If you assessed iBuyer real estate firm Opendoor Technologies (NASDAQ:OPEN) without any other context besides near-term price action, you’ll be led to believe that it is on a roll. OPEN stock has gained 6.28% over the past five days. But should you assume this performance is emblematic of a continued housing boom?
To be quite blunt, investors should be skeptical. Yes, the recent lift in OPEN stock is impressive. However, widen the context out to the year-to-date framework and you’re left with a loss of over 43%. That is hardly something to brag about. Further, at time of writing, shares are trading hands at a bit under $9, meaning that it is down from the double digits from its initial offering price of $10.
Yes, it is important to remember that OPEN stock materialized as a tradable entity via Opendoor’s reverse merger with a special purpose acquisition company (SPAC). Subsequently, SPACs post-business performances have grossly underperformed benchmark indices, presenting another area of skepticism for the iBuyer trade.
However, one of the biggest concerns for OPEN stock is the deteriorating fear of the coronavirus pandemic. Essentially, Opendoor is a compromise for home sellers. In exchange for speed and convenience, sellers give up a higher potential selling price for their homes. People were willing to accept this compromise due to concerns associated with Covid-19. But without as much fear of that threat, it is a different story.
What makes this issue problematic for OPEN stock is that the difference between selling to Opendoor and listing your property with a traditional real estate broker can be massive. Opendoor somewhat obfuscates this dynamic by suggesting that listing with the iBuyer firm can possibly yield a 3% higher price than selling directly to Opendoor.
However, listing with a non-Opendoor-associated broker or agent will almost certainly net you a much higher price than either selling to Opendoor or letting the company list your home. While I don’t want to inject my personal experience into this discussion, I must say that the convenience premium associated with OPEN transactions was eye-opening. In my case, it was in the realm of six figures.
I’ll go a step further. The difference in my example was so steep that it would be economically irrational for anyone to sell directly to Opendoor unless Covid-19 or convenience was a factor. Increasingly, Covid-19 is off the table, meaning that OPEN stock is basically banking on convenience. To me, that is a huge risk if traditional brokers can get you much more money for your home.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.