Offerpad Solutions Inc

Previous wording

We are currently headquartered in Chandler, Arizona and operated in over 1,700 cities and towns in 25 metropolitan markets across 15 states as of December 31, 2023. As we expand further into our existing markets, launch new markets, and develop a wide range of new ancillary products and services, we look forward to bringing our mission of delivering the best home buying and selling experience to even more homeowners and prospective home purchasers across the country.

Current wording

We are currently headquartered in Tempe, Arizona and operated in over 1,800 cities and towns in 26 metropolitan markets across 17 states as of December 31, 2024.

Previous wording

Although our operating results generally improved from the second quarter of 2023 through the end of the year, the impact of elevated inflation levels and the higher mortgage interest rate environment, which has reduced the affordability of homes, combined with the limited supply of single-family resale homes, has required us to use pricing adjustments and other incentives, which negatively impacted our operating results during 2023. Further, there continues to be uncertainty regarding the near-term macroeconomic conditions, including the path of ongoing inflation in the broader economy, the impact of geopolitical conflicts and the direction of mortgage interest rates, which have continued to fluctuate during the first quarter of 2024. We anticipate that the ongoing higher mortgage interest rate environment, economic uncertainties and affordability pressures, combined with seasonal fluctuations in the residential real estate market, will continue to impact consumer demand for residential real estate during the first quarter of 2024. Due to these conditions, we’re proactively optimizing our capital allocation across our highest performing and most efficient markets, and may be required to use similar pricing adjustments and incentives in the future.

Current wording

As a result of these conditions, we have remained focused on proactively optimizing our capital allocation across our highest performing and most efficient markets. Additionally, we reduced our home acquisition pace during the second half of 2024 as we continue to balance our real estate inventory levels to optimize our return. These conditions have also required us to use pricing adjustments and other incentives in recent periods, which have had a negative impact on our operating results during the year. Further, there continues to be uncertainty regarding the near-term macroeconomic conditions, including the path of inflation in the broader economy, the direction of mortgage interest rates, which have continued to stay around 7% during the early stages of the first quarter of 2025, and the impact of geopolitical conflicts. Although it remains difficult to predict the near-term direction of consumer demand for residential real estate due to the many different factors that impact such demand, we anticipate that the sustained elevated and volatile mortgage interest rate environment, economic uncertainties and affordability pressures will continue to impact consumer demand for residential real estate during the early stages of 2025. As a result of these market dynamics, we may be required to use similar pricing adjustments and incentives in the future.

Previous wording

We generate demand for our services through traditional media, digital media, organic referral, and partnership channels. Partnership channels include relationships with homebuilders, brokerages, and complementary industry partners. Interested home sellers visit our desktop or mobile website or application and fill out a short questionnaire about their home. If the home fits our eligible criteria, the customer is contacted within 24 hours via email, phone, or text to deliver and discuss Offerpad’s cash purchase offer and review any other services that may be of interest to the customer, including our listing and buyer representation services and our mortgage solutions offerings. If a customer chooses to list their home with our Offerpad listing service, once a customer sells a home directly to a buyer using the listing service, we earn a service fee, typically as a percentage of the sales price of the home.

Current wording

We generate demand for our services through traditional media, digital media, organic referral, and partnership channels. Partnership channels include relationships with homebuilders, brokerages, and complementary industry partners. Interested home sellers complete a few simple steps and receive a competitive cash offer range on their home within minutes, allowing them to schedule their home inspection on their timeline, in some cases as soon as the next day.

Previous wording

Once the offer is received and reviewed by the customer, if they choose to proceed, a purchase contract is generated and signed. If the customer is represented by a third-party agent, we work directly with such agent in addition to paying the agent’s fee. Upon signing, an Offerpad employee and a third-party inspector visit the home (either virtually or in person) to verify the information gathered during underwriting and identify any necessary repairs. Once repairs are agreed upon (if any), the homeowner chooses the closing date that meets their needs. The ability to choose the closing date is a very important feature, as it allows the homeowner to close around buying their next home or other influential events.

Current wording

Once the offer is received and reviewed by the customer and the home inspection is completed, the purchase price is confirmed and the homeowner chooses a preferred closing date that meets their needs, ensuring confidence and control throughout the process. If the customer is represented by a third-party agent, we work directly with such agent in addition to paying the agent’s fee.

Previous wording

Post-renovation, an Offerpad employee completes a final walkthrough to ensure the renovation was performed according to plan and quality specifications. Efficiently turning over our inventory is important as we incur holding costs (including property taxes, insurance, utilities, and homeowner association dues) and financing costs while we own the home. However, we routinely make strategic decisions or offer services that are designed to generate improved returns even if resulting in an increase in average inventory holding period. In order to minimize the sales period, we market our homes across a wide variety of websites and platforms to generate buyer demand. This includes the Offerpad website and mobile app, local MLS, and syndication across online real estate portals.

Current wording

Post-renovation, an Offerpad employee completes a final walkthrough to ensure the renovation was performed according to plan and quality specifications. Efficiently turning over our real estate inventory is important as we incur holding costs (including property taxes, insurance, utilities, and homeowner association dues) and financing costs while we own the home. However, we routinely make strategic decisions or offer services that are designed to generate improved returns even if resulting in an increase in average real estate inventory holding period. In order to minimize the sales period, we market our homes across a wide variety of websites and platforms to generate buyer demand. This includes the Offerpad website and mobile app, local MLS, and syndication across online real estate portals.

Previous wording

Prior to listing the home for sale, an Offerpad Asset Manager will reevaluate the current market and comparable properties using the same underwriting technology as is used in the buying process to price the home accordingly. Our acquisition and resale teams work closely to ensure market level trends are captured and anticipated in pricing decisions. The ultimate goal during the resale process is to maximize return on investment when considering pricing and holding periods.

Current wording

Prior to listing the home for sale, an Offerpad employee will reevaluate the current market and comparable properties using the same underwriting technology as is used in the buying process to price the home accordingly. Our acquisition and resale teams work closely to ensure market level trends are captured and anticipated in pricing decisions. The ultimate goal during the resale process is to maximize return on investment when considering pricing and holding periods.

Previous wording

We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed below and in Part I, Item 1A. “Risk Factors” of this Form 10-K.

Current wording

We believe that our performance and future success depend on a variety of factors that present significant opportunities for our business but also present risks and challenges that could adversely impact our growth and profitability, including those discussed and in Part I, Item 1A. “Risk Factors” of this Form 10-K.

Previous wording

Residential real estate is one of the largest industries, with roughly $1.9 trillion in value of homes transacted in 2023 in the United States, and is highly fragmented with over 100,000 real estate brokerages, according to the National Association of Realtors (NAR). In 2023, we estimate that we captured roughly 0.5% market share across our then active 25 markets. Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple buying and selling services to meet the unique needs of customers could lead to continued market share growth and accelerated adoption of the digital model. We have demonstrated higher market share in certain markets, providing the backdrop to grow our overall market penetration as our offerings expand and evolve. By providing a consistent, transparent, and unique experience, we expect to continue to build upon our past success and further strengthen our brand and consumer adoption.

Current wording

Residential real estate is one of the largest industries, with roughly $1.9 trillion in value of homes transacted in 2024 in the United States, and is highly fragmented with over 100,000 real estate brokerages, according to the National Association of Realtors (NAR). In 2024, we estimate that we captured roughly 0.4% market share of real estate transactions across our 26 active markets. Given this high degree of fragmentation, we believe that bringing a solutions-oriented approach to the market with multiple buying and selling services to meet the unique needs of customers could lead to continued market share growth and accelerated adoption of the digital model. We have demonstrated higher market share in certain markets, providing the backdrop to grow our overall market penetration as our offerings expand and evolve. By providing a consistent, transparent, and unique experience, we expect to continue to build upon our past success and further strengthen our brand and consumer adoption.

Previous wording

Since our launch in 2015, we have expanded into 25 markets as of December 31, 2023, which covered roughly 22% of the 4.7 million homes sold in the United States in 2023. Given this current coverage, we believe there is significant opportunity to both increase market penetration in our existing markets and to grow our business through new market expansion over the long-term, although new market expansion typically generates lower initial margins as we begin operations that increase as we scale volumes. Also, because of our strategic approach to renovations, as well as the listing and buyer representation of our listing service product, we believe a significant portion of the total addressable market is serviceable with our business model. However, given the dislocated residential real estate market conditions during the second half of 2022 and the first quarter of 2023, we did not expand into any new markets during 2023. Further, given the uncertainty regarding the near-term macroeconomic conditions, including the path of ongoing inflation in the broader economy, the impact of geopolitical conflicts and the direction of mortgage interest rates, we currently do not anticipate expanding into any new markets in the first half of 2024 and expect to re-evaluate expansion plans in the second half of the year.

Current wording

Since our launch in 2015, we have expanded into 26 markets as of December 31, 2024, which covered roughly 23% of the 4.8 million homes sold in the United States in 2024. Given this current coverage, we believe there is significant opportunity to both increase market penetration in our existing markets and to grow our business through new market expansion over the long-term. Also, because of our strategic approach to our asset-light platform offerings, we believe a significant portion of the total addressable market is serviceable with our business model. As we expand our reach through these other service offerings, we expect to continue to serve customers in markets beyond our direct service area. Further, this strategic approach has enabled us to enter into new markets to offer certain of our service offerings, without offering all of our buying and selling services in such markets. In connection with this approach, we began offering renovation services in two additional markets during 2024.

Previous wording

We have extended our renovation services to other businesses allowing other companies and homeowners to utilize our renovations team to update their portfolio of homes for rent or to sell. Through this offering, we are able to leverage our existing logistics, operation and skill-sets to provide renovation services that we believe could be a more significant component of our business over time. In addition to the renovation project fee, we are also typically compensated for these renovation services with a service fee that is based on a percentage of the overall renovation project fee. Our renovation services represented less than 1% of our total revenue in both 2023 and 2022.

Current wording

Our B2B Renovate business services represent an important component of our asset-light platform offerings. Through this offering, we are able to leverage our existing logistics, operations, technology and skill-sets to provide renovation services to other businesses, allowing other companies and homeowners to utilize our renovations team to update their portfolio of homes for rent or to sell. When providing renovation services, we receive a renovation project fee, and are also typically compensated with a service fee that is based on a percentage of the overall renovation project fee. Although our B2B Renovate business services offering is in the early stages, we believe these services could be a more significant component of our business over time.

Previous wording

We continue to pursue opportunities that enable us to grow our service offerings, and offer a program that allows investors and single-family rental companies an opportunity to purchase homes from homeowners, matching investors with sellers. These transactions occur in several forms, including assigning the original purchase contract to the end buyer and collecting a fee at closing. We expect this program will allow us to help more homeowners sell their home and expand our ability to reach more customers, while also providing customers with the benefit of receiving an optimized offer for their home. These services represented less than 1% of our total revenue in both 2023 and 2022.

Current wording

Another component of our asset-light platform offerings includes our program that allows investors and single-family rental companies an opportunity to purchase homes from homeowners, matching investors with sellers. These transactions occur in several forms, including assigning the original purchase contract to the end buyer and collecting a fee at closing. We expect this program will allow us to help more homeowners sell their home and expand our ability to reach more customers, while also providing customers with the benefit of receiving an optimized offer for their home.

Previous wording

Core to our long-term strategy is a suite of offerings to meet the unique needs of our customers. As such, we view adding both additional products and services as well as additional product specific features as critical to supporting this strategy. We aim to deliver our offerings to customers in a smooth, efficient, digital driven platform, focused on transparency and ease of use. The primary goal is to be able to offer multiple services tied to the core real estate transaction, allowing customers to bundle and save. Although further developing these products and services will require significant investment, growing our current offerings and offering additional ancillary products and services, potentially including energy efficiency solutions, smart home technology, insurance and home warranty services, we believe will strengthen our unit economics and allow us to better optimize pricing. Generally, the revenue and margin profiles of our ancillary products and services are different from our cash offering service that accounts for the vast majority of our revenue, with most ancillary products and services having a smaller average revenue per transaction than our cash offering service, but a higher margin.

Current wording

We aim to deliver other additional products and services tied to the core real estate transaction in a smooth, efficient, digital driven platform, focused on transparency and ease of use. Although further developing these products and services will require significant investment, growing our current offerings and offering additional ancillary products and services, potentially including energy efficiency solutions, smart home technology, insurance, and home warranty services, we believe will strengthen our unit economics and allow us to better optimize pricing. Generally, the revenue and margin profiles of our ancillary products and services are different from our Cash Offer service that accounts for the substantial majority of our revenue, with most ancillary products and services having a smaller average revenue per transaction than our cash offering service, but a higher margin.

Previous wording

Title and Escrow: We have a national relationship with a leading title and escrow company through which we are able to leverage our size and scale to provide exceptional title and escrow closing services with favorable economics.

Current wording

While we have offered a variety of ancillary products and services over time, our title and escrow services represent the most notable ancillary service that we currently provide. We have a national relationship with a leading title and escrow company, through which we are able to leverage our size and scale to provide exceptional title and escrow closing services with a favorable economic impact principally in our Cash Offer service.

Previous wording

Effectively increasing and expanding our listing service business alongside the cash offer business, optimizing customer and agent community engagement and increasing conversion of requests for home purchases; and

Current wording

Effectively increasing and expanding our Cash Offer solution, optimizing customer and agent community engagement and increasing conversion of requests for home purchases; and

Previous wording

Introducing and scaling additional ancillary products and services to complement our core cash offer and listing service products.

Current wording

Introducing and scaling additional ancillary products and services to complement our core Cash Offer solution.

Previous wording

We utilize our technology and product teams to design systems and workflows to make our operations teams more efficient and able to support and scale with the business. Many positions are considered volume based, and as our business grows, we focus on developing more automation tools to gain additional leverage. Additionally, in periods when our business is growing, we expect to be able to gain operating leverage on portions of our cost structure that are more fixed in nature as opposed to purely variable. These types of costs include general and administrative expenses and certain marketing and information technology expenses, which grow at a slower pace than proportional to revenue growth.

Current wording

We utilize our technology and product teams to design systems and workflows to make our operations teams more efficient and able to support and scale with the business. Many positions are considered volume based, and as our business grows, we focus on developing more automation tools to gain additional leverage. Additionally, in periods when our business is growing, we expect to be able to gain operating leverage on portions of our cost structure that are more fixed in nature as opposed to purely variable. These types of costs include general and administrative expenses and certain marketing and information technology expenses, which generally grow at a slower pace than proportional to revenue growth.

Previous wording

Our business model requires significant capital to purchase real estate inventory. Inventory financing is a key enabler to our growth and we rely on our non-recourse asset-backed financing facilities, which primarily consist of senior and mezzanine secured credit facilities to finance our home purchases. The loss of adequate access to these types of facilities, or the inability to maintain these types of facilities on favorable terms, would impair our performance. See“—Liquidity and Capital Resources—Financing Activities.”

Current wording

Our business model requires significant capital to purchase real estate inventory. Real estate inventory financing is a key enabler to our growth and we rely on our non-recourse asset-backed financing facilities, which primarily consist of senior and mezzanine secured credit facilities to finance our home purchases. The loss of adequate access to these types of facilities, or the inability to maintain these types of facilities on favorable terms, would impair our performance. See“—Liquidity and Capital Resources—Financing Activities.”

Previous wording

Our business model is based upon acquiring homes at a price which will allow us to provide a competitive offer to the consumer, while being able to add value through the renovation process, and relist the home so that it sells at a profit and in a relatively short period of time. We have invested significant resources into our underwriting and asset management systems. Our real estate operations team, including our pricing team, together with our software engineering and data science teams are responsible for underwriting accuracy, portfolio health, and workflow optimization. Our underwriting tools are constantly updated with inputs from third-party data sources, proprietary data sources as well as internal data to adjust to the latest market conditions. This allows us to assess and adjust to changes in the local housing market conditions based on our technology, analysis and local real estate experience, in order to mitigate our risk exposure. Further, our listed homes are typically in market-ready and move-in ready condition following the repairs and renovations we conduct.

Current wording

Our business model is based upon acquiring homes at a price which will allow us to provide a competitive offer to the consumer, while being able to add value through the renovation process, and relist the home so that it sells at a profit and in a relatively short period of time. We have invested significant resources into our underwriting and asset management systems. Our real estate operations team, including our pricing team, together with our software engineering and data science teams are responsible for underwriting accuracy, portfolio health, and workflow optimization. Our underwriting tools are constantly updated to adjust to the latest market conditions, leveraging inputs from our internal data systems, as well as third-party and other proprietary data sources. This allows us to assess and adjust to changes in the local housing market conditions based on our technology, analysis and local real estate experience, in order to mitigate our risk exposure. Further, our listed homes are typically in market-ready and move-in ready condition following the repairs and renovations we conduct.

Previous wording

Historically, we have been able to manage our portfolio risk in part by our ability to manage holding periods for our real estate inventory. Traditionally, resale housing pricing moves gradually through cycles; therefore, shorter real estate inventory holding periods limit pricing exposure. As we increased our scale and improved our workflow optimization in prior years, our average real estate inventory holding period of homes sold improved from 138 days in 2016 to 76 days during 2021, which was primarily due to the favorable housing market conditions across our markets in 2021 and improvements in our operational efficiency.

Current wording

Historically, we have been able to manage our portfolio risk in part by our ability to manage holding periods for our real estate inventory. Traditionally, resale housing pricing moves gradually through cycles; therefore, shorter real estate inventory holding periods limit pricing exposure. As we increased our scale and improved our workflow optimization in prior years, our average real estate inventory holding period of homes sold decreased from 138 days in 2016 to 97 days during the fourth quarter of 2023, which is consistent with our expected average real estate inventory holding period and our historical norm.

Previous wording

To provide investors with additional information regarding our margins, we have included Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins), which are non-GAAP financial measures. We believe that Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest are useful financial measures for investors as they are used by management in evaluating unit level economics and operating performance across our markets. Each of these measures is intended to present the economics related to homes sold during a given period. We do so by including revenue generated from homes sold (and ancillary services) in the period and only the expenses that are directly attributable to such home sales, even if such expenses were recognized in prior periods, and excluding expenses related to homes that remain in inventory as of the end of the period presented. Contribution Profit provides investors a measure to assess Offerpad’s ability to generate returns on homes sold during a reporting period after considering home acquisition costs, renovation and repair costs, and adjusting for holding costs and selling costs. Contribution Profit After Interest further impacts gross profit by including interest costs (including senior and mezzanine secured credit facilities) attributable to homes sold during a reporting period. We believe these measures facilitate meaningful period over period comparisons and illustrate our ability to generate returns on assets sold after considering the costs directly related to the assets sold in a presented period.

Current wording

To provide investors with additional information regarding our margins, we have included Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest (and related margins), which are non-GAAP financial measures. We believe that Adjusted Gross Profit, Contribution Profit, and Contribution Profit After Interest are useful financial measures for investors as they are used by management in evaluating unit level economics and operating performance across our markets. Each of these measures is intended to present the economics related to homes sold during a given period. We do so by including revenue generated from homes sold (and ancillary services) in the period and only the expenses that are directly attributable to such home sales, even if such expenses were recognized in prior periods, and excluding expenses related to homes that remain in real estate inventory as of the end of the period presented. Contribution Profit provides investors a measure to assess

Previous wording

Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest (and related margins) are supplemental measures of our operating performance and have limitations as analytical tools. For example, these measures include costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in inventory at the end of the period, costs required to be recorded under GAAP in the same period.

Current wording

Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest (and related margins) are supplemental measures of our operating performance and have limitations as analytical tools. For example, these measures include costs that were recorded in prior periods under GAAP and exclude, in connection with homes held in real estate inventory at the end of the period, costs required to be recorded under GAAP in the same period.

Previous wording

We define Contribution Profit After Interest as Contribution Profit, minus (1) interest expense associated with homes sold in the presented period and recorded in cost of revenue, minus (2) interest expense associated with homes sold in the presented period, recorded in costs of sales, and previously excluded from Adjusted Gross Profit, and minus (3) interest expense under our senior and mezzanine secured credit facilities incurred on homes sold during the period. This includes interest expense recorded in prior periods in which the sale occurred. Our senior and mezzanine secured credit facilities are secured by our homes in real estate inventory and drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See“—Liquidity and Capital Resources—Financing Activities.” We define Contribution Margin After Interest as Contribution Profit After Interest as a percentage of revenue.

Current wording

We define Contribution Profit After Interest as Contribution Profit, minus (1) interest expense associated with homes sold in the presented period and recorded in cost of revenue, minus (2) interest expense associated with homes sold in the presented period, recorded in costs of sales, and previously excluded from Adjusted Gross Profit, and minus (3) interest expense under our senior and mezzanine secured credit facilities and other senior secured debt incurred on homes sold during the period. This includes interest expense recorded in prior periods in which the sale occurred. Our senior and mezzanine secured credit facilities and other senior secured debt are secured by our homes in real estate inventory and drawdowns are made on a per-home basis at the time of purchase and are required to be repaid at the time the homes are sold. See“—Liquidity and Capital Resources—Financing Activities.” We define Contribution Margin After Interest as Contribution Profit After Interest as a percentage of revenue.

Previous wording

The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit and Contribution Profit After Interest to our gross profit, which is the most directly comparable GAAP measure, for the periods indicated:

Current wording

The following table presents a reconciliation of our Adjusted Gross Profit, Contribution Profit (Loss) and Contribution Profit (Loss) After Interest to our Gross Profit, which is the most directly comparable GAAP measure, for the periods indicated:

Previous wording

Interest expense consists primarily of interest on borrowings, including amortization of debt issuance costs related to our senior secured credit facilities, mezzanine secured credit facilities and other debt. Borrowings under the senior secured credit facilities and mezzanine secured credit facilities accrue interest at a rate based on a Secured Overnight Financing Rate (“SOFR”) reference rate plus a margin.

Current wording

Interest expense consists primarily of interest on borrowings, including amortization of debt issuance costs related to our senior secured credit facilities, mezzanine secured credit facilities, and other debt. Borrowings under the senior secured credit facilities and mezzanine secured credit facilities, and other debt accrue interest at a rate based on a Secured Overnight Financing Rate (“SOFR”) reference rate plus a margin.

Previous wording

Other income, net consists primarily of interest income earned on our cash and cash equivalents, changes in the fair value of derivative financial instruments that are entered into to manage risks that are principally associated with interest rate fluctuations and gains from the disposal of property and equipment.

Current wording

Other income, net consists primarily of interest income earned on our cash and cash equivalents, changes in the fair value of derivative financial instruments that are entered into to manage risks that are principally associated with interest rate fluctuations, and gains or losses from the disposal of property and equipment.

Previous wording

Revenue decreased by $2,637.9 million, or 66.7%, to $1,314.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily attributable to lower sales volumes and a lower average sales price. We sold 3,674 homes during the year ended December 31, 2023 compared to 10,635 homes during the year ended December 31, 2022, representing a decrease of 65.5%. Additionally, the average resale home price decreased by 4.3% from $371,000 in the year ended December 31, 2022 to $355,000 in the year ended December 31, 2023. The decrease in sales volumes was principally due to the impact of our intentional reduction in home acquisition pace to allow us to manage overall real estate inventory in response to the dislocated residential real estate market conditions that persisted throughout the second half of 2022 and continued to negatively impact consumer demand for residential real estate through the first quarter of 2023, as compared to the generally strong residential real estate market conditions during the first half of 2022. The decrease in average sales price per home was primarily due to our increased focus on geographic markets that tend to share relatively lower median price points as elevated mortgage interest rates and inflation in the broader economy have continued to negatively impact the residential real estate market conditions, as well as refining our target home purchase price range to focus on acquiring homes with the greatest price stability within each market.

Current wording

Revenue decreased by $395.6 million, or 30.1%, to $918.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily attributable to lower sales volumes and a lower average sales price per home. We sold 2,707 homes during the year ended December 31, 2024 compared to 3,674 homes during the year ended December 31, 2023, representing a decrease of 26.3%. Additionally, the average resale home price decreased by 5.6% from $355,000 in the year ended December 31, 2023 to $335,000 in the year ended December 31, 2024.

Previous wording

Gross profit margin was 5.3% for the year ended December 31, 2023 compared to 4.6% for the year ended December 31, 2022. The increase in gross profit margin was primarily due to an $84.9 million decrease in the real estate inventory valuation adjustment during the respective periods, which was primarily due to the residential real estate market conditions showing signs of stabilization and some improvement beginning in the second quarter of 2023, as compared to the impact of the dislocated residential real estate market conditions that persisted throughout the second half of 2022, which caused the net realizable value for certain homes in real estate inventory to be lower than their respective cost. The increase in gross profit margin was partially offset by a decrease in the difference between the average home resale price and the average home acquisition price during the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was primarily due to the impact of the softened consumer demand for residential real estate that occurred during the second half of 2022 and continued through the first quarter of 2023. Further, during the year ended December 31, 2023, the combination of the elevated inflation levels and the higher mortgage interest rate environment, which reduced home affordability, and the limited supply of single-family resale homes, required us to use pricing adjustments and other incentives, which negatively impacted our gross profit margin. We may continue to employ such adjustments and incentives if this environment continues.

Current wording

This increase in gross profit margin was partially offset by our increased use of pricing adjustments and other incentives in recent periods in response to the ongoing challenging residential real estate market conditions. We may continue to employ such adjustments and incentives if this environment continues.

Previous wording

Sales, marketing and operating expense decreased by $122.4 million, or 51.2%, to $116.6 million, for the year ended December 31, 2023 compared to the year ended December 31, 2022. This represented an increase as a percentage of revenue of 290 basis points to 8.9%. The decrease in expense was primarily attributable to the decrease in variable costs associated with the decrease in homes sold, and lower employee compensation costs associated with decreased average employee headcount as a result of the softened consumer demand for residential real estate. Additionally, advertising expense decreased by $15.6 million as we reduced marketing efforts during 2023 in response to the softened consumer demand for residential real estate.

Current wording

Sales, marketing and operating expense decreased by $43.5 million, or 37.3%, to $73.1 million, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in expense was primarily attributable to a $18.8 million decrease in advertising expense as we repositioned and optimized our marketing efforts in response to the ongoing challenging residential real estate market conditions, decreased average employee headcount and a decrease in variable costs associated with the decrease in homes sold.

Previous wording

General and administrative expense decreased by $8.6 million, or 14.7%, to $50.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This represented an increase as a percentage of revenue of 230 basis points to 3.8%. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softened consumer demand for residential real estate, and decreased insurance costs. This decrease in expense was partially offset by an increase in fees associated with our credit facilities and overall inflationary increases.

Current wording

General and administrative expense decreased by $9.5 million, or 18.9%, to $40.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in expense was primarily attributable to a decrease in fees associated with our credit facilities, decreased average employee headcount, lower insurance costs, and decreased accounting and other professional fees.

Previous wording

Technology and development expense decreased by $4.1 million, or 34.3%, to $7.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This represented an increase as a percentage of revenue of 30 basis points. The decrease in expense was primarily attributable to lower employee compensation costs associated with decreased average employee headcount as a result of the softened consumer demand for residential real estate.

Current wording

Technology and development expense decreased by $3.4 million, or 43.1%, to $4.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in expense was primarily attributable to decreased average employee headcount.

Previous wording

Change in fair value of warrant liabilities for the years ended December 31, 2023 and 2022 represents gains of $0.1 million and $23.5 million, respectively, as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination.

Current wording

Change in fair value of warrant liabilities for the years ended December 31, 2024 and 2023 represents gains of $0.2 million and $0.1 million, respectively, as a result of the fair value adjustment of our warrant liabilities.

Previous wording

Interest expense decreased by $27.1 million, or 59.0%, to $18.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease in expense was primarily attributable to a $370.2 million decrease in the average outstanding balance of our senior and mezzanine secured credit facilities, from $790.7 million during the year ended December 31, 2022 to $420.5 million during the year ended December 31, 2023. This decrease was partially offset by a 3.1% increase in the weighted average variable interest rates associated with these senior and mezzanine secured credit facilities.

Current wording

Interest expense decreased by $0.2 million, or 0.9%, to $18.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in expense was primarily attributable to a $172.0 million decrease in the average outstanding balance of our secured credit facilities and other debt, from $420.6 million during the year ended December 31, 2023 to $248.6 million during the year ended December 31, 2024. This decrease was partially offset by a 0.5% increase in the weighted average variable interest rates associated with our secured credit facilities and other debt.

Previous wording

Other income, net during the year ended December 31, 2023 principally represents interest income earned on our cash and cash equivalents, and the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into during 2023 to manage risks that are principally associated with interest rate fluctuations. Other income, net during the year ended December 31, 2022 principally represents interest income earned on our cash and cash equivalents.

Current wording

Other income, net during the year ended December 31, 2024 principally represents interest income earned on our cash and cash equivalents. Other income, net during the year ended December 31, 2023 principally represents interest income earned on our cash and cash equivalents, and the gain that was recorded as a result of the fair value adjustment of the derivative financial instruments that were entered into during 2023 to manage risks that are principally associated with interest rate fluctuations.

Previous wording

We recorded income tax expense of $0.2 million and $0.4 million during the years ended December 31, 2023 and 2022, respectively, and our effective tax rate was an expense of (0.1)% and (0.2)% for the respective periods. Our effective tax rate for each of the years ended December 31, 2023 and December 31, 2022 differed from the federal statutory rate of 21% primarily due to the valuation allowance recorded on our deferred tax assets and state taxes. We record a full valuation allowance on our deferred tax assets, such that our income tax expense reflects only state taxes which are revenue or commerce based.

Current wording

We recorded income tax expense of less than $0.1 million and $0.2 million during the years ended December 31, 2024 and 2023, respectively, and our effective tax rate was an expense of (0.1%) for both of the respective periods. Our effective tax rate for each of the years ended December 31, 2024 and December 31, 2023 differed from the federal statutory rate of 21% primarily due to the valuation allowance recorded on our deferred tax assets and state taxes. We record a full valuation allowance on our deferred tax assets, such that our income tax expense reflects only state taxes which are revenue or commerce based.

Previous wording

Cash and cash equivalents balances consist of operating cash on deposit with financial institutions. Our principal sources of liquidity have historically consisted of cash generated from our operations and financing activities. As of December 31, 2023, we had cash and cash equivalents of $76.0 million and had a total undrawn borrowing capacity under our senior and mezzanine secured credit facilities of $792.5 million, $302.7 million of which is committed and $489.8 million uncommitted.

Current wording

Cash and cash equivalents balances consist of operating cash on deposit with financial institutions. Our principal sources of liquidity have historically consisted of cash generated from our operations and financing activities. As of December 31, 2024, we had cash and cash equivalents of $43.0 million and had a total undrawn borrowing capacity under our senior and mezzanine secured credit facilities of $790.5 million, $169.0 million of which is committed and $621.5 million uncommitted.

Previous wording

With the exception of the year ended December 31, 2021, during which we generated net income, we have incurred losses each year from inception, and may incur additional losses in the future. We have continued to invest in the development and expansion of our operations. These investments include improvements in infrastructure and a continual improvement to our software and technology platform, as well as investments in sales and marketing as we increase market penetration in our existing markets.

Current wording

With the exception of the year ended December 31, 2021, during which we generated net income, we have incurred losses each year from inception, and may incur additional losses in the future. Since our launch in 2015, we have invested in the development and expansion of our operations. These investments include improvements in infrastructure and a continual improvement to our software and technology platform. We have also invested in sales and marketing as we have increased our market penetration in existing markets, and grown our business through new market expansion and the increased offering of asset-light platform services.

Previous wording

We expect our working capital requirements to continue to increase over the long term, as we seek to increase our real estate inventory and expand our operations. We believe our cash on hand, together with proceeds from the resale of homes and cash from future borrowings available under each of our existing credit facilities, or the entry into new debt financing arrangements or the issuance of equity instruments, will be sufficient to meet our short-term working capital and capital expenditure requirements for at least the next twelve months. However, our ability to fund our working capital and capital expenditure requirements will depend in part on the residential real estate market conditions in the markets in which we operate and in the U.S. in general, and various other general economic, financial, competitive, legislative, regulatory, geopolitical and other conditions that may be beyond our control. Depending on these and other market conditions, we may seek additional financing. Volatility in the credit markets, rising interest rates and softening consumer demand for residential real estate may have an adverse effect on our ability to obtain debt financing on favorable terms or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.

Current wording

We expect our working capital requirements to continue to increase over the long term, as we seek to increase our real estate inventory and expand our operations. We believe our cash on hand, together with proceeds from the resale of homes and cash from future borrowings available under each of our existing credit facilities, or the entry into new debt financing arrangements or the issuance of equity instruments, will be sufficient to meet our short-term working capital and capital expenditure requirements for at least the next twelve months. However, our ability to fund our working capital and capital expenditure requirements will depend in part on the residential real estate market conditions in the markets in which we operate and in the U.S. in general, and various other general economic, financial, competitive, legislative, regulatory, geopolitical and other conditions that may be beyond our control. Based on these and other current market conditions, we plan to seek additional financing. Volatility in the credit markets, rising interest rates and softened consumer demand for residential real estate may have an adverse effect on our ability to obtain debt financing on favorable terms or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.

Previous wording

During January 2023, we entered into a pre-funded warrants subscription agreement with the investors named therein (the “Investors”) pursuant to which we sold and issued to the Investors an aggregate of 160.7 million pre-funded warrants (the “Pre-funded Warrants”) to purchase shares of our Class A Common Stock. Each Pre-funded Warrant was sold at a price of $0.5599 per Pre-funded Warrant and had an initial exercise price of $0.0001 per Pre-funded Warrant, subject to certain customary anti-dilution adjustment provisions. The exercise price for the Pre-funded Warrants could be paid in cash or on a cashless basis, and the Pre-funded Warrants had no expiration date. The aggregate gross proceeds to us was approximately $90.0 million, which is being used for general corporate purposes, including working capital. The Investors included Brian Bair, our founder, chief executive officer and chairman of our Board; Roberto Sella, a member of our Board; First American Financial Corporation (“First American”), a holder of more than 10% of our outstanding Class A Common Stock; and Kenneth DeGiorgio, a member of our Board and chief executive officer of First American.

Current wording

During January 2023, we sold and issued pre-funded warrants to purchase shares of our Class A common stock, resulting in gross proceeds of approximately $90.0 million. The pre-funded warrants became exercisable during March 2023. All of the pre-funded warrants were subsequently exercised during 2023, upon which, 10.7 million shares of our Class A common stock were issued. Participating investors included Brian Bair, our founder, chief executive officer and chairman of our Board; Roberto Sella, a member of our Board; First American Financial Corporation (“First American”), a holder of more than 10% of our outstanding Class A common stock; and Kenneth DeGiorgio, a member of our Board and chief executive officer of First American.

Previous wording

Our financing activities primarily include borrowing under our senior secured credit facilities, mezzanine secured credit facilities and new issuances of equity (including the issuance of the Pre-funded Warrants, as discussed above). Historically, we have required access to external financing resources in order to fund growth, penetration in existing markets, expansion into new markets and other strategic initiatives, and we expect this to continue in the future. Our access to capital markets can be impacted by factors outside our control, including economic conditions.

Current wording

Our financing activities primarily include borrowing under our senior secured credit facilities, mezzanine secured credit facilities and new issuances of equity (including the issuance of the pre-funded warrants, as discussed above). Historically, we have required access to external financing resources in order to fund growth, increase penetration in existing markets, expansion into new markets and other strategic initiatives, and we expect this to continue in the future. Our access to capital markets can be impacted by factors outside our control, including economic conditions.

Previous wording

Borrowings under our senior secured credit facilities are collateralized by the real estate inventory financed by the senior secured credit facility. The lenders have legal recourse only to the assets securing the debt and do not have general recourse against us with limited exceptions. We have, however, provided limited non-recourse carve-out guarantees under our senior and mezzanine secured credit facilities for certain of the SPEs’ obligations in situations involving “bad acts” by an Offerpad entity and certain other limited circumstances that are generally under our control. Each senior secured credit facility contains eligibility requirements that govern whether a property can be financed. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.

Current wording

Borrowings under our senior secured credit facilities are collateralized by the real estate inventory financed by the senior secured credit facility. The lenders have legal recourse only to the assets securing the debt and do not have general recourse against us with limited exceptions. We have, however, provided limited non-recourse carve-out guarantees under our senior and mezzanine secured credit facilities for certain of the SPEs’ obligations. Each senior secured credit facility contains eligibility requirements that govern whether a property can be financed. When we resell a home, the proceeds are used to reduce the corresponding outstanding balance under the related senior and mezzanine secured revolving credit facilities.