Opendoor says it will cut 550 employees as the $1.5 billion home-flipping company struggles to turn a profit

• Opendoor announced that it will lay off 18% of its staff, a total of about 550 workers.
• The downsizing comes as the firm has struggled in recent months to sell homes profitably.

Home-flipping giant Opendoor said Wednesday that it would cut its workforce by 550 employees, or roughly 18% of its staff.

Eric Wu, the company's chief executive and cofounder, shared the news in a letter to staff posted on Opendoor's website Wednesday morning.

Wu blamed the downsizing on "one of the most challenging real estate markets in 40 years" that has forced the firm to "adjust" its business. Opendoor is offering laid-off employees at least 10 weeks of severance pay and health-care coverage through February 2023, he said.

Fast-rising interest rates, which have pushed mortgage borrowing costs above 7%, have cooled a once-hot residential market.

The nation's decelerating housing market poses a challenge for iBuying companies. Opendoor uses home-pricing algorithms to help it make offers to home sellers across 50 cities in the US, wooing them with convenience and speed. Opendoor, and peers in the business like Offerpad and Redfin Now, often renovate the homes they purchase and aim to sell them quickly and profitably.

How Opendoor has coped with a cooling housing market

But recently, Opendoor has had to slash prices and offer richer concessions to lure buyers. The San Francisco-based company has also had to deal with the additional costs of holding onto houses it bought for longer periods before they sell.

The company, which will release its third-quarter financial results on Thursday, sold more than 8,000 homes during the quarter, according to an estimate by Datadoor, an analytics firm that tracks Opendoor's buying and sales activity. That's at least an 18% decrease from sales in the second quarter and 32% below the first.

To drum up sales and clear its balance sheet of unprofitable homes, the company offered $3,500 bonuses to real-estate agents who delivered buyers for its properties. Opendoor also handed out generous credits to purchasers.

An employee at Opendoor who helps oversee closings on homes it holds in Florida said that buyers in almost half of the deals he has been working on in recent weeks received a $10,000 to $15,000 credit, an incentive that he said previously had been rare.

Datadoor found that it took Opendoor a median of 113 days to flip a home between July and September.

For the roughly 1,000 sales that Datadoor estimates the company has completed in the first half of October, that median holding period has stretched to 122 days.

Holding inventory for longer periods places a strain on Opendoor's balance sheet, extending the costs of the financing it uses to purchase homes, and laying on other additional fees, such as longer insurance and maintenance charges.