Matt Frankel: Hi Fools, welcome to Real Talk where we dive into real estate. Today we have a special guest. He is Brian Bair, he is CEO and founder of Offerpad. Brian, before we get into it, can you just give us the quick version of what Offerpad does? Because I have a feeling there are some people who aren't too familiar with your company.
Brian Bair: Sure. I founded Offerpad about six years ago. Before Offerpad, I was involved in tens of thousands of real estate transactions and realized how broken the traditional process was. Offerpad was born to really change all that. Now a customer can come to Offerpad, they spend 3-5 minutes, tell us about their home and then they'll get a cash offer within 24 hours. We also have a lot of other products that we'll talk probably more about, but really it's a direct home buyer. Instead of having to go through the process of listing in all the uncertainty with no control, now the homeowners can come to Offerpad and within a few minutes get a cash offer on their homes.
Matt Frankel: Excellent. You mentioned other products, so Offerpad doesn't just buy and sell homes. What are some of the other services you offer to customers to make it like a one-stop experience?
Brian Bair: Sure. When I started Offerpad we got named an iBuyer along the way somewhere because we were buying a lot of homes. But really what I created Offerpad to do was to be a solution center, a one-stop solution center. Whatever you can think of real estate, we're going to have a product or solution for that customer that's going to help them with the timing, the convenience and the certainty. We have our iBuying product, which is our cash offer, that we give a customer within 24 hours. But we also have another product that people who come to Offerpad. Let's say, hey, listen, I want to explore the open market. I got your cash offer. But because the market's in a really hot place or now maybe I want to explore the open market and see if I can get more. We say that's great. We put them into what we call our flex division and we'll work with that homeowner and really partner with them to see if they can maximize the price of that home. For instance, we will even front repairs for that home, so we put the house on the open market, we'll renovate that house for them, carpet, paint, appliances, whatever. Whatever they can do to see if they can maximize the value of that home. If they do, that's great, and if they can't, we'll keep our backup offer in a backup position for 60 days. It really gives them that certainty and control and whatever is right for them for that customer in that moment.
Matt Frankel: There are a lot of concerns that this industry is getting a little crowded too quickly. Obviously, you know that there are some big competitors like Zillow and Redfin, Opendoor. I just read that Rocket Mortgage is starting its own iBuying platform. There's a few others that I can mention. What makes Offerpad different? Is it the complement with the traditional brokerage model and the iBuying model?
Brian Bair: Yeah. Taking one step back just a little bit and then I'll dive into really the Offerpad thing. But I actually think there's really two other companies besides us, so three total companies that are buying homes at volume right now. I actually think it's good for all of us because all of us are changing or revolutionizing, and I hate to use that, it's an overplayed word, but from the old way real estate, with the uncertainty and control, I think as we transition from the old way to the new way, we're all actually hoping educate the consumer together. I actually think there's some benefit in that. What Offerpad specifically is, so one is our solution center and just mentioned, the one-stop shopping center that people come to. For example, we disclosed our first house in 24 hours. A homeowner came to us on a Wednesday, had other proceeds out on Thursday, and we allow people to stay in their house after we close, they get all the proceeds and stay in their house up to 90 days. Our solution centers definitely the first one, but the second part of it is, we by far are the most efficient operator in the space. When you talk about iBuying, there's a lot of technology and a lot of real estate knowing all this, but what makes you successful as an iBuyer is the way you acquire, the way you renovate, and the way you sell, and you want to do that in less than 100 days. That's where your efficiency is in, and I say it all the time, we're as much as a logistics company, as we are as a real estate technology company. That is something that our consistency over quarter-over-quarter as we focus on that advantage and as we continue to grow.
Matt Frankel: I want to ask you one concern that I have as real estate investor myself. I've bought and sold probably a dozen homes in the past five or six years. This is the hottest real estate market I've ever seen.
Brian Bair: Me too. By the way, it's hot, yes.
Matt Frankel: It's a very uniquely hot market. It's not the typical hot market you're seeing. This would seem to me like this might not be an ideal environment for iBuying. In other words, what the biggest advantage is that you can control the time-frame as an iBuying customer. If I listed my house tomorrow, it would sell tomorrow. It seems like the market's taken away that advantage. How's the business done so well?
Brian Bair: I can tell you, you know real estate because most of the time with investors what I hear is, they think that the reason why Offerpad is successful as we are, is because of the current market conditions. You get a lot of home price appreciation, a lot of those things, anything you buy. But to your point, this has been the most difficult and challenging market we have been in. Because really the reason why Offerpad was built was the traditional process normally 91 days to get an offer on your home going through the entire process. A lot of those pain points that have been there, when someone to put their house on the market for a weekend and get multiple bids, you don't have that service fee to pay Offerpad that nearly is there. Probably there's been a lot of love given from how we had a profitable quarter, a lot of really cool things that we did. But the stuff that I'm probably the proudest of is how we ramped up our acquisition volume during this time. Because anything we acquire, to your point it's going to perform well. But what I was really excited about is how through the most difficult challenging environment for Offerpad to exist in, how relevant our products still is, because what consumers understood was, yes they can get an offer on their home and they can get multiple bids on their homes. But there's still that certainly and control that we don't have. For example, what doesn't get talked about enough is people picked their closing date when they choose and they can move that closing date a lot. I want to move it up, I want to move it back. Even when they sell their house the traditional way, they don't have that luxury. They still have to on somebody else's schedule. Our acquisitions, quarter-after-quarter, were up phenomenally and even year-over-year, so that was the biggest highlight of the quarter for us. But you're right, the real estate market's always doing something. It's either up or down. It's always doing something. This right now there's a lack of supply and way too many buyers. But the way that we've navigated this, as the market starts to normalize or adjusting the other way, we're going to be really, really well-positioned to handle that.
Matt Frankel: You mentioned your second-quarter and I want to pivot to that for just a second. You acquired a little over 2,000 homes in the quarter. You sold 1,259, so that means more than 750 homes were added to your inventory. Do you see this build up of homes on your balance sheet as a benefit to your business or a risk factor?
Brian Bair: I wouldn't say really either a benefit or a risk. When we acquire a home, the sales are always trailing. When you acquire a home, you have to go through renovation, you put it on the markets, that's always trailing. That's to be expected with what you see. The other point just to highlight that is, what you don't want to do in our model is you'll have a bunch of legacy inventory, homes that you own longer than 210 days or even 180 days. What we want to do again is buy, renovate, and sell in less than 100 days. So moving through that process is really important to us. But what you saw with the second quarter, that's pretty normal with the trailing numbers that you'll see.
Matt Frankel: I want to briefly talk about your going public soon. You're not officially public yet, although you're somewhat trading as a public company for those who are familiar with the SPAC model. Why did Offerpad choose the SPAC route instead of a traditional IPO? You're not the first iBuyer to do that by the way, so it's apparently unappealing process and why Supernova in particular?
Brian Bair: Sorry, I cut you off. During that time, especially when the SPAC market was extremely competitive and intense, we had a lot of different SPAC companies wanting to sponsor us to help take us public. We looked at all, we looked at staying private, we looked at going public the traditional way, we looked at the SPAC process. For me, the most important thing was to focus on the business and our path forward because what we're doing in changing the way people look at real estate is not a fast game. There's a lot of education and a lot of market share out there to go get. The one thing about the SPAC process was it's a much faster route, there's not as much as going the traditional route or especially staying private. What we wanted to do is basically get the car on the speed way in the most efficient and fast way that we could so we could focus on continuing to operate the company. We got our SPAC sponsor, which was Supernova, led by Spencer Rascoff and the group over there was a perfect sponsor for us because 1, they were operators. They understood the industry overall, they understood the space overall but they also understood the hypergrowth. We wanted to look not just for a SPAC sponsor as far as getting us public, but also in addition to what can we learn from the SPAC sponsor to make Offerpad better? They really checked every box on that end and they've been awesome partners.
Matt Frankel: Another benefit to going public through the SPAC route is cash, obviously. Generally companies raise more cash through a SPAC IPO than they would in a traditional IPO in a lot of cases. You're getting about 650 million, just to prove that. How do you plan to put that to work? Are you going to use that to ramp up your homebuying, to build out your technology, or how do you plan to put that to work?
Brian Bair: Yeah. It's a little bit of everything. Looking at it in phases. One is we're in hypergrowth right now. Right now we've announced 21 markets across the country. We're in 1,500 cities and towns of what we've announced. We're continuing. We've opened up, we just now got to four markets, seven markets this year. We'll continue to expand that. There's some market growth, but then there's also the additional market penetration for increasing our buy box of the homes that we're in and the kind of homes that we buy in our current markets. But also there's going to be a significant investment in our product than our technology. I hinted to it before, but how Offerpad is going to win is by the products we allow consumers to use that's completely different than what they can get in, I would say the more traditional market. We can talk for an hour about all the other products that we're going to announce. But that is something we're really excited about because more importantly the consumer wins and there will be massive benefit for Offerpad as well.
Matt Frankel: I know you're expanding into new markets as you just mentioned. I think you actually just expanded into my market, Columbia, South Carolina.
Brian Bair: Yes we did.
Matt Frankel: I think we're one of the few that are on your new expansion list. I haven't gotten a mailer yet but I'm looking forward to it any day.
Brian Bair: You will. Once we go live there, you should be seeing a whole bunch of us are around.
Matt Frankel: On that note, what is your strategy at attacking new markets? My specific question is, why Columbia, South Carolina? Because we see some of the markets you're not in, they're bigger markets than mine. So what makes you select your new markets?
Brian Bair: It's a lot of reasons. We have a task force that's dedicated to identify new markets that Offerpad or this offering will perform really well in. A lot of it is transaction volume. A lot of it is inventory. A lot of it is just job growth and schools, all the other stuff that you would appreciate. But you're going to start seeing places like your markets in South Carolina and St. Louis, and some of these markets we're going to start expanding to, a lot of the large metro markets. But you're going to start seeing our footprint go into more of the other kind of markets like the St. Louis's, and Tucsons, and Birmingham, Alabamas that we're already in. The one thing that I think is the advantage about our model is that there's real estate transactions everywhere and everyone wants a better way to sell their home everywhere. You might not get the volume like you do in a place like Tampa or Phoenix or Dallas or Houston but you can still bring that offering and really change the way that that local real estate presence is having. We're excited about that next phase is we're identifying other markets that we're getting into. But I think you'll see more markets like some of the markets you mentioned will continue open.
Matt Frankel: Your projections in your 2nd quarter earnings say that you're going to sell as many as 6,000 homes this year. I believe that was the high-end of the range. Real estate, we've seen the statistics. Real estate's a 1.9 trillion dollar market. Few million houses are bought and sold each year. How much of that realistically could become Offerpad's addressable universe and how many markets do you see yourself in? Because obviously there's some small rural markets that don't make sense for the iBuying business.
Brian Bair: You have 1.9 trillion. The TAM is just so massive and what people don't talk enough about the TAM is just how fragmented the TAM is right now. It's so fragmented, and the way that the industry is happening right now with the fragments, it puts a lot of the burden on the consumer. As we identify different markets and we continue to grow, like I mentioned before, the model can work in most if not all markets. There will be some rural markets that will be down the road a little bit, or even a satellite market that we expand into. But I will tell you, and this is where I'm extremely bullish, right now if you take as much noise as you take the Big Three iBuyers, us and our two competitors, about how much noise we've created out there and really revolutionized the way to look at real estate, we all have together combined, have less than one percent market share. Ninety-nine percent of the people are still going the old way. So the TAM in that market, there's just so much opportunity and so much runway there. But as you look at the segment, you're going to see us rapidly expanding into all markets. But the TAM of those markets especially having different solutions, there's a lot of different ways to get market share not just your iBuying model but the other products that we're offering and will continue to offer the consumer that more and more market share will, I believe stronger will come this direction.
Matt Frankel: To follow-up on that, do you see yourselves making the most of your money from iBuying or from all these adjacent services?
Brian Bair: It depends. In a perfect world as we continue to grow, it will be 50-50 and how that evolves over time and with the education. The first couple of years the education of Offerpad was, we're different than what you've seen before. We're real-estate-as-a-service, we're direct homebuyer. People kept trying to put us into a certain box that they we've seen before, you expect some flip company. We're different than what you've seen before, we want to do real-estate-as-a-service. That was the first. We've done a lot of things that we can improve on. One of the things we did really, really well is really creating that new space that now people call iBuy. The next phase of education is really educating the consumer about our Solution Center and other products. Don't think it as just as an iBuyer, but think about other ways that we're going to make your life easy and put you more under control. That will be the next evolution of this. Like I mentioned before, you have a homeowner that trades once every seven years. Seven years ago an iBuyer didn't exist so it's new education to more and more customers or consumers as they continue to sell their house of all the other services. That's the challenge we have ahead of us and I think there's a massive opportunity there with how big the market is. Also, just how broken and lack of control the consumer has in the old way of doing real estate.
Matt Frankel: One of the biggest concerns I hear from analysts is there's no way that iBuying could ever be profitable. I'm sure you've heard that before. To be honest, in the beginning it's a tough business to make money at. You mentioned you're the most efficient of the major iBuyers. I want you to expand on that before I get into my next question.
Brian Bair: Yeah. It's a great question. This is what's really important and this is why we think we are different than most as well. As much you put into and as much technologies you put into it, you have to buy, you have to renovate and you have to sell the home, and you have to be really efficient at those three things. The way you acquire the price you pay, put the renovation. What to do and what not to do with that home, what's the right renovations and then how do you sell that home on the market, the price etc. The unit level profitability per home is really important. There was some talk a year ago, it's died out a little bit but going, iBuyers, they can lose money on their home because they're going to make it up in other adjacent services and I've always rolled my eyes on that. You have to be able to buy the home and have that level of profitability for a home. Then you can adjust what that looks like over time. But you got to get that right and that's what we feel like. That's probably one of our biggest advantages with our real estate experience to do that. Long story short, there is a path to profitability. We're in hypergrowth right now as well, and so we're in investing growth. But also we want to make sure that that level of profitability per home is there. Then you add other ancillary services on top of that and that's where it gets really exciting as you think of a one-stop solution center because then you're attacking it from all different directions to giving the consumer a much better experience.
Matt Frankel: I'm sure you've heard the famous fix and flip saying, you make your money when you buy not when you sell. When you decide how much to offer on a home, is that all technology-driven? Do you have any human involvement in that? What's the secret sauce there?
Brian Bair: I'm glad you brought that up because this is what I get really passionate about. The thing I love about Offerpad is that, and that's really hard to do because most people in real estate, they're trained to, you buy low and you sell high. What's the lowest I can get this house for? Real estate models in the past have been looking for distressed situations to do that. There is a past in the family, there's divorce, there's something going on that they feel that somebody just quick cash offer. That was one of the education that we had to do for the first couple of years but I said no, we're not that. But what's nice about our model, we don't know the position that our customers are in, they come to our platform, they tell us about their home and they get an offer for it. We're putting our best path forward. If we underpaid for our home, the consumer is so smart, we're not going to buy enough homes that way. If we overpay, we are going to be holding that home way too long because we can't sell it. That's really where we really flex our muscles under that acquisition standpoint. What we do is we balanced technology, analytics and AVM that I believe is world-class out there. But we also combine that with our people power in the market. Our AVM will get us about 90 percent there. But then we have that local expertise in Charlotte or name the market, that's look at our AVM going, hey, this makes sense, this doesn't make sense because the AVM, I'm a big believer in AVMs, but they're not there yet. We have to make them smarter, so we balance technology with our people.
Matt Frankel: You said something there that I wanted to just mention for a second and it's a good opportunity to educate the consumer. I put up something on our company message board saying who's gotten an offer from an iBuying company, things like that. A few have just expanded into Columbia, South Carolina. Someone said, "I got one of those, we pay cash for houses flyers." That is not you. You are not the ones that you're looking for people who are in distress situations, things like that. This is open to anybody, essentially, who wants an offer on their house.
Brian Bair: Yeah. We buy and we see it all. I think the one thing about our model is turn what you think it and turn it upside down, probably 1, 2, 3 reasons that people use an iBuyer, is convenience, certainty, and control. They want to control the process, by picking into those kinds of things. The second thing is it's our money. We're actually going out there and buying the home. A lot of these different models are different that we buy your house cash. They're trying to assign contracts to people like us and others in the space. We buy homes from real estate agents, real estate investors, whatever is right and whatever journey for real estate investors, they use our flex program to get a tenant out of the house, so we help them with that. Then they want to list the house on the open market to see if they can gather more offers or a higher price. We've really adapted and become a solution. It's really for anyone and everyone, from people with a busy lifestyle to the people that want the security of not having to show their home and we just see it all. That's the thing that's really exciting about this model is that it really fits for so many different customers, it's not just a one size for one kind of customer. We can adapt to everybody.
Matt Frankel: With a few minutes I have left, I wanted to dig into your future vision for the company. I consider myself to be an ultra long-term investor and a lot of people at The Motley Fool feel that way. I've had an argument with one of my editors for the longest time. I say within two decades, this is going to be how we buy and sell houses in the United States. I mentioned some rural areas, there are going to be some exceptions where the traditional model will be necessary. But some of them are bullish on iBuying, but disagree with me. Who's right?
Brian Bair: I think you're right. I don't know what that number is going to be, but I'll tell you, the way I look at all of this, first I'll use a baseball reference, we're in the top of the first. Think about everything we've done and we created what we've done in real estate so far, and we're literally just getting started. There's so much opportunity ahead of us. But the other way to look at it, just from a practical standpoint, the way that the majority of people are transacting real estate right now, it's cumbersome, there's so much burden on them. The way I always looked at it, is why wouldn't they? If we can provide a strong cash offer, they can control the process, they don't have to go through any of the showings, or contracts falling through, anything that happens with the traditional side, why wouldn't they? Then with our other products, if we can provide products, like they could list their house on the open market, we could invest in their house to try to maximize their price. We can provide them other services and products with doing that, why would anyone go the way that they don't have the certainty and control? I am extremely bullish on where the market is going to be going, and how early it is in the process and one of the education that I'm talking to investors and others about is, just remember guys, this is so early in the process and it's different than food delivery. It's different where people get into a technology and they're ordering from a food delivery company three and four times a week. This is transacting real estate, so there's so much as market footprint and our market shares grow, more and more people are going to come to us first before going the traditional way. The ones I'll brag or brag in here just with this, right now, 95 percent of our customers, we've satisfied, 95 percent satisfied. We have an NPS score of over 80 in the NPS score. I'm bragging a little bit, but also I just want to really clarify the point is, when customers use it, they leave with, hey, this is too good to be true, that this is such an awesome opportunity and such an easier process than it was going the old way. When something's broken and you can fix it, there's massive opportunity there.
Matt Frankel: This is my last one and then I'll give you the last word. I know you're in hypergrowth mode right now. I don't have it in front of me, but I know you've pretty much doubled over the past year in size, at least. Where do you see Offerpad in 10 years?
Brian Bair: Matt, listen, I think this is the magic wand. This is where real estate, this is where Offerpad is going to be and this is the transition of real estate is going to get for the consumer. There's going to be a one-stop platform and end-to-end platform that people will come to and anything they can think of real estate is there. For example, the average homeowner has to make 78 points of contact to sell one home, talking to all the people that are involved in that transaction. Then once they close the home, they've got to hire landscapers, they've got to hire pool people, they've got to hire smarthome tech, whatever it is. But were real estate is going to go, is people can trade in their house at a push of a button, they can do that, we've made it there, they can do that now. But they're going to be bundling all the services, bundling mortgage, bundling titles, bundling landscaping, pool services, smarthome technology, energy efficiency. What they want to do, it's all in a few clicks of a button. They're going to save money by bundling, and it's a massive opportunity for Offerpad because we're going to stay with that homeowner for the next several years and as a part of that home journey. The minute they want to trade in their house, they can push a button, we can buy the house, they can move up and move down. That's where real estate is going to go and if that takes five years or 10 years, I don't know, we're going to be pushing it heavy. But this isn't just about iBuying, it's about the full solution integrated system that customers are going to get that's going to be easier for them and they can maximize their time and make the real estate experience easy, as hard as it is today.
Matt Frankel: You're definitely passionate about this and I'm glad you agree with me.
Brian Bair: That's too passionate. You've got to be geared up at some of the things.
Matt Frankel: I'm glad you agree with me that this is how we're going to be buying and selling houses. What's the general timeline for the going public deal right now?
Brian Bair: We're in the final homestretch of that. We should be on the other side of this. I'm hoping in another month or two on this, but we're very close. I'll be excited to get on the other side of this. I think there's so much opportunity really to focus on the company and growth. We're in the final stages of getting this and getting public with OPAD and then start focus on the business even more and keep growing.
Matt Frankel: I will give you the last word. Is there anything I missed that?
Brian Bair: I think great questions. Just a little last word is that a challenge everyone on your list is not to look at this as just a one solution. The cash offer, listen, that's the hardest to do, and that is the hardest logistics to do. But it's much more than just buying a home. There's so many more solutions you can provide customers that make their life easy. Like I said, we're early in the process and yet we're continuing to grow massively in every one of the markets.
Matt Frankel: Excellent. Well Brian, thank you so much for joining me and stay in touch.
Brian Bair: Awesome. I appreciate Matt, great questions and thanks everyone.