By Mark Calvey  – Senior Reporter, San Francisco Business Times

Opendoor said it’s laying off 35% of its staff as it copes with the pandemic-induced economic downturn that’s throwing into question its entire business model of buying homes quickly for a fee.

The company is laying off about 600 employees. About 80 are being cut at the company’s San Francisco headquarters, including software engineers and those working in marketing and public relations, according to Opendoor’s California WARN notice filed April 15. 

The company has not yet filed a WARN notice in Arizona. Opendoor had 250 employees in October 2019 at its Scottsdale office. It planned to move into its new space this spring at the Watermark on the north side of Tempe Town Lake, where it expected to grow to 1,000 employees, reaching 500 by May.

Last month, Opendoor and similar services offered by Zillow and Redfin suspended their iBuying operations. A key question facing iBuyers is whether the business of quickly buying a home for later sale can work in a falling housing market.

While the jury is still out on that question, Opendoor’s large layoff came as little surprise. CEO Eric Wu has captured headlines for the startup’s embrace of frugality, at one point unloading free lunches in favor of funneling money into grabbing market share.

“Given the shelter-in-place guidelines, we’ve seen declines in the number of people buying, selling and moving during this time of uncertainty,” Wu said in a statement Wednesday. “We’ve made the difficult decision to reduce our team by 35%.

“This was necessary to ensure that we can continue to deliver on our mission and build the experience consumers deserve,” Wu said.

Opendoor painted an uglier picture in its California WARN filing, saying that key factors in the layoffs included COVID-19’s “significant effects on financial markets, uncertainty among home buyers and sellers regarding employment, finances and other matters material to the decision whether to engage with real estate.”

In suspending its primary service last month, Opendoor told me, “With closures and staffing issues facing government offices, home transactions are already being delayed in some regions.

“By pausing offers temporarily, we can proactively address the situation,” Opendoor said at the time.

On Wednesday, the San Francisco company with national operations, did not respond to my question on what the huge layoff means for the viability of the company’s business model.

The business of offering a quick home sale that can be timed to the seller’s needs and reduce some of the uncertainties in the traditional home-sale process in return for a fee is especially popular with buyers of newly built homes. Lennar, one of the nation’s largest homebuilders, has invested in Opendoor.

The demand from buyers of new homes is so strong that Wu once told me he wished he knew earlier what a great source of business these buyers would be for Opendoor.

On Wednesday, Wu said the company will offer laid off employees eight weeks of pay and will reimburse four months of health insurance premiums. “Also, I’ll be donating my 2020 salary to our Opendoor Employee Relief Fund to help those who may be in more challenging financial or health circumstances due to COVID-19,” Wu said, adding that other Opendoor executives will also donate to the fund.

Opendoor’s huge layoff underscores how quickly fortunes can change for even the most promising startups in the Bay Area’s boom-or-bust economy. San Francisco insurer Metromile has cut about 100 people, with half of those layoffs described as permanent. San Francisco-based Unison, a pioneer in the business of buying stakes in Americans’ home equity, laid off half its workforce, or 89 employees, and said in a California WARN filing that it lost financing “critical to the company’s ongoing operations.”