in, we don't break out Renovate our third-party renovation business separately, but it has exceeded our expectations. And the margins there are very consistent between 20%-30%. The margins on our other products, if we're underwriting and selling to an investor or underwriting and selling or assigning to another third-party cash offer business or a traditional list, are also quite consistent. The revenue recognition is gross revenue is going to change a little bit as the mix changes because for the cash offer, we recognize if it's a $500,000 home, we recognize $500,000 of revenue when we buy that home and then sell it at a single digit profit. If instead we transact through a traditional listing and share in the real estate agent brokerage fee, and there's a $25,000 fee, we just recognize that $25,000 fee, but it's a 90%+ margin. So contribution, the two things that I'd point out, gross revenue will be a little bit less important from a metric perspective. Gross profit will become more and more important, and then number two, margins will be more consistent because the cash offer margin is the most variable across all of our products. Right, yeah. So just as you diversify away from the cash offer, you're going to see a lot less volatility in the top line and the margin, right? Yeah. Okay, great. I like your word sober in this last market. It's definitely been sober. And then what are you doing on the operating expenses side? What does that look like within Offerpad from, I guess, a sales and marketing perspective, but also from a corporate expense perspective? Yeah. You're speaking Peter's love language. But let me just, before I say that as well, because I mentioned this a little bit earlier, but where we are, because from buying 10,000 + homes a year to now really focused on buying and then rolling out these other products, we'll get back there again when the market gets there. But what we have been focused on is how do we get smarter the second time in growing this? Because we're going to see that growth again. But how can we do it smarter from an OpEx perspective? How can we leverage technology? How can we leverage this? So the next time it's not as headcount heavy, but also we're going to get smarter and more efficient the next time we grow. And so it's a really unique opportunity for us to get much smarter the second time as we continue to scale this, but— Yeah, I mean, OpEx, and I've run this drill in prior CFO roles as well. It's not rocket science. There's two parts to it. One, the people cost, and the other is the third-party costs. And so we've executed in a very deliberate way across both. We have taken down headcount significantly. And we go through on a regular basis, on a weekly basis, all of our third-party spend. And I've had some tough negotiations with especially some of the larger components of that. So we're going to continue to hammer at that. Everybody in the business is very focused on it. And they understand that it's one of our top three or four priorities. The last thing I'd say about that is expense creep is a real thing. And we're not just taking these expenses out of the business. We're working every day to make sure that they don't slip back in, so big priority around that. Yeah. I mean, just to give a couple of examples just quickly on that, as we talk about headcount, as in how do we get smarter and use technology. Now when a seller comes to us and wants an offer on their home, they get a range offer almost instantly. And so we use that all through our AVM, all through the analytics of what we're going to go do. And then that goes through even the way that we inspect the home. We're using more technology. And before we would have humans look at almost every home, but getting the range offer where we're at, now we marry that with HomePro has been a game changer as far as just cutting costs, but also it's a better customer experience as well, which is great too. Again, we're just leveraging from a strategy standpoint of where we're going to go. The one thing I will say is because we talked about just where this environment has been over the last two to three years. But I will tell you what we have been very, very happy with and I would say pleasantly surprised and happy is just the amount of sellers we still have come to us every month requesting offers. So I believe that a cash offer is the best product in real estate. It's hard for anything to compete because it removes the friction and you get to close in 30 days. It's a pretty hard argument, right? And especially if you get the price right, then who wouldn't take it, right? So that's been really strong. And so, getting people to come here and wanting to know what their home is worth, that's been great and creates a large opportunity for us to obviously with some of the other products that we've talked about. Maybe just in the couple of minutes we have, I can ask a question for both of you. I guess first, could you talk a little bit about your financing and capital needs, whether for running the operations of the business and supporting the cash offer or capital just to support growth in the business? And then I guess putting that together, what are the growth priorities that you have over the next couple of years? Yeah. So on the financing side, the most important thing is we're stepping sequentially closer and closer to cash flow break even and then cash flow positive. And that's in our guidance and is the key focus. We have looked at various different opportunities from a capital structure perspective. And we executed on a blend, primarily non-dilutive capital raise. It was part equity, part debt in July timeframe. So we're in a very, just thinking about our steps towards profitability, this extended our runway very significantly. We're feeling really comfortable about where we are from both aspects, just operationally from a cost perspective. And then with the extra cash on the balance sheet, that's helpful as well. And I think just from the strategy and where we're going to go, and where I get very, very excited about is that when right now, as we see, when I mentioned earlier, I'll give you the negative and I'll give you the positive. But the negative, I said, it's been such challenging times because all four of our products are compressed at the same time. No one's buying at volume. Real estate transactions are down all this. But the positive to that, what gets me excited is also no one's seen how four of those are all working at one time. And the ability to come in there that we can get back to buying the volume of homes, but then also have all the other asset light solutions across when people are in the real estate mindset again and when the market gets back to whatever "normalized" is, the ability that we have to put that all together, like I said, we're going to be much, much stronger coming out of this. And I'm super excited about that. It's a great place to wrap it up. Awesome. Brian and Peter, thank you so much for being on stage here with us. This has been great. Yes, and thanks for everyone for joining. Appreciate it. Thank you.