Everybody wants to be a tech firm. Office-sharing, meat substitution, trip-hailing, trend styling, fitness—they are all know-how firms, according to founders who covet the highflying valuations the appellation can garner in the general public markets.

But just owning technological innovation doesn’t immediately make an expense exceptional. Think about authentic estate’s electronic home flipping: Below is a small business that is unquestionably “tech” but wherever the benefit of the technological innovation isn’t but apparent. With iBuyer Offerpad’s merger with blank-test agency Supernova Companions predicted to shut early this quarter, the benefit of technology—or lack thereof—is some thing that on the internet real-estate buyers will want to think about as they spot their bets in a crowded field.

So-named “pure play” iBuyers Offerpad and competitor

Opendoor Technologies

both equally explain themselves as technologies organizations. Opendoor says it is a “digital system for residential authentic estate.” Offerpad states it is concentrated on “tech-enabled real estate solutions.” Each businesses have a main technological know-how officer and some variation of a info scientist, presumably there to hone the technological know-how investments and examine their utility.

These providers might be resolving equivalent agony factors in seamlessly digitizing true-estate transactions, but they feel to be approaching the challenge in distinct ways—Opendoor with money and Offerpad with encounter. As of its March presentation, Offerpad explained it experienced lifted fewer than 9% of what SoftBank-fueled Opendoor had, while it experienced bought and subsequently bought 38% as several homes. And whilst Offerpad is led by a previous actual-estate agent, Opendoor is led by anyone from the actual estate technological know-how company.

Opendoor’s deep pockets have no doubt fueled its immediate progress. It is now lively in 39 marketplaces with the said intention of coming into 42 by 12 months-end—double the range of marketplaces Offerpad is targeting this year, despite staying only one particular calendar year more youthful. But even larger doesn’t essentially mean superior: Opendoor shed far far more funds very last calendar year.

In accordance to company presentations and regulatory filings, equally organizations had around the very same gross margins final calendar year, suggesting they are similarly great at pricing homes and timing the sector. An investigation by scholar-in-home at the University of Colorado Boulder Mike DelPrete demonstrates the variance in economics lies in “indirect costs” these as engineering, the sales and advertising of that technology and the salaries of the folks who establish it.

Mr. DelPrete’s assessment displays Opendoor offered a very little a lot more than 2 times as several households as Offerpad past yr, but its technological innovation and enhancement costs were about eight times greater in excess of that interval. A search at regulatory filings from each businesses reveals that dynamic was also accurate at the very least in the two several years in advance of the pandemic, albeit at a a bit lower ratio. The takeaway: Both Opendoor’s technological know-how is not all that it is cracked up to be, or its investments have yet to shell out off.

Opendoor says it isn’t blindly pursuing progress for growth’s sake, but generating strategic investments in pricing, technological innovation and operations platforms as it scales. The goal, in accordance to the firm, is to establish a system capable of higher quantity. With the real-estate industry on fire, it is surely doing work that angle: Opendoor’s used pretty much as much on technological know-how and enhancement in the to start with quarter as it did in all of 2019.

The enterprise of iBuying is nonetheless nascent: Opendoor says just 1% of true-estate transactions right now come about on-line and iBuyers claim that they are competing towards the regular agent model of shopping for and providing relatively than a single another. But the slice of the market open to iBuyers has become crowded, making a land seize atmosphere. Specially, as the pandemic has revealed a generation of tech-savvy millennials last but not least seem to be to be hitting the household-obtaining sector, time is of the essence.

Offerpad’s SPAC deal reportedly gave the corporation a publish-transaction value of $3 billion, very well down below Opendoor’s recent totally diluted market value of $11 billion. When comparing the two, buyers really should at minimum think about the reality that technological innovation is only as valuable as its competitive gain.

Publish to Laura Forman at laura.forman@wsj.com

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Appeared in the July 6, 2021, print edition.