Good afternoon, and welcome to Offerpad's third quarter 2026 earnings conference call. My name is Megan, and I will be your conference operator today. At this time, all participant lines have been placed on mute to prevent any background noise. After management's prepared remarks, we will open the call for a question-and-answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. With that, I'll turn the call over to Cortney Read, Offerpad's Vice President of Investor Relations and Communications.
Good afternoon, and welcome to Offerpad's third quarter 2026 earnings call. Management's remarks today are pre-recorded, and a live question-and-answer session will follow. During the call, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and actual events could differ significantly from management's expectations. Please refer to the risks, uncertainties, and other factors related to Offerpad's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad does not intend to update or alter forward-looking statements as a result of new information, future events, or otherwise. Management will also refer to certain non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the financial tables of our third quarter earnings release on offerpad.com.
With that, I'll turn the call over to Brian Bair, Chairman and Chief Executive Officer.
Good afternoon, and thank you for joining us. Before I discuss the quarter, I want to share two leadership updates. Andrew Pieper has been appointed Interim Chief Financial Officer, succeeding Peter Knag. I'm excited to have Andrew step into this role. He brings more than 22 years of public company accounting and financial reporting experience. Since joining Offerpad in 2021, he has led our accounting operations, SEC reporting, and audit processes, and he built the reporting and controls foundation that took us through our transition to a public company. He knows this business and our financials exceptionally well. Andrew will discuss our financial results and outlook later in the call. Also joining Andrew and me on today's call is Roberto Galaviz, our Vice President of Financial Planning and Analysis. Roberto will work closely with Andrew, drawing on his experience leading FP&A and supporting our operating plan.
Secondly, we welcomed Ben Graboske to our board of directors during the quarter. Ben brings deep experience at the intersection of real estate, data, and AI technology. His perspective will be valuable as we advance our data and AI capabilities and apply them to improve decision-making across the business. Turning to the quarter, revenue was $78.1 million, below the $90 million-$100 million outlook we provided in August. We closed 324 real estate transactions, compared with our outlook of 350-400. Adjusted EBITDA was a loss of $7.5 million, rather than the improvement we expected. At the same time, transactions increased for the second consecutive quarter, and more than a third of our closings came through Brokerage Services and Cash Offer Marketplace. When we provided our outlook in early August, average 30 year mortgage rates were about 6.7%, and they stayed near that level into early September.
Then they rose sharply to approximately 7.4% by early October, up about 70 basis points and the highest level since November 2023. We have operated with mortgage rates above 7% before. What was different this time was the speed of the move late in our quarter and the attention it received. Housing affordability had become a national story in the news, in political debate, and across social media. Buyers and sellers watched the market change in real time, with headlines describing it as a buyer's market. Buyers weighed higher monthly payments against the possibility of a better deal, while sellers faced uncertainty about how long their homes would take to sell and what price they could achieve. We believe that combination contributed to a more cautious market as the quarter came to a close.
We felt that caution across our platform, most directly in slower home sales, which were the primary driver of the shortfall, and also in the conversion across other channels for a period. We have adjusted our acquisition pacing, our resale strategy, and our spending accordingly. Last quarter, we said we were increasing acquisitions, and we did by acquiring 605 homes in quarter three. We also had additional homes under contract that could have increased that total, but as market conditions shifted, we have reevaluated them against our wider margin requirements and chose not to proceed with homes that no longer met our criteria. Where possible, we offered those sellers an alternative through Cash Offer Marketplace or Brokerage Services. Buying well is only half the process. On the selling side, our priority is converting this inventory into completed sales.
So far in the fourth quarter, 200 homes have sold or are under contract for sale. Our current portfolio is healthy. Most of it was bought within the last few months. Aged homes represented only 2.6% of our inventory at quarter end, and inventory valuation adjustments on homes we hold were minimal. These homes give us a pipeline of sales through the rest of the year and into early 2027. Even as buyers became more cautious and activity slowed across our channels for a period, our fee-based channels continued to grow for the quarter. Total transactions increased for the second consecutive quarter from 263 in Q1 to 295 in Q2 and 324 in Q3. Brokerage Services and Cash Offer Marketplace represented approximately 35% of Q3 closed transactions, and brokerage listing signings more than doubled from the prior quarter.
Together with continued cost discipline, these channels give us more flexibility in how we grow and work towards positive Adjusted EBITDA. Profitability remains our number one priority, and nothing about that has changed. What has changed is the timeline. The shift in the market has pushed our path out, and we now expect to exit the second quarter of 2027 at a positive Adjusted EBITDA run rate. For some time, we have pointed to roughly 1,000 transactions per quarter as a reference point for positive Adjusted EBITDA. As market conditions have shifted, we have adjusted our underwriting to build wider expected margins into each purchase. A home bought at a wider margin can contribute as much profit as two homes bought at thinner margins. It uses less capital and carries less risk. We are also reducing operating expenses and growing Cash Offer Marketplace and Brokerage Services.
Together, these actions give us the opportunity to reach positive Adjusted EBITDA with fewer transactions than before. Andrew will walk through the cost reductions in more detail. These are actions within the same operating framework we have previously shared: disciplined transaction growth, Contribution Margin expansion, and operating leverage, adapted to current market conditions. For homeowners navigating an uncertain market, having options and control over their next move matters. A cash sale can offer clarity and convenience, while Cash Offer Marketplace and Brokerage Services provide other ways to sell. Offering these choices is central to Offerpad's model and creates a meaningful opportunity for our business. Our focus is to serve more sellers, deploy capital selectively, and advance our path to profitability. With that, Andrew will take you through our financial results, liquidity, and updated outlook.
Thank you, Brian. As I step into this role, my priorities are straightforward: focus on our path to profitability as we convert our inventory into cash and continue to optimize our cost base. Brian covered the third quarter's results and the market. I will focus on our unit economics, the balance sheet, and our outlook. During the third quarter, gross profit was $6.5 million, and gross margin was 8.3%. Per-transaction economics dipped from Q2, but remained well above a year ago. Contribution Profit After Interest was approximately $12,900 per real estate transaction, compared with $13,500 in Q2 and $6,400 a year ago. Renovate generated $5.2 million of revenue, up from $4.8 million in Q2. Renovate contributes to the overall results, but is excluded from our real estate transaction count. Operating expenses, excluding property costs, were $13.7 million, compared with $13.3 million in Q2.
Net loss was $11.5 million, and Adjusted EBITDA was a loss of $7.5 million, compared with a loss of $6.2 million last quarter. After two quarters of sequential improvement, the decline in Q3 Adjusted EBITDA primarily resulted from the resale pullback. As we have highlighted before, we have reduced operating expenses by more than $140 million since 2022, and that work is continuing. This quarter, we identified an additional $8 million-$10 million in annualized operating expense reductions. We have already begun implementing these actions, with some benefit expected in Q4 and the full annualized savings expected during 2027. Those savings, along with selling through the inventory we built in Q3 and higher return purchases flowing through, are the drivers behind our expectation to reach positive Adjusted EBITDA run rate as we exit Q2 2027.
Turning to the balance sheet, we ended Q3 with $12.1 million in unrestricted cash, compared with $33.1 million at the end of Q2, and an estimated $55 million of equity in our 684 homes in inventory. The decrease in cash primarily reflects the capital deployed into that inventory, along with cash used to operate the business. That capital hasn't left the business. It's sitting in our homes, and it comes back to us as they sell. With acquisitions now intentionally reduced, we expect sales to meaningfully outpace purchases in the coming months. Each home we sell repays its financing and returns our equity to the balance sheet, so we expect our cash to rebuild as inventory comes down. Together with the cost reductions we've identified, this is the primary way we expect to fund the business through our path to profitability. We have also recently improved our inventory financing.
Our lenders now fund a larger share of each home's cost, so less of our capital is tied up in every home that we buy. That makes our capital go further, and it helps it return to the business faster as homes sell. At quarter end, we had approximately $251 million of undrawn capacity under our inventory financing facilities, the majority of which is uncommitted. We believe our cash, the capital we expect to return as homes sell, and our inventory financing are sufficient as we execute our 2027 plan. We also remain open to opportunities to strengthen our balance sheet, including strategic capital partnerships, and will be disciplined about the structure and cost of any capital we add. For the fourth quarter, we expect 400 - 475 real estate transactions and $100 million - $120 million in total revenue. We expect Adjusted EBITDA to improve sequentially from Q3.
That outlook is supported by the inventory we built in Q3, including the 200 homes sold or under contract so far during the fourth quarter, and continued growth in Brokerage Services and Cash Offer Marketplace closings. It also assumes rates remain near current levels and no rate relief. In closing, I'm excited to step into this role. Since joining Offerpad in 2021, I've led accounting and financial reporting and worked closely with teams across the business. That experience gives me a detailed understanding of how our operating decisions flow through our financial results, from acquisitions and inventory to dispositions and costs. I know shareholders are focused on the current market, the capital in our inventory, and our path to profitability, and so am I. I'm confident in where we're headed because of the strengths we have across the business. Our products give homeowners real choices.
We have a strong, experienced leadership team and an accounting and finance team that brings real discipline and deep knowledge of this business. We have capital partners who have supported us and continue to expand their relationship with us, and I'm committed to strengthening those relationships further. With that, we are ready to take your questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ryan Tomasello. Your line is open. Please go ahead.
Hi. Thanks, everyone. I wanted to ask about the fee-based products. It looks like the Cash Offer Marketplace and Brokerage Services transactions were about, I think, by my math, 114 in the quarter. Can you tell us what the breakdown of that was between those two products? And then also going into the fourth quarter guidance, how should we think about that 35% mix of fee-based transactions, what is being embedded there in 4Q and into early next year? Thanks.
Hey, Ryan. This is Roberto. Yes, so on that 114, majority of that came from the HomePro side, so majority on the listing services. Cash Offer Marketplace, we are still seeing some growth there, but majority going into Q4, we still expect to be from the HomePro side. On the mix side, we have talked about the 50/50 in the past, and we are still looking to get to about that range. Over the next quarter, we expect that we are still going to see more sales on Cash Offer driving the volume side, but we do expect on the contribution side, because of our higher margins that we are building into those properties, that that rate is going to start getting closer to or going to be on the higher side, on the 60% - 70% range.
We do see HomePro, we highlighted in the prepared remarks that we grew about, doubled our listing sign, so we expect to see more growth into the Q4 from that. So volume-wise, that rate is going to go towards the 50/50 sooner rather than later. On the Contribution Margin side, we expect that Cash Offer is going to continue to lead for a couple quarters.
Great. Thanks for that. In terms of Brian's remarks, just around the prior target of 1,000 transactions a quarter driving break-even, it sounds like you are hopeful that with wider spreads here and adding in these additional cost efficiencies, that it sounds like that could move lower. Any way to frame how you are thinking about the new run rate break-even in terms of real estate transaction volume? Thanks.
Yeah. Hey, Ryan. It's Brian. Yeah, we had really good progress, as we talked about last earnings, with our velocity buying, with SCOUT and buying in the areas that we really liked, which the good news is our portfolio is really strong right now. We do not have a lot of tail inventory, so I really like what we have. But because we had to pause some of the buying for a little bit, pull back, it's obviously pushed us off to another quarter or two before we can get profitability. But we are making really good progress with the asset-light services on that side. So the 1,000 was kind of an indication we looked at 1,000 transactions with our three product lines. But with the wider margins and the cost reductions, to your point, there's different ways to get there.
Andrew, I do not know if you want to add anything on that side.
Yeah, I will jump in there too. Hey, Ryan. Thanks for the question on it. As Brian just mentioned, and you hit on it as well, that the cost savings that we have identified, along with our current Contribution Margin level, we expect that will help reduce the number of transactions that will be required to get us to break-even by roughly about 150 - 200 transactions. So that will be moving the 1,000 real estate transactions per quarter down to about 800 or 850 per quarter. Also want to highlight as well that as our Contribution Margin improves, that number of transactions will come down even further, especially with the higher margins that we built into our Cash Offer underwriting more recently.
The one other thing I will say on that, Ryan, is, and I said it in the prepared remarks, but definitely seller mentality has changed. We have seen this thing evolve over the last several years, but I think this is the very first time that we have seen it that a majority of the sellers know it is a buyer's market. They are seeing active listings around their areas continue to increase. The good part about that is that we can buy at wider margins and be more selective about what we are acquiring. Of course, what we have to be very sensitive to is making sure that we are buying the right type of product in the right areas. We are continuing to stick with the interior homes. The outlying areas are definitely impacted more than most areas.
Our portfolio still consists of interior homes, newer, not as much renovation. Of course, we still have renovation, but the $100,000 renovation projects that we have done in the past, we are not looking at doing right now.
Great. Thanks for all the color.
Your next question comes from the line of Dae Lee. Please go ahead.
Great. Thanks for taking the questions. So first one, you guys touched on it a little bit, but this isn't the first time you've seen rates kind of spike up in a short period of time, and you guys have gone through, I would say, a few iterations of this. Just wondering, how does this step up feel different from the ones you've experienced in the past, and how do you feel about the shape of the business as you go into another, what could be a potentially challenging higher rates buying and selling environment?
Yeah. We've operated at the + 7% in the past. Where this one was unique is towards the end of the last quarter, just the speed of. We saw mortgage rates above 7%, 7.5%, in a really quick period of time. For buyers that didn't have their rates locked in, it was extremely impactful to them. I would say it reminded me kind of that kicked this thing off a few years ago when we saw the acceleration from about 3.5% mortgage to 7%. It wasn't as drastic, but it was very, very. We went from the mid-6%s to the mid-7%s in a really quick period of time.
I think across the board, just from some of the other news that have been out there from the affordability perspective, and again, I mentioned this in the prepared remarks, but I think it's important to point out again. As you're seeing in social media and news programs and things are leading with the affordability and home prices. I just think overall, you saw a really quick acceleration of mortgage rates, and then you're just seeing more people with the affordability perspective that impacted them, besides gas and across the board. But we've seen a little bit of that over the last few years. The one thing that we continue to do is we're going to control what we can control, and that's the inventory that we're buying.
Anything that we balance sheet, we're going to be highly selective on what we're going to buy. But in parallel to that, I think I mentioned before, we've doubled the amount of other cash buyers in our Cash Offer Marketplace. For example, anything that Offerpad doesn't want to buy, for example, if it's solar panels that we don't want to buy in a certain area, we'll have other cash buyers that are willing to buy that home that has solar panels or outlying areas. We still want to provide the Cash Offer. If it's not Offerpad's Cash Offer, somebody else's Cash Offer, and then give back the seller choice if they can list that home if they want. But, yeah, we're watching it now.
Now, since that, we have seen an ease of a little bit of the mortgage rates from the almost a 7.6% range to now in the 7.25%- 7.5%, a little bit below 7.5%. I have mentioned this, I know, the last few times we talked, but that sensitivity of 25 basis points is just incredible what it does from showing activity to active inventory just across the board. As we talked about, like with SCOUT identifies where we should be buying along with HENRY. That technology is great, and so it identifies velocity areas that we should be buying, and you are considering all of the macro environment in those areas.
In a really quick period of time, we saw a lot of those areas started to shrink up because what happened is more inventory hit the market, you had more sellers that put their home in the market that were not transacting as fast as we had seen in the past. That is where this was the impact on that. Anyway, but we have seen it normalize a bit, come down a little bit. But yeah, but we are trying to be as prepared as we can for all the volatility we are seeing out there.
Got it. I guess as a follow-up, you kind of mentioned that with rates coming down, but I guess a lot of efforts to improve affordability. I guess from your seat, do you feel like there is enough work that is being to help with affordability? If there is, what are you most hopeful for? Is it just rates, or is there something else that can work here?
Yeah. Listen, I think the affordability overall, like I said, it is a little bit of a perfect storm because buyers are not getting the relief anywhere. Whether it is diesel gas prices to normal gas prices to the war and tariffs and everything else that is going on out there. The salaries are not keeping up with it, of what is happening. If I had a magic wand, I love the portable mortgage concept- think a one-time move where people could trade out of their current home and keep the same mortgage rate would be incredible. I have been talking to anybody and everybody who would listen about, I think that would give the market a relief and people a one-time kind of, "I can get out," and either upgrade or downgrade their home.
Because right now, you just, again, you have the sellers that don't want to leave their current rates, and you have the buyers that can't afford their new rates. Not that that's the perfect answer, but it is the answer. I think mortgage is that, and just getting But if you look at just the impact of rates, just to make it in real life, when mortgage rates go up from, let's take a base case from 6.5% - 6.7%, and they go up to 7.5%+ , that's about $150 - $175 a month. Then you add a little bit from the other affordable issues with grocery prices and everything else adding in there, it's just, there's an off button somewhere in there for buyers on that perspective.
I definitely, it's a long-winded answer of saying I definitely think rates impact everything incredible right now, but I do think there's some other relief that's out there with other things coming down to give people that even another $100- $150 a month is super impactful so people can qualify to get a house or their first house.
Got it. Then just a last follow-up to Andrew, if I can. When you guys talk about reaching Adjusted EBITDA on a run rate basis by end of 2Q of 2027, is that more driven by the seasonality of the business improving into the home buying season, or are there other factors that can affect that target?
Yeah, Dae, thanks for the question. Seasonality plays into that for sure, but what we're really seeing more is on, as we're talking about the cost reductions in the business and how that will ultimately flow through and get to that point, with the rates that Brian's talking about and the impact that that's having on the buying and selling side. As we flow that through and as that gets into the cost side, we will have that Adjusted EBITDA with the metrics falling out in Q2.
Got it. Okay. Thank you.
Thanks, Dae.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Gaurav Mehta. Your line is open.
Thank you. In the earnings release, you mentioned that in 3Q, you bought the homes in the markets where you were still being, I guess, the markets that are meeting your requirements. Can you maybe comment on which markets, where the home purchase is focused on?
Yeah, that's where some of the volatility we've seen, because Charlotte, Raleigh areas, the Florida markets have been, they've been pretty, I don't want to say steady, that's a bad word to use, but we've had a good appetite in those markets. You didn't see the home price acceleration. You've seen more consistency there. But we're definitely seeing a slowdown now in those markets. The Houston and Dallas markets, it's getting impacted just by new builds, by builders. It's hard to avoid builders and their buy downs and some of their special financing in those areas. As we look at it, Atlanta continues to be a market that we can stay pretty consistent in, that we're seeing some good activity in. The Phoenix market, Phoenix is a little bit of a mixed bag.
In Phoenix, you see over 28,000 active listings in Phoenix, so you see a lot of inventory. Those are more higher end. But the right price points in the interior, we still continue to see them move. It's been a very unique, and interesting enough, about a year ago, Tampa was probably the slowest market that we see. Now we see Tampa inventory moving fairly well in the Tampa market. Besides the volatility of the market and interest rates, it's been interesting to watch. A lot of these are job growth specific. We're watching even, just a quick example, we have to be watching where data centers are getting built. It's creating great jobs, but some people say it can cause noise and water shortages and other things as well.
We're staying hyper-focused on just. When we say pockets, we're getting very specific with the pockets of where we're going to buy and staying patient. If we don't want to buy it, maybe somebody else does in our marketplace, or make a Cash Offer on it. But that's where we, I think, will continue to see listing growth over time, because we can provide listing services to the people that the Cash Offer doesn't work for various reasons.
Okay, thanks for that color. I also wanted to follow up on some of the cost savings that you talked about. Can you maybe break down for us where you expected to realize those $8 million-$10 million of additional OpEx savings?
Yeah, I'll talk and then maybe have Andrew come in here. But just from a high level, the one thing that the buying homes at volume, especially at balance sheet homes at volume, is great to our core business, but we're not buying as many. We don't need as many people, and we're not buying as many homes. Just that simple. But you really, if you parlay that into our technology as far as what we've done with HENRY specifically, from being able to do automated offers. A lot of data, like picture recognition and the inspection process, being able to get really efficient on and using technology to leverage that.
Also the other products as we talk about with the HomePro product that we have agents, these are 1099 agents, and so we can scale and grow that without really the balance sheet being affected, and we can scale and give customer a great experience. There's some cost, but not nearly the cost as the acquisition side. And the Cash Offer Marketplace is great because we run through the exact same system, use the same technology, but instead of us balance sheeting, we have somebody else balance sheeting. But Andrew, I don't know if there's anything that you want to add there.
Yeah. Thanks, Brian. As you mentioned, we'll have the headcount realignment as we move towards more capital light and our tech re-optimization. We also identified some additional expenses associated with the realignment of our office space facilities, and we'll get some savings there as we move forward. And then there's just some other general operating spend that we've identified as well. Now, as it relates to the timing of those, some of that benefit, we've already started to see in Q4, but the full impact and the full annualized savings from that will hit in 2027.
All right. Thanks for that color. And maybe last one, I think you also talked about adjusting your acquisition criteria for higher expected returns. Can you maybe provide some more color on how you expect to achieve higher returns on acquisitions?
Yeah. Simply what we're doing is, from an ROI perspective, we're backing up the, from a time to cash perspective, what we have right now and currently at HENRY. I think we're going to hit our time to cash. As we continue to go, especially with seasonality and market conditions, we're going to expand how long we're going to own those homes, maybe from 100 - 120 days. Simply what also the assumptions that we put in there. Potentially what we need to make to balance the risk factor of us buying the home, but also some of the other costs that go in there, from closing costs and all those. Fundamentally, if you look at the ROI that we need to expect to make on that home and just calculating for the risk metric.
Just to kind of put that in there, we're underwriting right now almost double what we were just a couple months ago on the underwriting perspective. That naturally slows down volume, but we're okay with that in these market conditions. Then having other products we can connect them to, we want to make sure we can capture them either through another cash buyer that's in our marketplace and/or using our listing service.
All right. Thanks for that color. Maybe if I can ask one more. Can you maybe comment on, I guess, the demand that you're seeing for renovation and maybe asset light? Are you still seeing demand for the fee light business, or has that been impacted by high rates as well?
Yeah. Well, on the renovation specifically, here's the good thing about renovation is that when we kicked off renovation, it was doing renovation for a lot of larger institutions, companies buying at scale and buying a lot of homes. Over the last few years specifically, we're doing renovation for very small groups, even some groups that buy one to five homes a year. So we've gone way down the funnel. Of course, we have some of the mid-sized groups in there as well. The thing that makes me excited about the future, this is across the board, is that we are laser focused. We want to get profitable. That's what Andrew and I and Roberto were talking about every day, what cost can we build out? We got to go execute. We got to get profitable.
But then we got to, as we go, we want to grow and scale this. Everybody, like every renovation customer that we're working with, and we're very self-aware. We're reaching out all the time, "What could we do better on the renovation side? Is there anything we're missing? Is there anything" And we're seeded in our own business, and we want to expand that. I will tell you that people love using us, because they can really just plug into our operation on that end of it. But as they start to scale up again, as the market starts to turn, they're going to scale with us.
As the success of Cash Offer Marketplace, as we get more cash buyers in there, especially the lower tier cash buyers, I'm sorry, lower volume cash buyers, they're not going to buy as many homes, but they need more of our services. So, not just the sourcing that we can provide them, but also using our renovation services. So it all ties together. As we scale, I mean, there's no other way to say it, you guys. This environment, especially over the last 60 days, has been, I think it shocked the system a little bit. It didn't just shock Offerpad, it shocked a little bit of everybody of what's happening. But as we know in real estate, these are temporary moments in time.
So we want to establish great relationships, do a really good job for all of our partners, and then as they scale up, we'll scale with them so we can 3x, 4x very quickly every one of our other product lines.
All right. Thanks for those details. That's all I had.
All right. Thank you.
There are no further questions at this time. This concludes today's conference call. You may now disconnect.