Things are happening in the algorithmic home-flipping business right now.

A few weeks ago I wrote about Zillow pausing this part of its business. It was then later revealed that the company was set to take a loss on many/most of the homes that it had purchased through this "iBuying" division. In October, it listed some 250 homes in Phoenix and on average they were priced about 6.2% below what they had bought them for.

So it is perhaps no surprise that today the company announced that it will be the exiting the business of buying high and selling low. Turns out this isn't good for business.

But does this mean that the model doesn't work or that Zillow simply didn't have its algorithms tuned correctly? Following the news, competitor Opendoor took to Twitter to reassure everyone that the digitization of real estate is still well underway:

Opendoor also announced today that it will be expanding technical hiring into Canada -- starting first with Toronto. The plan is to hire upwards of 100 people over the next several years. Presumably this is about access to talent, but presumably it also means that Opendoor is looking toward one day expanding into Canada.

Stay tuned.

Disclosure: I continue to be long $OPEN.

Opendoor is best known for allowing homeowners to instantly sell their homes online. Enter your address. Get a cash offer. And then choose a closing date. (The commissions are around 5%.)

Today, Opendoor announced something new called cash-backed offers. What it does is help to reduce the friction on the buy side and how it works is that Opendoor literally backs your offer with cash.

If for whatever reason you can't come up with suitable financing, Opendoor will buy the home themselves and you'll have 240 days to figure out your affairs and buy it back from them for the same price and at the same terms.

The idea is that it helps to improve the attractiveness of your offer, which is particularly useful in competitive low interest rate environments, such as the one we're living through right now. (Already about 36% of the market in the US is compromised of all-cash homes sales.)

Opendoor started by dramatically reducing the barriers to selling a home (supply). And now they're trying to make things easier on the demand side of the marketplace. At the same time, the process is going digital. I think this is great for consumers.

For more on the trends shaping home buying in the US, check out this report that was published by Opendoor last month.

Full disclosure: I am long $OPEN.

Algorithmic home buying companies (or iBuyers) have now started to expand into Los Angeles. If you recall, most of these companies started in smaller markets where the homes are more homogenous, relatively inexpensive, and generally less liquid. Places like Phoenix.

By tackling the second largest housing market in the US (after New York City), the algorithms of Opendoor, Redfin, and Zillow will now need to content with an older housing stock, greater variability, and higher values.

All of these companies have increased their maximum offer price. The sweet spot for algorithmic home buying has typically been in the $150,000 to $300,000 range. Last year, two-thirds of all homes bought by iBuyers were in this range. I can't imagine that gets you very much in LA.

I keep expecting these companies to scale into something more beyond just iBuying and flipping. Perhaps we will see that happen once they establish themselves in country's biggest markets.

Photo by Josh Rose on Unsplash