How to Build a Real Estate Marketplace – Kaz Nejatian, Opendoor CEO

0:00:04 There are things you have to deal with in a public company that are amplified.
0:00:07 Like in a private company, these problems are discussed with your VCs at a board table.
0:00:09 In a public company, they’re discussed on Reddit.
0:00:11 And it’s kind of in the Wall Street Journal.
0:00:15 So if you care a great deal about what’s said about you in the Wall Street Journal,
0:00:18 running a public company is incredibly difficult.
0:00:19 It’s just very difficult.
0:00:21 Luckily, I just don’t care.
0:00:24 Buying a home is supposed to be the American dream.
0:00:29 Instead, it’s one of the most painful, opaque, and inefficient markets in the economy.
0:00:34 On this episode of the A16Z podcast, I’m joined by A16Z general partner,
0:00:36 Aletur Ampel, who leads our apps practice,
0:00:41 and Opendoor’s new CEO, Kaz Najation, to talk about fixing those issues.
0:00:44 We discuss why real estate has resisted disruption for decades,
0:00:48 how a marketplace model could finally break the real estate agency cartel,
0:00:53 and why Opendoor’s mission to make buying and selling a home as seamless as clicking buy now
0:00:55 is much bigger than just flipping houses.
0:00:59 Kaz shares what it’s really like stepping into the CEO’s seat of a public company
0:01:02 why Opendoor is really a software business,
0:01:05 and how he’s putting the company back on offense.
0:01:06 Let’s get started.
0:01:11 Kaz, welcome to the podcast.
0:01:12 Thanks for having me, man.
0:01:13 I feel like you’re the man of the moment.
0:01:15 You recently took over as Opendoor’s CEO.
0:01:17 It’s been a few weeks, a month.
0:01:18 It’s day 16, I think.
0:01:19 Day 16.
0:01:22 And I feel like you’re pioneering a new way of being a public company CEO.
0:01:24 First, what got you excited about the opportunity?
0:01:27 And then coming into it, what was your mindset going into how you’re going to be CEO of this company?
0:01:33 I think Opendoor will become like this generational company because I think people,
0:01:36 like when you go to business school, they’re like, you should have a business plan.
0:01:38 And it should be 17 pages.
0:01:40 And it should have like Porter’s Five Forces on it.
0:01:42 And that’s how it’s going to work.
0:01:44 And that’s just like generally not how great businesses are built.
0:01:46 At least not that many of them.
0:01:56 I think it’s important that great businesses start with a very like simple statement that people can buy into or disagree with.
0:01:56 Right?
0:01:59 Like it’s, that’s being also actually important that you’re saying something.
0:02:02 I think home ownership is good for the world.
0:02:05 The more people that can own a home, the better off we are.
0:02:10 This is objectively a broken process so we can fix it.
0:02:13 So I think I was just like generally excited by the mission of the company.
0:02:21 And I’ve just been a fan of it for a while and looking from the outside in, I’m like, look, this feels like a type of problem that I can help with.
0:02:24 So we’re 16 days into this journey.
0:02:25 Let’s find out if that ends up being true.
0:02:27 Well, let’s trace a little bit of the history.
0:02:30 Alex, you led our investment into the company.
0:02:32 What was the thesis or vision that got you so excited about it?
0:02:35 I’m going to talk for a little bit of the background.
0:02:36 And I’m going to start with Amazon.
0:02:38 And then I’ll get to Opendoor.
0:02:42 So I remember I met Eric Wu when he had first started Opendoor with Keith.
0:02:46 And I think they had flipped maybe 70, 80 homes, like right around Phoenix.
0:02:53 And the reason why Phoenix is a very interesting market is there’s a term that I’m sure you’re intimately familiar with called cap rate or capitalization rate.
0:02:57 And think of it as like the income of some asset divided by the price of the asset.
0:03:00 So the Bay Area has very low cap rates.
0:03:03 So you could buy like a $20 million house in Pack Heights.
0:03:10 If you wanted to rent it, it might rent for like $10,000 a month or $20,000, which is a lot, but not as a percentage of the price of the asset.
0:03:11 That is very, very low yield.
0:03:14 And a place like Phoenix, all the homes are pretty similar.
0:03:15 I’m exaggerating.
0:03:17 I’m not trying to offend people who live in Phoenix.
0:03:21 But you would have a $200,000 house that might rent for $20,000 a year.
0:03:28 So like a 10%, so the net operating income divided by the asset, like that’s your cap rate, 10%.
0:03:34 You can actually make a lot of things work because there’s always a default buyer of somebody who will say, I can arbitrage this.
0:03:36 I’m holding a house.
0:03:39 I don’t have to sell it to another person that wants to buy a house.
0:03:40 I can now rent it out.
0:03:44 And because I can get a mortgage from a bank for 5%, like I can make the whole math work.
0:03:49 So Eric had started flipping homes in Phoenix and made money on most of them.
0:03:51 But I was like, ah, you know, I don’t know.
0:03:52 Flipping homes seems kind of challenging.
0:03:54 I mean, it sounds great when all prices go up.
0:03:58 But what I was really drawn to is the vision that he laid out.
0:04:04 And when I finally invested, I thought he was pretty along towards getting that vision become a reality, which was – this is what I mentioned.
0:04:05 I’m going to talk about Amazon.
0:04:14 Amazon started off in the 90s basically selling every book in the world, hence Amazon, in Jeff Bezos’ garage or basement or warehouse or something.
0:04:20 And by selling every book, like having infinite supply of books, he got all of the demand.
0:04:25 And then because he got all of the demand, he could say, all right, I want to now sell something that isn’t books.
0:04:27 I’m going to sell CDs and DVDs.
0:04:27 That was next.
0:04:29 But I also still stock those in the warehouse.
0:04:30 But eventually it’s I’m going to sell TVs.
0:04:31 I’m going to sell something else.
0:04:33 I’m not going to stock them.
0:04:34 But I already have all the demand.
0:04:37 And I got the demand because I had all the supply for something else.
0:04:40 So I start up because this is the chicken and egg problem.
0:04:42 Do you start off with supply or do you start off with demand?
0:04:47 And marketplaces we know are very valuable, but you have to start somewhere because nobody wants to sell if nobody’s buying.
0:04:49 Nobody wants to buy if nobody’s selling.
0:04:55 So the Amazon model was like find something in one niche, use that to get all of the demand.
0:05:01 And then once you get all of the demand, now you can actually attract the supply in a non-principle risk-taking way.
0:05:03 So fast forward to Opendoor.
0:05:07 So I remember when Eric was flipping all the homes in Phoenix, I was like, that’s clever, but I don’t know.
0:05:10 Like I know other people that flip homes in Phoenix.
0:05:15 But I think it got to the point where in one of the markets, I think it was Charlotte, if I remember correctly,
0:05:22 almost 10% of homes in Charlotte that were under a certain price, call it like $600,000 homes,
0:05:27 which actually buys you a lot of house in Charlotte, 10% of the homes were bought by Opendoor.
0:05:30 So now imagine that I want to go buy a house in Charlotte.
0:05:38 I can go to the multiple listing service, the MLS, which is you see that on Zillow, Redfin, all of these other sites kind of they just mirror the MLS.
0:05:41 But that’s only going to show me 90% of homes for sale.
0:05:45 The other 10% are only on this thing called Opendoor.com.
0:05:49 So you don’t have to get 100% of the homes in order to get 100% of the users.
0:05:51 You get 10% of the homes.
0:05:52 You get 5%.
0:05:53 It’s kind of like the Laffer curve.
0:06:02 You can’t exactly define what it is, but there’s some quantum, and I would call it 10%, where if you get 10% of all of the supply, you get 100% of the demand.
0:06:06 And once you have 100% of the demand, now you can break this, like, horrible monopoly.
0:06:11 I did this whole video out of, which I know I said to you, this horrible monopoly of real estate agentdom.
0:06:17 And you can say, you can list your house on Opendoor.com, and we’ll charge 1%.
0:06:19 And if you pull that off, it’s the biggest market in the world.
0:06:24 And that’s what made me so excited, because eBay is a marketplace for everything except for homes.
0:06:26 And it’s a $45 billion company.
0:06:30 There aren’t actually big companies in residential real estate.
0:06:30 It’s kind of strange.
0:06:33 Like, the biggest ones are CoStar and Zillow.
0:06:40 There’s no $100 billion-plus company in residential real estate, which is kind of bonkers, because it’s a bigger asset class than, like, everything sold on eBay.
0:06:41 And so why is that?
0:06:42 Why is that?
0:06:45 Because it’s so hard to aggregate the supply and the demand.
0:06:49 And what Zillow and others do is they just do lead generation.
0:06:51 It’s a terrible business model from a consumer perspective.
0:06:56 Like, it should have, like, negative 100 NPS, because you’re just getting called all day by real estate agents.
0:06:58 You’re not actually improving the value proposition.
0:07:01 And Opendoor, it’s not about flipping homes.
0:07:01 I mean, maybe it is.
0:07:02 You read the company.
0:07:06 It’s about how do you build a marketplace, the biggest marketplace in the world.
0:07:11 I mean, to give you a sense of how crazy this is, there’s a company called Copart, public company.
0:07:12 You know what they do?
0:07:16 It is auctions for not used cars, but for, like, total cars.
0:07:22 So, if you get into a car accident and State Farm’s like, oh, that’s a total loss, what do they do with the car?
0:07:23 They sell it on Copart.
0:07:25 Copart, I think it has, like, a $70 billion market cap.
0:07:26 Who buys it?
0:07:27 Who buys it?
0:07:28 Like, people would rush it.
0:07:28 Well, no rush it anymore.
0:07:32 But, like, all sorts of, like, I buy it for parts, or I’m going to go fix it up.
0:07:36 But Copart is a bigger company than Zillow.
0:07:38 How is that possible?
0:07:40 It’s just because nobody’s tackled this.
0:07:44 It’s the biggest market in the world, but you have to build, hopefully, a capital-light marketplace.
0:07:49 Like, I think Opendoor is a deeply misunderstood as a company.
0:07:57 Like, I think you have to think about companies as, like, category problems are real in public market investing.
0:08:02 I remember, like, when I first joined Shopify in 2019, I think it was, like, among the most shorted stocks.
0:08:07 Because people made a category mistake about Shopify.
0:08:10 They’re like, well, it’s another e-commerce company.
0:08:15 What are the odds it will build all the warehouses that’s going to, like, it’s a category mistake.
0:08:18 Shopify does e-commerce, not an e-commerce company.
0:08:22 Like, just the leverage point for Shopify does not come from e-commerce.
0:08:23 It obviously comes from software.
0:08:24 It’s very much just like the software.
0:08:32 I think that’s actually a problem that Opendoor has had, is that, like, externally and, admittedly, for some time, internally,
0:08:41 the company thought of itself as essentially an investor in real estate as an asset class, which is not the job of the company.
0:08:43 This is not, that’s not what the company does.
0:08:46 It’s a software company designed to solve that problem.
0:08:51 I think if you attack it like that, you just fundamentally do different things, right?
0:08:55 If you look at, I mean, it’s a publicly traded company, you can actually look at numbers.
0:09:00 The company has repeatedly been buying fewer and fewer homes every year, right?
0:09:02 Because they’re like, cool, I’m going to buy an asset class.
0:09:04 You only buy homes that are mispriced.
0:09:09 But it turns out not that much in the world is mispriced for a very long time.
0:09:09 Yeah.
0:09:10 Right?
0:09:13 It may not become a good business, it just won’t become a big business.
0:09:17 And that’s, I think, a fundamental mistake the company has made in the past few years.
0:09:18 Yeah.
0:09:20 Let’s understand this problem a bit deeper.
0:09:22 Maybe, Alex, you could share a couple points from the talk that you gave,
0:09:26 or maybe explain more sort of the monopoly real estate agents have, or give some more context here.
0:09:30 So, real estate agents, for a very, very long time,
0:09:33 there were about 2 million registered real estate agents in the United States of America.
0:09:37 And the stat that I quoted a couple years ago, I assume it’s still the stat, but it is.
0:09:38 I looked it up, it’s true.
0:09:42 So, if you remember mean, median, mode, mean is the average, median is the one in the middle,
0:09:44 and mode is the most frequently occurring number.
0:09:47 The mode number of transactions per agent per year is zero.
0:09:49 So, it’s kind of like, well, I’m an actor.
0:09:51 Oh, well, what was the last film that you were in?
0:09:52 Well, I’m kind of a waiter right now.
0:09:53 I’m waiting to get a film job.
0:09:55 And that’s what a lot of real estate agents are.
0:09:58 So, even the really good ones, they don’t do that many transactions per year.
0:10:01 And they fundamentally are misaligned with their customers,
0:10:06 because if I’m a buy-side agent, the more money you spend, the more commission I get.
0:10:10 So, I normally get 2.5% to 3% as a buy-side agent.
0:10:14 So, normally, you have 5% to 6% as a commission pool,
0:10:17 half of which goes to the sell-side agent, half of which goes to the buy-side agent.
0:10:21 And there have been numerous, numerous lawsuits,
0:10:23 some of which have gone to the Supreme Court,
0:10:28 attacking this as this kind of like evil, not oligopoly, but this monopoly behavior.
0:10:29 And there’s an expression that I love.
0:10:31 It’s by the playwright George Bernard Shaw.
0:10:33 Every profession is a conspiracy against the laity.
0:10:36 And it’s very, very hard to deal with problems of concentrated benefit
0:10:37 and diffuse harm.
0:10:41 So, there’s a concentrated benefit to the 2 million real estate agents,
0:10:44 small number of whom actually do active transactions,
0:10:46 but they conspire, literally conspire,
0:10:49 to keep these commissions very, very high,
0:10:51 because you buy a house once every 10 years.
0:10:53 And you are absolutely harmed,
0:10:54 because if you’re a buyer,
0:10:55 well, wait a minute,
0:10:56 like, the more that you convince me to pay,
0:10:58 you get more of that.
0:10:59 And then why is it misaligned as a seller?
0:11:01 Because the sell-side agent is getting more if you sell for more.
0:11:05 Because they just want to move on and get their check tomorrow.
0:11:08 So, if I say, okay, you’re selling a $10 million house.
0:11:09 That’s a lot of money.
0:11:12 And then there’s another seller who will offer you $10 million, $10,000.
0:11:15 Well, the sell-side agent is like, well, I get 3% of that.
0:11:16 I don’t really care.
0:11:17 But you get an extra $10,000.
0:11:19 Like, you really do care about that.
0:11:23 So, there’s just, this is where the whole, the phrase principal agent problem
0:11:25 doesn’t come from this, but it’s like, this is a personification,
0:11:28 or like a real-life version of the principal agent problem.
0:11:30 So, there’s just so many things broken,
0:11:34 where it’s like, every other auction is fair.
0:11:36 It’s like, I see, okay, I want to go list,
0:11:38 I can sell a used car on eBay.
0:11:39 They actually do a pretty good job of that.
0:11:41 And I see there are 24 bids.
0:11:43 Here’s my reserve price.
0:11:44 And like, it’s just very opaque.
0:11:47 And because it’s a very infrequent transaction,
0:11:50 and you have concentrated benefit and diffuse harm,
0:11:53 there have been so many attempts
0:11:56 to, like, really, really violently disrupt this industry.
0:12:00 And one of them, and I should say,
0:12:02 I’m on the board of Rocket Mortgage, which bought Redfin,
0:12:05 and Glenn Kelman is an amazing guy, started Redfin,
0:12:06 and really wanted to disrupt real estate,
0:12:11 and said, okay, we’re only going to charge you 1%.
0:12:12 Actually, let me take a step back.
0:12:13 The funny thing about real estate agents,
0:12:14 I’ve bought many houses.
0:12:16 I’ve never used a real estate agent.
0:12:16 Actually, that’s not true.
0:12:18 I did use a real estate agent one time to buy a house.
0:12:19 But I was trying to say,
0:12:21 I don’t want to use a real estate agent to buy a house
0:12:22 because you’re going to charge me money.
0:12:24 He’s like, no, no, no, no, you don’t pay me.
0:12:25 The seller pays me.
0:12:28 And I’m like, where does the seller get the money from?
0:12:30 They’re like, well, from their bank account.
0:12:30 I was like, no, no, no.
0:12:33 I send the money to the escrow agent,
0:12:36 and then the seller gets the money from the escrow agent
0:12:37 and then pays you.
0:12:38 No, no, no, it’s different money.
0:12:41 It’s like, and I remember, like, talking,
0:12:42 this is when I bought a house at Palo Alto.
0:12:46 I told the real estate agent, and I will not name and shame him,
0:12:48 I was like, you know, with all respect,
0:12:50 or maybe whenever he says it, you mean no respect.
0:12:52 But with all due respect,
0:12:54 You mean all due respect.
0:12:56 Yes, with all due respect, of which I give you none,
0:12:59 you must think I’m an idiot, or I think you’re an idiot.
0:13:01 Like, those are the only two options.
0:13:03 Because it’s like, it’s just absurd to say that, like,
0:13:06 it’s free to be represented by a buy-side agent.
0:13:08 So what Redfin started doing,
0:13:10 and this actually did have, like,
0:13:11 a very, very positive impact on the industry,
0:13:13 was like, why don’t we bring down
0:13:16 the 3% buy-side fee to 1%
0:13:17 by rebating part of it
0:13:20 back to the consumer.
0:13:21 But, you know,
0:13:23 the state of Oregon bans that,
0:13:24 going back to every profession
0:13:25 as a conspiracy against the lady.
0:13:27 If I say, hey, use me, Eric,
0:13:29 and not Kaz, to buy your house,
0:13:31 and I’m going to take that 3%
0:13:33 that’s advertised as a commission,
0:13:34 and I’m going to share it back with you,
0:13:35 nope, you’ll go to jail.
0:13:36 You can’t do that.
0:13:37 It’s like, that’s absurd.
0:13:40 So, and then even if you say,
0:13:43 I’m going to do buy-side representation for 1%,
0:13:46 well, the seller still has to pay 4% now, right?
0:13:48 Because if it’s a 3% listing arrangement,
0:13:50 and then 1%, you know,
0:13:51 maybe it’s 6% all in,
0:13:53 but, like, of the 3%, 2% goes back to you.
0:13:54 The whole thing is messed up.
0:13:57 So the only way to really violently change this
0:13:59 is to have your own marketplace,
0:14:01 in my perspective.
0:14:04 I think, actually, the key part here
0:14:07 is, like, transactions that happen
0:14:09 incredibly infrequently
0:14:12 usually end up being full of fraud.
0:14:15 Like, there’s a reason why carnies leave town.
0:14:17 That’s a real thing, right?
0:14:20 It’s like, I got your money, I’m out of here.
0:14:22 Like, the odds are you’re going to buy
0:14:24 maybe two homes in your lifetime,
0:14:26 and the odds are you’re not going to use
0:14:28 the same process to buy both of them.
0:14:33 And it’s like, people intuitively understand this
0:14:35 about used car dealers, right?
0:14:37 They’re like, hey, like,
0:14:40 I’m not going to go to a used car dealer
0:14:42 that doesn’t offer certified pre-owned cars
0:14:43 because I don’t, like,
0:14:44 I don’t trust a counterparty.
0:14:46 I need someone else to certify this thing, right?
0:14:47 That’s a very real thing.
0:14:50 This is why, like, by the way,
0:14:51 in software,
0:14:53 we have a very hard time understanding this problem
0:14:53 because in software,
0:14:57 like, most of us get paid every month
0:14:58 someone uses our product.
0:15:00 it’s a long-term relationship, right?
0:15:01 Like, the more you use it,
0:15:02 the more money I make.
0:15:06 But it still not used to be as true in software,
0:15:08 and back then software was also had this problem.
0:15:10 Like, you kind of want to,
0:15:12 the best way to align counterparties
0:15:15 is to take the transaction
0:15:17 and stretch it out over time
0:15:19 to make sure that I’m interested
0:15:21 in you liking me 10 years from now.
0:15:23 And if you do that,
0:15:25 most of these problems tend to get solved.
0:15:27 But in order to do that,
0:15:28 you need a counterparty
0:15:29 or at least a third party
0:15:31 to certify that this thing is good,
0:15:32 that has an interest
0:15:34 outside that one transaction immediately.
0:15:37 And it’s about why, like,
0:15:39 Amazon works so obscenely well.
0:15:40 Like, you buy things from Amazon,
0:15:41 you don’t like it,
0:15:42 you can return it.
0:15:43 Which, by the way,
0:15:44 we launched this yesterday
0:15:45 at Opendoor in Dallas, Texas.
0:15:47 You buy a home from Opendoor,
0:15:48 you don’t like it,
0:15:49 you can return it.
0:15:49 Like, you can move in early,
0:15:51 try it out,
0:15:52 don’t like it,
0:15:52 return it.
0:15:53 Wow.
0:15:54 And this is like,
0:15:56 no one would do that.
0:15:57 Like, this is not a thing
0:15:58 that would happen regularly
0:16:01 with a regular real estate transaction,
0:16:02 which is why,
0:16:03 if you’ve ever bought a house,
0:16:06 your agent has said something
0:16:07 along the lines of this,
0:16:08 oh, they just turned down
0:16:10 an offer exactly like that.
0:16:11 Or, oh,
0:16:12 they have another offer
0:16:13 coming on Tuesday.
0:16:15 They never have another offer
0:16:15 coming on Tuesday.
0:16:17 They didn’t just turn down
0:16:18 an offer like that.
0:16:20 So I think there’s a very real thing
0:16:20 that, like,
0:16:20 you just need to,
0:16:22 A, have a counterparty
0:16:23 who is interested in the long term,
0:16:24 right,
0:16:25 stretch out a transaction,
0:16:27 and B,
0:16:28 remove the,
0:16:30 I make all my money
0:16:31 from this one thing,
0:16:32 transaction right now thing.
0:16:33 And that’s both of those things
0:16:34 just tend to,
0:16:35 in any market,
0:16:36 lead to bad outcomes,
0:16:38 where there are agency problems
0:16:39 that lead to terrible outcomes.
0:16:40 Yeah.
0:16:41 Well, there’s a corollary
0:16:42 to that as well,
0:16:43 which is on the
0:16:44 financial services side.
0:16:45 So part of it is like,
0:16:45 well, if you,
0:16:47 if I only make a transaction happen
0:16:48 every once every 10 years,
0:16:49 I don’t know it that well.
0:16:50 Yeah.
0:16:51 But if you’re only doing
0:16:52 two of these a year,
0:16:52 candidly,
0:16:53 you don’t know it that well.
0:16:54 Yeah.
0:16:55 And then you have
0:16:56 this other complicated thing,
0:16:57 like how do you buy a house?
0:16:58 How do you afford a house?
0:16:59 And to me,
0:17:00 it’s kind of crazy
0:17:02 that like the financing stuff
0:17:04 is totally divorced
0:17:06 from like the buying and selling,
0:17:06 which is like,
0:17:07 I mean,
0:17:07 the part of how we,
0:17:08 we became friendly
0:17:09 is through a firm,
0:17:09 right?
0:17:09 Yeah.
0:17:11 where how do you divorce
0:17:12 buying and selling
0:17:12 from financing?
0:17:14 They are one in the same.
0:17:14 And I can’t,
0:17:16 I can’t buy a house
0:17:17 until I sell my current house.
0:17:18 And like the real estate agent
0:17:19 is not going to help me with that.
0:17:21 They don’t have a big checkbook.
0:17:22 No, I think the agency problem,
0:17:22 by the way,
0:17:24 the agency problem
0:17:25 that exists in real estate
0:17:26 is actually multiplied
0:17:28 along the chain
0:17:29 because there’s usually
0:17:30 an agent involved
0:17:31 in the mortgage.
0:17:33 There’s usually an agent
0:17:34 involved in the insurance.
0:17:35 There’s usually like,
0:17:38 like in every single thing you do,
0:17:39 sometimes even in escrow,
0:17:41 like there’s usually like,
0:17:42 so you have like,
0:17:44 like let’s say
0:17:46 one principal agent problem
0:17:47 is a bad one.
0:17:49 In a real estate transaction,
0:17:50 you usually have five.
0:17:52 So it’s multiplied.
0:17:54 And let’s say
0:17:56 one person making money off you
0:17:57 once and never seeing again
0:17:58 is bad.
0:17:59 In a real estate transaction,
0:18:00 you usually have at least like,
0:18:01 at least five,
0:18:02 sometimes a lot bigger number.
0:18:04 Like the guy who does
0:18:05 the inspection for your house,
0:18:06 you’re never going to see
0:18:07 that guy again.
0:18:08 Like,
0:18:09 like,
0:18:10 it’s a very,
0:18:12 and I think that actually is,
0:18:13 but I think people
0:18:15 become very good people
0:18:16 along this chain,
0:18:17 the whole chain,
0:18:18 and you end up with
0:18:20 very terrible outcomes
0:18:21 because the system
0:18:23 is basically designed
0:18:24 to not lead to good outcomes.
0:18:25 Well,
0:18:25 and the thing is,
0:18:26 you have a lot of these
0:18:28 subscale things
0:18:30 that actually are pretty cool
0:18:30 that have never been
0:18:32 productized and rolled out.
0:18:35 so if you are an English professor
0:18:37 at Princeton or Stanford,
0:18:38 you probably can’t afford
0:18:39 to buy a house,
0:18:40 but the university
0:18:41 helps you buy a house
0:18:42 where they will subsidize
0:18:42 a mortgage.
0:18:45 Or, you know,
0:18:46 one of my favorite examples
0:18:47 is there’s something
0:18:48 called seller financing.
0:18:49 So every now and then,
0:18:50 you’ll see a house
0:18:52 sold by a very rich person
0:18:52 who’s like,
0:18:53 you know what,
0:18:54 I don’t need all the cash
0:18:55 right now.
0:18:56 You can pay me over time.
0:18:58 It’s like BNP,
0:18:59 I mean a mortgage is BNPL,
0:19:00 but like this is somebody
0:19:01 saying I will be
0:19:02 your financing option
0:19:03 and not a bank.
0:19:04 These are all really
0:19:05 interesting ideas,
0:19:06 but like, you know,
0:19:08 only Stanford and Princeton
0:19:08 and other schools
0:19:09 do that for their
0:19:10 English professors,
0:19:11 and only really rich people
0:19:12 do this for homes
0:19:12 where you can see,
0:19:13 oh, here’s a home
0:19:14 that’s listed for sale
0:19:15 that has this like
0:19:16 special financing,
0:19:17 and that’s done
0:19:19 in like the brick and mortar
0:19:20 like retail world
0:19:20 every day.
0:19:22 That’s called like
0:19:23 every day that ends in Y.
0:19:23 It’s like, oh,
0:19:24 we want to sell more stuff
0:19:25 like Procter again,
0:19:26 we want to sell more stuff,
0:19:26 here’s a coupon.
0:19:29 Or Xbox wants to sell
0:19:29 more things,
0:19:30 or, you know,
0:19:31 Lexus wants to sell
0:19:31 more cars,
0:19:31 you know,
0:19:32 0% financing,
0:19:34 0% APR Labor Day sale.
0:19:36 Like, doing that for homes
0:19:37 makes so much sense,
0:19:38 but like the real estate
0:19:39 agents are not,
0:19:39 they just don’t,
0:19:40 they just don’t know
0:19:41 what they’re doing.
0:19:43 There is one area
0:19:43 in real estate
0:19:44 where I think actually
0:19:45 there’s far fewer
0:19:46 these problems,
0:19:47 which is when you buy
0:19:48 a brand new home
0:19:48 from a builder.
0:19:49 Yes.
0:19:50 When you buy a brand new
0:19:51 home from a builder,
0:19:52 like when you walk
0:19:53 into a Lennar community
0:19:54 and buy a home
0:19:54 from them,
0:19:57 like they’ve solved
0:19:57 most of these problems.
0:19:58 Yeah, it’s a production line.
0:19:59 They know exactly what it is.
0:19:59 They’re like,
0:20:01 everything is bundled,
0:20:03 you have very few
0:20:03 agency problems,
0:20:04 you have some still,
0:20:05 even then,
0:20:05 if you shop
0:20:06 with your own financing,
0:20:07 but the odds are
0:20:07 you shouldn’t,
0:20:07 you should just take
0:20:08 their financing
0:20:09 because it’s like
0:20:10 optimized for you.
0:20:13 And this is,
0:20:13 I think,
0:20:14 this is like a very
0:20:15 classical problem
0:20:16 in basically
0:20:17 it’s a marketplace problem
0:20:18 that you have to solve.
0:20:19 And I agree with you,
0:20:20 the way to solve it
0:20:23 is you need to
0:20:25 just gather
0:20:26 significant inventory
0:20:28 and make it possible
0:20:29 for counterparties
0:20:30 to like make it desirable
0:20:31 for a counterparty
0:20:32 to come to you
0:20:32 to buy it.
0:20:33 This is like,
0:20:35 we spend so much
0:20:35 of our time
0:20:36 in the first 16 days
0:20:37 like me being
0:20:38 at this company
0:20:39 working on buyer stuff
0:20:40 because like
0:20:41 it must be beneficial
0:20:43 to buy a home from us
0:20:44 in a way
0:20:45 it wouldn’t be somewhere else
0:20:46 so you can actually
0:20:47 start the flywheel.
0:20:47 Yeah.
0:20:48 And you said
0:20:49 a company that
0:20:50 could do that
0:20:51 will be one of the biggest
0:20:51 in the world.
0:20:53 Has a company like Amazon
0:20:55 or other big companies
0:20:56 tried to do
0:20:57 something like this
0:20:58 or is it just so far field
0:20:59 that they would never?
0:21:00 Well, the other thing
0:21:00 that’s I think
0:21:02 very unique about this industry
0:21:04 is it’s so fundamentally local.
0:21:05 So if you say
0:21:06 I want to beat the MLS
0:21:08 there is no MLS Inc.
0:21:08 Sure.
0:21:09 It’s not like
0:21:10 ooh, I’m going to go
0:21:11 beat those guys
0:21:12 and the commander’s intent
0:21:13 of the general
0:21:14 is like take that hill.
0:21:16 You, it’s
0:21:17 every market is different
0:21:18 and that’s the thing
0:21:19 it’s like just because
0:21:21 like you could dominate Charlotte
0:21:22 and that does not make
0:21:23 a single dent
0:21:23 at all in Hawaii.
0:21:25 And actually
0:21:26 the one case
0:21:27 where I used a real estate agent
0:21:28 to buy my house
0:21:29 was in Hawaii.
0:21:30 I have a house in Hawaii
0:21:32 and they don’t use
0:21:32 the MLS there.
0:21:33 It’s just like
0:21:34 this captive system
0:21:35 where it’s just like
0:21:36 they make sure
0:21:36 that you go through
0:21:37 and like those agents
0:21:38 do so well
0:21:39 because like
0:21:40 it just shows the value
0:21:41 of a marketplace
0:21:42 but you could have
0:21:43 a company
0:21:44 that decides
0:21:44 I’m going to go
0:21:45 run the table
0:21:46 in XYZ place
0:21:48 and it doesn’t show up
0:21:49 in a different geography.
0:21:51 So what you do see
0:21:51 going back to these
0:21:52 kind of pockets
0:21:53 of esoteric
0:21:54 you know products
0:21:55 either financial
0:21:57 or real estate
0:21:59 executive moving.
0:22:00 This is actually
0:22:00 like a big thing.
0:22:02 So imagine
0:22:03 that you’re hired
0:22:04 as, actually I have a friend
0:22:04 who was hired
0:22:04 who was hired
0:22:05 as the CMO
0:22:06 at Home Depot
0:22:07 and she and her husband
0:22:08 lived in New York
0:22:09 and guess what?
0:22:10 Home Depot
0:22:10 is not in New York
0:22:11 they’re in Atlanta
0:22:11 they’re like
0:22:13 okay we will
0:22:13 buy your old house
0:22:14 from you
0:22:16 and we’ll pay
0:22:17 like top dollar cash
0:22:18 we’ll help you
0:22:19 buy a house over here
0:22:19 we’ll put you up
0:22:20 in an apartment
0:22:20 for two months
0:22:21 we’ll do all
0:22:22 of these things.
0:22:22 Why?
0:22:23 Because they want
0:22:24 to get this person
0:22:25 hired as the CMO
0:22:26 of Home Depot
0:22:27 and they bundle
0:22:28 in all these other things.
0:22:29 They’re not trying
0:22:29 to say
0:22:30 I want to go
0:22:31 disrupt the MLS.
0:22:32 I mean they should
0:22:32 I mean I would hope
0:22:33 that eBay
0:22:34 and I don’t know
0:22:35 the history on this
0:22:35 I’m sure you probably
0:22:36 have looked into it
0:22:37 like I know eBay
0:22:38 has tried doing real estate
0:22:40 and there’s another company
0:22:41 called auction.com
0:22:42 that really got into
0:22:42 the distressed
0:22:44 commercial real estate space
0:22:45 and some distressed
0:22:45 residential
0:22:47 because if it’s distressed
0:22:47 like you haven’t paid
0:22:48 your property taxes
0:22:50 government seizes
0:22:50 your home
0:22:51 government doesn’t
0:22:52 want to hold on to home
0:22:53 and pay its own
0:22:54 property taxes to itself
0:22:55 so it auctions it off
0:22:56 and it needs to close
0:22:57 within five days
0:22:58 like that’s what
0:22:59 something like auction.com
0:23:01 is like very well situated
0:23:01 to do
0:23:02 but I find that you have
0:23:04 some of these bespoke products
0:23:06 for as an example
0:23:07 executive moves
0:23:07 and those are done
0:23:09 in the very very first class way
0:23:10 like why can’t
0:23:10 this is the cool thing
0:23:11 about technology
0:23:11 it’s like
0:23:12 would you rather be
0:23:13 the richest person
0:23:14 in the world
0:23:14 in 1900
0:23:15 with no penicillin
0:23:16 and no iPhone
0:23:16 and no Netflix
0:23:19 or a lower middle class
0:23:20 person in 2025
0:23:21 with penicillin
0:23:21 and Netflix
0:23:23 and I’d much rather
0:23:24 be the lower middle class person
0:23:25 than the richest person
0:23:25 in the world
0:23:26 in 1900
0:23:28 what technology often does
0:23:29 is it helps diffuse
0:23:30 these amazing products
0:23:31 down to everybody
0:23:33 like everybody gets
0:23:33 the education
0:23:34 of a billionaire
0:23:35 like that’s the
0:23:35 I think that’s the motto
0:23:36 of AlphaScore
0:23:37 right
0:23:37 it’s like let’s do
0:23:38 all of these things
0:23:39 so you have some
0:23:40 of these products
0:23:42 for executive moves
0:23:43 and I kind of point to that
0:23:43 as an example
0:23:45 and you have had attempts
0:23:46 at like kind of
0:23:47 taking parts of the market
0:23:48 and turning it into
0:23:49 like an actual
0:23:50 you know
0:23:51 either open outcry
0:23:52 English auction
0:23:53 or what’s called
0:23:53 the second price auction
0:23:54 a Vickery auction
0:23:55 like do all of these
0:23:55 cool things
0:23:56 that are known to work
0:23:57 that are known
0:23:58 to maximize the price
0:24:00 but they’ll work
0:24:00 for one market
0:24:02 and then just because
0:24:02 I got one market
0:24:03 it doesn’t help me at all
0:24:04 and then by the way
0:24:05 you have like 2 million people
0:24:06 but call it a subset
0:24:07 of those 2 million people
0:24:07 who are like
0:24:08 I want you dead
0:24:09 and I will vote
0:24:10 to change the law
0:24:10 in Oregon
0:24:11 to like ban this product
0:24:12 so like this is
0:24:12 this is what
0:24:13 everybody’s up against
0:24:14 yeah I think
0:24:15 it actually is a hard
0:24:16 look I think
0:24:17 it’s a hard problem
0:24:17 which is why
0:24:18 no one solved it
0:24:19 and like lots of smart people
0:24:20 have worked on this problem
0:24:20 or at least
0:24:21 sub parts of it
0:24:22 so I think
0:24:23 like there’s been
0:24:24 three
0:24:27 like structural flaws
0:24:28 that have basically
0:24:29 killed every attempt
0:24:29 to solve this
0:24:32 the first one is like
0:24:33 let me solve a part of it
0:24:34 let me solve the tiniest
0:24:36 like most profitable
0:24:36 part of it first
0:24:38 which like objectively
0:24:39 has failed
0:24:39 like every single time
0:24:40 it’s been tried
0:24:42 like when Amazon started
0:24:42 they didn’t say
0:24:44 hey let me solve
0:24:45 like selling books
0:24:46 is not that profitable
0:24:48 but it’s a really good way
0:24:49 to get inventory
0:24:49 right
0:24:49 because you can
0:24:51 get all inventory
0:24:51 of all books
0:24:53 there’s a PDF you get
0:24:54 and it has literally
0:24:54 every book
0:24:55 so like
0:24:56 the first problem
0:24:57 has been like
0:24:57 essentially like
0:24:59 narrowing yourself down
0:24:59 to one thing
0:25:02 the second problem
0:25:02 has been basically
0:25:03 a channel problem
0:25:04 which is that like
0:25:05 hey
0:25:06 I’m going to solve
0:25:07 this problem
0:25:09 through the traditional channels
0:25:10 and that objectively
0:25:11 just has failed
0:25:11 like
0:25:13 I think miserably
0:25:14 like every single time
0:25:16 and the third problem
0:25:16 which is like
0:25:17 some people have gone
0:25:18 like relatively
0:25:19 like some relatively
0:25:20 large businesses
0:25:21 that do this
0:25:22 in some pockets
0:25:22 of the world
0:25:25 but they all essentially
0:25:26 tip over and fail
0:25:27 because they’ve solved it
0:25:28 by throwing human beings
0:25:28 and treating it
0:25:29 like an operational problem
0:25:30 and there’s like
0:25:32 three buckets of problems
0:25:33 why no one’s
0:25:34 kind of solved this
0:25:36 and for this was
0:25:37 I think before like
0:25:38 Carvana solved it
0:25:39 for cars
0:25:40 this exact same problem
0:25:42 was like
0:25:43 the exact same set
0:25:43 of problems
0:25:45 same way
0:25:46 existed for cars
0:25:46 it’s a very
0:25:48 I bet Carvana is like
0:25:49 3% US car market
0:25:50 I don’t know how much
0:25:50 but like probably
0:25:51 somewhere around there
0:25:53 so I think there’s
0:25:54 a very real like
0:25:55 parallels of like
0:25:56 there are things
0:25:57 that probably
0:25:59 could not have been solved
0:26:00 in a way
0:26:01 that was affordable
0:26:02 and efficient
0:26:04 like 10 years ago
0:26:05 like I generally think
0:26:06 it’s actually a real thing
0:26:08 and there were
0:26:09 other problems
0:26:10 that were solved
0:26:10 the wrong way
0:26:12 because for a brief
0:26:12 period of time
0:26:13 money was free
0:26:14 yeah
0:26:15 and like so everyone
0:26:15 made all the wrong
0:26:16 decisions they possibly
0:26:16 could
0:26:18 but I do think
0:26:19 we’re in this like
0:26:21 special time
0:26:21 this window
0:26:22 where like
0:26:23 basically all the tools
0:26:24 you need to solve
0:26:25 this problem
0:26:26 kind of exist
0:26:26 sure
0:26:29 we just get deeper
0:26:29 there
0:26:30 how much
0:26:31 is real estate
0:26:32 like healthcare
0:26:33 where sort of
0:26:34 the regulatory landscape
0:26:36 has distorted
0:26:37 the market
0:26:38 and prevented
0:26:39 you know
0:26:40 and feel free
0:26:40 to quibble
0:26:40 with that
0:26:41 even framing
0:26:41 of healthcare
0:26:42 or is it just
0:26:43 a hard
0:26:44 is it like
0:26:45 the market dynamics
0:26:46 that you were describing
0:26:46 is that just
0:26:46 immersion
0:26:47 and how
0:26:48 real estate
0:26:49 sort of works
0:26:50 so I think
0:26:51 I think it’s far
0:26:52 more similar
0:26:54 to automobiles
0:26:54 than as to healthcare
0:26:55 I agree
0:26:56 like it’s just like
0:26:57 basically identical
0:26:57 honestly
0:26:58 like if you look at
0:26:59 like how cars
0:27:00 were sold
0:27:02 basically till Tesla
0:27:04 everyone had a dealer
0:27:05 network
0:27:06 because once you
0:27:07 had a dealer network
0:27:08 one was required
0:27:09 but Tesla’s like
0:27:09 hold on a second
0:27:10 if I don’t have
0:27:10 one dealer
0:27:11 I don’t have to
0:27:11 have any dealers
0:27:12 and the answer
0:27:13 is yes
0:27:14 outside New Jersey
0:27:14 I think
0:27:15 and I think
0:27:16 Texas
0:27:17 you’re not allowed
0:27:17 to buy a car
0:27:18 unless it’s sold
0:27:18 at a car dealer
0:27:19 so like again
0:27:20 regulatory capture
0:27:21 there’s a couple
0:27:21 of these things
0:27:22 so for example
0:27:24 in North Carolina
0:27:26 Georgia
0:27:27 and Louisiana
0:27:27 I think those
0:27:28 three states
0:27:29 you can’t
0:27:30 close a real estate
0:27:31 transaction digitally
0:27:31 you have to have
0:27:32 a white signature
0:27:33 so that’s kind of
0:27:33 annoying
0:27:34 that’s a real thing
0:27:36 but it’s not
0:27:37 at all like
0:27:38 the healthcare system
0:27:39 it’s much more
0:27:39 similar
0:27:39 like there are
0:27:40 regulations
0:27:41 some of them good
0:27:42 some of them terrible
0:27:44 but they’re
0:27:44 in nature
0:27:45 much more similar
0:27:46 to how cars were not
0:27:46 but how come
0:27:47 we’ve solved this
0:27:47 in cars
0:27:48 and it’s just
0:27:48 because it’s
0:27:49 we hadn’t solved
0:27:49 this in cars
0:27:50 we had not solved
0:27:50 this in cars
0:27:51 until like
0:27:51 five years ago
0:27:52 like we solved
0:27:53 this car
0:27:54 for new cars
0:27:55 Tesla solved this
0:27:58 and for used cars
0:28:00 Carvana solved this
0:28:02 and keep in mind
0:28:03 like those are actually
0:28:03 like
0:28:05 there are very real
0:28:05 operational challenges
0:28:07 like Carvana has
0:28:07 that don’t exist
0:28:08 for homes
0:28:09 right
0:28:10 like Carvana moves
0:28:11 every single car
0:28:12 they buy
0:28:13 like
0:28:15 Opendoor does not
0:28:15 move homes
0:28:16 like homes stay
0:28:17 where they are
0:28:17 yeah
0:28:19 so there’s a very real
0:28:19 like there are
0:28:20 upsides to
0:28:22 trying to solve
0:28:22 this problem
0:28:23 in homes
0:28:24 rather than cars
0:28:25 there are obvious
0:28:25 downsides too
0:28:28 but I think there’s
0:28:28 like a very real
0:28:29 and underwriting
0:28:29 for what it’s worth
0:28:30 is like
0:28:31 similar-ish
0:28:32 the underwriting
0:28:33 of a car
0:28:34 is difficult
0:28:35 underwriting of a home
0:28:35 is difficult
0:28:36 they’re not
0:28:38 they’re similar-ish
0:28:38 difficult
0:28:39 like different
0:28:39 problems
0:28:40 but similar-ish
0:28:40 problems
0:28:41 well this is the nice
0:28:41 thing is that you can
0:28:42 really sub-segment
0:28:43 the market
0:28:43 I mean the reason
0:28:44 why I can
0:28:45 we can talk for like
0:28:46 10 hours about why
0:28:46 healthcare is messed up
0:28:47 but fundamentally
0:28:48 there are no prices
0:28:48 yeah
0:28:49 it’s like how much
0:28:49 does this cost
0:28:50 like the doctor
0:28:51 doesn’t even know
0:28:51 and then like
0:28:52 oh well we’re gonna
0:28:53 bill your insurance
0:28:53 company this much
0:28:54 they won’t pay it
0:28:54 and then because
0:28:55 they won’t pay it
0:28:55 like the doctor
0:28:56 charges more
0:28:57 it’s like the whole
0:28:57 thing is messed up
0:28:58 and here you have
0:28:59 price transparency
0:29:00 for sure
0:29:00 it’s like I know
0:29:01 exactly how much
0:29:02 everything is gonna cost
0:29:02 you get a little bit
0:29:03 misled by some of the
0:29:04 agents who say like
0:29:05 oh buy side is free
0:29:06 because the seller pays
0:29:06 blah blah blah
0:29:08 but there are
0:29:10 you could chop this up
0:29:11 into different markets
0:29:11 right
0:29:12 so I mean this is
0:29:12 what’s very helpful
0:29:14 to understand
0:29:15 like selling
0:29:16 50 million dollar
0:29:17 luxury homes
0:29:18 and like how to
0:29:18 price those
0:29:19 like a 50 million dollar
0:29:21 house that’s a spec home
0:29:21 could sell for 25
0:29:23 like there’s not really
0:29:24 but this is the cool thing
0:29:25 like for real estate
0:29:25 because you are
0:29:26 almost more so
0:29:27 than cars
0:29:29 real estate people
0:29:30 need to live somewhere
0:29:32 and they either rent
0:29:32 or they own
0:29:33 and then of course
0:29:33 there are different
0:29:34 models in between
0:29:34 you can like
0:29:35 you know
0:29:36 rent to own
0:29:38 you can like
0:29:39 get your friend
0:29:40 to like give you
0:29:40 a free spot
0:29:41 and not charge you
0:29:41 anything
0:29:43 but you either
0:29:44 rent or you own
0:29:45 and then the
0:29:46 floor on valuation
0:29:46 is what’s the
0:29:47 rental price
0:29:48 and how does that
0:29:48 compare
0:29:49 going back
0:29:49 to like cap rates
0:29:50 like how does that
0:29:50 compare to the
0:29:51 cost of capital
0:29:54 so the vast
0:29:55 majority of homes
0:29:55 in America
0:29:56 number one
0:29:56 they qualify for
0:29:57 what are called
0:29:58 conforming mortgages
0:29:59 so there already
0:30:00 is this idea
0:30:00 of it’s like
0:30:00 where they’re
0:30:01 like really
0:30:01 expensive homes
0:30:02 that’s where you
0:30:02 get like a jumbo
0:30:02 mortgage
0:30:03 and then there’s
0:30:04 like everything else
0:30:05 and the pricing
0:30:05 of everything else
0:30:06 is a lot more
0:30:07 like cars
0:30:07 it’s actually
0:30:08 more transparent
0:30:09 too
0:30:09 it’s far more
0:30:10 transparent than cars
0:30:11 like this is very real
0:30:11 like you don’t
0:30:12 like this is very
0:30:14 like with cars
0:30:15 there’s a very real
0:30:16 thing about repair
0:30:16 of cars
0:30:17 where like
0:30:18 it’s very opaque
0:30:20 it can’t really know
0:30:21 like it’s just
0:30:22 very hard
0:30:22 like
0:30:23 structural damage
0:30:24 structural damage
0:30:25 like or like
0:30:26 like your fan belt
0:30:27 I don’t know
0:30:27 what a fan
0:30:28 like there’s things
0:30:29 that are like difficult
0:30:30 and there’s oem
0:30:31 like this whole thing
0:30:32 like like an oem part
0:30:33 not only in part
0:30:34 there’s like a variety
0:30:34 of like things
0:30:35 that make the decision
0:30:36 matrix is much bigger
0:30:39 whereas for homes
0:30:41 it’s relatively
0:30:41 transparent
0:30:43 and by the way
0:30:44 like two open doors
0:30:44 credit
0:30:45 this is a thing
0:30:45 that open doors
0:30:47 exceptionally good at
0:30:48 open doors
0:30:50 exceptionally good
0:30:51 at pricing
0:30:52 renovations
0:30:52 and changes
0:30:53 like just
0:30:53 like just
0:30:54 they have just
0:30:54 like
0:30:56 zero correct to me
0:30:57 they’ve dialed this in
0:30:59 and
0:31:00 like
0:31:01 in a way
0:31:01 that’s actually
0:31:02 surprisingly good
0:31:03 so
0:31:04 which makes sense
0:31:05 because who’s going to get
0:31:06 a better shipping rate
0:31:07 with UPS
0:31:07 right
0:31:08 me who ships
0:31:09 one package a year
0:31:10 or like Amazon
0:31:11 who eventually got
0:31:12 such a good shipping rate
0:31:12 that they couldn’t get
0:31:13 any better
0:31:13 unless they started
0:31:14 their own shipping network
0:31:15 called Amazon Delivery
0:31:15 right
0:31:16 so
0:31:17 you have economies
0:31:18 of scale
0:31:19 that never go to the agent
0:31:21 that never go to the customer
0:31:22 but that should go to a company
0:31:23 yeah
0:31:24 I guess the real thing
0:31:24 and this is like
0:31:25 actually like
0:31:26 the real thing
0:31:26 this is like
0:31:27 I’m relatively
0:31:29 ideological about this
0:31:32 like I think you can make it
0:31:32 such a
0:31:33 like
0:31:34 open door
0:31:36 is an exceptionally good business
0:31:38 and the average person
0:31:39 pays less for a house
0:31:40 and the average person
0:31:41 sells a house for more
0:31:42 like I think you can
0:31:43 it’s actually not
0:31:44 the math here
0:31:45 it’s not that difficult
0:31:47 um
0:31:48 how did Eddie do that
0:31:49 well there’s just so much friction
0:31:50 at home
0:31:51 but if just
0:31:52 let me just
0:31:52 give you an example
0:31:53 if open doors
0:31:54 does nothing else
0:31:55 then help
0:31:56 you time
0:31:58 your closing of your new house
0:31:59 with buying your new
0:32:01 like selling of your old house
0:32:01 with closing of your new house
0:32:02 like if just
0:32:03 if that’s all open door does
0:32:05 you would now have a void
0:32:05 on average
0:32:07 about three mortgage payments
0:32:09 like
0:32:11 like who was getting
0:32:12 paid that money
0:32:12 right
0:32:13 like why
0:32:14 like why
0:32:15 like and that’s a real thing
0:32:15 that everyone
0:32:17 like everyone pays
0:32:18 at least one extra mortgage payment
0:32:20 or one extra rent payment
0:32:22 and it’s frequently more
0:32:22 that’s just like
0:32:24 one thing
0:32:24 and that’s like a
0:32:26 service that open door
0:32:27 can deliver
0:32:29 to most people
0:32:30 even without buying their house
0:32:32 like there’s a very real thing
0:32:32 so like
0:32:33 I think there’s a bunch
0:32:34 of these things that exist
0:32:35 and like the
0:32:36 agency problem is real
0:32:38 um
0:32:39 the very real thing
0:32:40 on cost of capital
0:32:41 which like
0:32:42 when you aggregate
0:32:42 lots of homes
0:32:43 the cost of capital
0:32:44 tends to be lower
0:32:45 therefore like
0:32:46 that’s a real thing
0:32:48 it’s a very real thing
0:32:49 about like the level
0:32:50 of underwriting
0:32:51 you can do
0:32:52 on warranties
0:32:53 like
0:32:54 the reason open door
0:32:54 can offer
0:32:55 you know
0:32:56 a seven day trial
0:32:57 of a home
0:32:58 is because
0:32:59 we own lots of homes
0:33:00 like
0:33:02 you don’t like this one
0:33:03 if we take it back
0:33:04 the odds are you’re gonna
0:33:04 buy another house
0:33:05 from us
0:33:05 right
0:33:06 so this is like
0:33:07 there’s all these frictions
0:33:08 that exist
0:33:09 because the system
0:33:11 everywhere is subscale
0:33:12 one
0:33:13 two
0:33:14 because there’s so many
0:33:15 principal agency problems
0:33:16 right
0:33:17 the second one
0:33:18 and third
0:33:18 because there’s so many
0:33:19 of these transactions
0:33:20 that are one time transactions
0:33:21 yeah
0:33:23 okay let’s zoom back
0:33:24 into the company
0:33:24 for a second
0:33:25 so Alex
0:33:26 you make the investment
0:33:27 and you’ve got this vision
0:33:28 for the company
0:33:28 uh
0:33:29 and the opportunity
0:33:30 what have we learned
0:33:31 about the feasibility
0:33:32 of the opportunity
0:33:33 based on the company
0:33:34 performance
0:33:35 it’s another way of asking
0:33:35 like
0:33:36 for people who haven’t been
0:33:37 following the company
0:33:37 trajectory
0:33:38 you know
0:33:40 how have things gone
0:33:40 what have we learned
0:33:41 what have the ups and downs
0:33:41 been etc
0:33:42 well so
0:33:43 uh
0:33:45 there was a point in time
0:33:45 where open door
0:33:47 was such a good idea
0:33:47 um
0:33:48 you know
0:33:48 there’s a saying
0:33:49 we use a lot of
0:33:49 venture capital
0:33:50 it’s like
0:33:50 you know
0:33:51 you want to invest
0:33:51 in a
0:33:52 bad idea
0:33:54 something that looks
0:33:54 like a bad idea
0:33:55 that’s actually a good idea
0:33:56 because if it looks
0:33:57 like a good idea
0:33:57 then it becomes
0:33:58 a bad idea
0:33:59 um
0:34:00 and open door
0:34:01 was somewhere in between
0:34:01 the two of these
0:34:02 because zillow
0:34:02 was like
0:34:03 oh my god
0:34:03 like you know
0:34:03 rich barton
0:34:05 comes back to zillow
0:34:06 spencer leaves
0:34:07 and it’s like
0:34:08 i have to go
0:34:10 do what open door does
0:34:10 um
0:34:11 everybody was getting
0:34:12 into ibuy
0:34:13 and then offer pad
0:34:13 you know
0:34:13 popped up
0:34:14 but like zillow
0:34:15 was the big one
0:34:15 and um
0:34:16 they couldn’t do it
0:34:17 uh
0:34:17 well so
0:34:18 but here’s why
0:34:19 they couldn’t do it
0:34:20 it’s an interesting story
0:34:21 and like the other part
0:34:21 of the story
0:34:22 is like ben thompson
0:34:23 wrote a post
0:34:24 that almost like
0:34:25 kind of summarizes
0:34:26 in a more eloquent form
0:34:27 like what i was talking
0:34:27 about with like
0:34:28 you know
0:34:28 if you get all the
0:34:29 if you get all the supply
0:34:31 or just a small sliver
0:34:31 of proprietary supply
0:34:32 you get all the demand
0:34:33 and once you have
0:34:33 all the demand
0:34:34 then you can have
0:34:34 your own
0:34:35 then supply just comes to you
0:34:36 and that’s how you
0:34:37 finally build a marketplace
0:34:39 and i think rumor has it
0:34:39 that rich barton
0:34:41 reads ben thompson
0:34:41 uh
0:34:42 as everybody should
0:34:43 because ben thompson
0:34:43 is very very smart
0:34:44 like holy shit
0:34:45 we have to do this
0:34:45 yeah
0:34:46 um
0:34:47 so they start doing this
0:34:48 and they’re making
0:34:49 infinite money
0:34:49 um
0:34:50 but this is where
0:34:52 cohort math is so important
0:34:53 because
0:34:55 the first homes to sell
0:34:56 are the positive selection homes
0:34:57 so imagine that
0:34:57 you know
0:34:57 what is it
0:34:58 it’s october right now
0:35:00 kaz and i buy a thousand homes
0:35:00 today
0:35:02 the best homes
0:35:03 will sell tomorrow
0:35:04 um
0:35:05 and then the homes
0:35:06 that we’re stuck with
0:35:07 two years from now
0:35:08 like you know
0:35:09 there are ghosts
0:35:10 that live in those homes
0:35:11 or like the termites
0:35:12 like they’re like
0:35:13 mega termites
0:35:14 like there are things
0:35:14 that are wrong with it
0:35:16 so zillow thought
0:35:17 as a public company
0:35:18 operating the public
0:35:18 limelight
0:35:19 they’re like
0:35:20 we’re making so much money
0:35:20 on ibuying
0:35:21 because we’re holding
0:35:22 everything that hasn’t sold
0:35:23 at nav
0:35:24 and net asset value
0:35:25 and then we’re yielding
0:35:26 profits all along the way
0:35:28 but you have to let
0:35:29 the whole cohort cure
0:35:30 as the term goes
0:35:31 and then it’s like
0:35:32 uh-oh
0:35:33 we lost a lot of money
0:35:33 on that cohort
0:35:35 so what happened
0:35:36 was opendoor
0:35:37 now is getting outbid
0:35:38 by
0:35:39 because this is such a good idea
0:35:40 everybody thinks it’s a good idea
0:35:41 kind of started becoming
0:35:42 a little bit of a bad idea
0:35:43 pre-marketplace
0:35:44 um
0:35:46 zillow starts paying more
0:35:47 in fact zillow even had
0:35:47 like hey
0:35:49 don’t sell to opendoor
0:35:49 sell to us
0:35:50 we’ll pay a dollar more
0:35:52 and you always have to realize
0:35:53 if you talk to anybody
0:35:54 who’s a professional trader
0:35:55 in the equity markets
0:35:55 they’re like
0:35:57 you have to assume
0:35:58 that it’s an adversarial process
0:35:59 is that you know
0:36:01 anytime that you have
0:36:01 anybody
0:36:02 somebody hits your bid
0:36:04 like there’s something wrong
0:36:04 right
0:36:05 it’s like you should assume
0:36:06 that you’re about to get
0:36:07 taken advantage of
0:36:09 zillow didn’t really understand that
0:36:10 but they kind of muddied
0:36:11 the waters for everybody else
0:36:12 eventually zillow
0:36:13 pulled out of that business
0:36:13 um
0:36:15 money started becoming not free
0:36:16 and if you’re stuck
0:36:18 with a huge amount of inventory
0:36:18 you know
0:36:19 being a market maker
0:36:20 i mean if you look at
0:36:22 the most profitable companies
0:36:22 in the world
0:36:23 like jane street is a market maker
0:36:24 virtu is a market maker
0:36:26 citadel security is a market maker
0:36:27 they don’t win all of the time
0:36:28 because if they did
0:36:29 then they were doing something
0:36:29 you know
0:36:30 probably illegal
0:36:32 they make money most of the time
0:36:33 they have a weighted coin
0:36:34 and they hold inventory
0:36:34 and they’re making money
0:36:35 on this bid ass spread
0:36:36 um
0:36:38 from somebody who’s hopefully
0:36:39 not taking advantage of them
0:36:40 which is why they want retail flow
0:36:41 and
0:36:42 what happens though
0:36:43 is that if you
0:36:44 like a lot of the market makers
0:36:45 in the equities world
0:36:47 they don’t like to hold positions overnight
0:36:49 because things could change
0:36:50 so open door
0:36:51 is holding a lot of positions
0:36:52 beyond just overnight
0:36:53 and then interest rates
0:36:54 went from like 0%
0:36:55 to like 4%
0:36:57 and 4% is not high
0:36:58 in the history of the world
0:36:59 but it’s really high
0:37:00 to go from like 0
0:37:01 to like 4%
0:37:02 in like a few months
0:37:03 the case at which interest rate
0:37:04 increased
0:37:05 were
0:37:07 I mean I think
0:37:07 we can say in hindsight
0:37:08 this was objectively
0:37:10 like deeply irresponsible
0:37:11 for the country
0:37:12 like I don’t think
0:37:13 I think it was very
0:37:13 like I don’t
0:37:14 so why Silicon Valley Bank
0:37:15 went bankrupt
0:37:16 I think this is actually
0:37:16 very
0:37:17 asset prices went down
0:37:17 yeah
0:37:18 I think this is like
0:37:19 look I think open door
0:37:20 has made lots of mistakes
0:37:21 regardless of interest rates
0:37:22 but like there’s a very real
0:37:23 thing that happened
0:37:23 which
0:37:25 and companies shouldn’t
0:37:25 take credit
0:37:26 or blame for macro
0:37:29 but what happened
0:37:29 in the US
0:37:30 with interest rates
0:37:32 had basically
0:37:33 never happened before
0:37:33 and I think will
0:37:35 literally never happen again
0:37:36 because it was so
0:37:37 obviously stupid
0:37:39 so basically
0:37:40 what happens
0:37:40 like you’re left
0:37:41 with all this inventory
0:37:43 and the whole point
0:37:43 is like if you’re just
0:37:44 buying and selling
0:37:45 and you make money
0:37:46 51% of the time
0:37:47 and you’re earning a spread
0:37:49 between like
0:37:49 you know the
0:37:50 basically you have
0:37:51 the top bid
0:37:52 and the lowest ask
0:37:53 and then there’s like
0:37:55 this margin in between
0:37:56 and if you just kind of
0:37:56 keep buying
0:37:57 keep selling
0:37:58 you can actually
0:37:59 make this work
0:38:00 and this is again
0:38:01 how this is why
0:38:02 Jane Street makes
0:38:02 a lot of money
0:38:03 or Citadel Securities
0:38:04 or any of these
0:38:04 companies that you’ve
0:38:04 heard of
0:38:05 they’re doing it
0:38:06 very very frequently
0:38:06 they’re typically
0:38:07 not holding on
0:38:08 to assets
0:38:09 for a very long
0:38:09 period of time
0:38:10 some of them
0:38:10 never hold on
0:38:11 to assets overnight
0:38:12 just as a standing
0:38:12 rule
0:38:13 and open door
0:38:15 has a lot of assets
0:38:16 and then what happens
0:38:17 is when asset
0:38:18 when sorry
0:38:18 when interest rates
0:38:19 go up
0:38:20 what happens
0:38:21 to asset prices
0:38:22 they tend to go down
0:38:24 because now
0:38:24 it’s like
0:38:25 think of it
0:38:25 in terms of like
0:38:26 a mortgage payment
0:38:26 like well
0:38:28 before my mortgage
0:38:28 payment used to be
0:38:29 a thousand
0:38:29 like I only have
0:38:30 a thousand dollars
0:38:30 a month
0:38:32 to switch from
0:38:32 like my rental
0:38:32 payment
0:38:33 to buying a house
0:38:34 because I can
0:38:35 make a down payment
0:38:36 well wait a minute
0:38:36 now it costs me
0:38:37 two thousand dollars
0:38:37 a month
0:38:38 so therefore
0:38:38 I don’t want to
0:38:39 buy the house
0:38:39 what happens
0:38:40 when aggregate demand
0:38:40 goes down
0:38:41 while prices go down
0:38:42 and actually
0:38:43 this didn’t happen
0:38:44 as much in housing
0:38:44 as would have been
0:38:45 anticipated
0:38:46 because we have
0:38:46 a shortage of homes
0:38:47 and that’s a
0:38:47 separate topic
0:38:49 but asset prices
0:38:49 in general
0:38:50 went down
0:38:51 like SVB
0:38:51 Silicon Valley Bank
0:38:52 went bankrupt
0:38:53 because interest
0:38:54 rates go up
0:38:55 and if you’re
0:38:56 stuck with a bunch
0:38:56 of like you know
0:38:58 75 basis point
0:38:59 10 year T-bills
0:38:59 they’re worth half
0:39:00 as much as they
0:39:01 were before
0:39:02 now you have to
0:39:02 go sell them
0:39:02 uh oh
0:39:03 you’re bankrupt
0:39:05 so the pace
0:39:06 that this happened
0:39:07 was very very high
0:39:08 nobody really
0:39:08 I mean people
0:39:09 anticipated
0:39:10 okay our rates
0:39:11 are low
0:39:11 but it’s like
0:39:11 oh well the Fed
0:39:12 were raised by
0:39:13 25 basis point
0:39:13 another 20
0:39:14 like it wasn’t
0:39:14 like boom
0:39:15 and that was
0:39:16 the like five sigma
0:39:17 or making up
0:39:17 the number of sigmas
0:39:18 but it was a
0:39:19 many many standard
0:39:20 deviations beyond
0:39:21 the norm in terms
0:39:21 of what you can
0:39:21 anticipate
0:39:23 and then it’s like
0:39:24 all of the risk
0:39:25 cap actually it was
0:39:26 kind of a double whammy
0:39:27 because risk capital
0:39:27 like you know
0:39:28 venture capital
0:39:29 is risk capital
0:39:30 so when interest
0:39:31 rates are low
0:39:32 well I don’t want
0:39:33 to earn 75 basis
0:39:34 points on T-bills
0:39:35 I’m going to invest
0:39:36 in riskier things
0:39:36 I’m going to give it
0:39:37 to venture capital
0:39:38 I’m going to give it
0:39:39 to private equity
0:39:40 so risk capital
0:39:41 kind of pulls back
0:39:42 um asset prices
0:39:44 go down
0:39:45 um demand for homes
0:39:46 goes down
0:39:47 because interest rates
0:39:47 went up
0:39:48 so my monthly
0:39:49 so it was kind
0:39:49 of like this
0:39:51 everything went
0:39:52 wrong at the same
0:39:52 time
0:39:54 um and the vision
0:39:54 of the company
0:39:55 at least my vision
0:39:56 of the company
0:39:56 I’m not the founder
0:39:57 but like my vision
0:39:58 as an investor
0:39:59 was like you guys
0:39:59 have a chance
0:40:00 of building
0:40:01 a marketplace
0:40:01 but it’s going
0:40:02 to take time
0:40:02 you can’t just
0:40:03 like snap your
0:40:04 fingers and boom
0:40:04 you have a marketplace
0:40:05 like how long
0:40:06 did it take Amazon
0:40:06 to build a marketplace
0:40:07 how many like
0:40:08 very very sad
0:40:09 despondent
0:40:10 shareholder letters
0:40:10 did Jeff Bezos
0:40:11 have to write
0:40:12 before marketplace
0:40:12 appeared
0:40:14 a long long time
0:40:15 and then opened
0:40:15 or I think
0:40:16 was on the path
0:40:17 but then just
0:40:17 kind of got hit
0:40:18 with this like
0:40:18 triple quadruple
0:40:19 or maybe quintuple
0:40:20 wham it
0:40:21 there’s also a real
0:40:21 thing look
0:40:22 I think companies
0:40:25 it’s very good
0:40:25 when companies
0:40:25 are blamed
0:40:26 for their mistakes
0:40:26 actually a good
0:40:27 thing for the world
0:40:27 and we should
0:40:28 all admit our
0:40:28 mistakes
0:40:28 because that’s
0:40:29 how we learned
0:40:32 the same thing
0:40:32 the same thing
0:40:34 happened to Amazon
0:40:35 much earlier
0:40:36 and to Carvana
0:40:37 around the same
0:40:37 time
0:40:38 yeah
0:40:39 but Amazon
0:40:40 and Carvana
0:40:41 reacted differently
0:40:42 to that thing
0:40:42 happening
0:40:43 like
0:40:44 I’m not going to
0:40:44 like cool
0:40:45 was the original
0:40:46 idea a good idea
0:40:47 all right
0:40:48 what was the mistake
0:40:49 let’s just
0:40:50 shed the mistakes
0:40:50 and go
0:40:52 I think what
0:40:52 Open Door
0:40:53 very publicly
0:40:54 did was
0:40:55 essentially
0:40:55 abandon
0:40:56 the original
0:40:57 mission
0:40:58 was like
0:40:58 cool
0:40:59 we’re going
0:40:59 to de-risk
0:41:00 this company
0:41:00 a lot
0:41:02 we’re just
0:41:02 going to like
0:41:03 de-risk
0:41:04 the company
0:41:05 across the
0:41:05 entire segment
0:41:08 I think
0:41:08 that actually
0:41:09 is a very
0:41:10 hard spiral
0:41:10 to recover
0:41:11 from
0:41:12 because you’ve
0:41:12 now made
0:41:13 it like
0:41:14 you’ve now
0:41:14 made a category
0:41:15 mistake about
0:41:16 who you are
0:41:17 which makes
0:41:18 it really easy
0:41:18 for everyone
0:41:19 else to make
0:41:19 the same
0:41:19 mistake
0:41:21 and then
0:41:21 like
0:41:22 I don’t
0:41:24 I think
0:41:25 if Open Door
0:41:25 is an
0:41:26 old-fashioned
0:41:27 operational
0:41:29 house flipper
0:41:30 like
0:41:31 that’s not
0:41:31 that
0:41:32 it could be
0:41:32 meaningful
0:41:32 it’s not
0:41:33 that big
0:41:33 a business
0:41:33 right
0:41:34 and they
0:41:35 lost faith
0:41:35 in the
0:41:35 original vision
0:41:36 and the
0:41:36 feasibility
0:41:36 of it
0:41:37 or what
0:41:37 would explain
0:41:38 the sort
0:41:38 of
0:41:39 I think
0:41:40 there’s a
0:41:40 very real
0:41:41 thing about
0:41:41 being a
0:41:41 public
0:41:41 company
0:41:42 that like
0:41:44 there are
0:41:45 things you have
0:41:45 to deal
0:41:46 with a public
0:41:46 company
0:41:46 that are
0:41:48 amplified
0:41:49 but I think
0:41:49 private companies
0:41:50 basically all
0:41:50 have the exact
0:41:51 same problems
0:41:51 but a public
0:41:52 company
0:41:53 like in a
0:41:53 private company
0:41:54 these problems
0:41:54 are discussed
0:41:54 with your
0:41:55 VCs at a
0:41:55 board table
0:41:56 and a public
0:41:57 company
0:41:57 they’re discussed
0:41:58 on Reddit
0:41:59 and it’s
0:41:59 in the Wall
0:41:59 Street Journal
0:42:01 so if you
0:42:01 care a great
0:42:02 deal about
0:42:03 what’s said
0:42:03 about you
0:42:04 in the Wall
0:42:04 Street Journal
0:42:05 running a
0:42:05 public company
0:42:06 is incredibly
0:42:07 difficult
0:42:08 it’s just
0:42:08 very difficult
0:42:10 luckily I
0:42:10 just don’t
0:42:11 care
0:42:13 so like
0:42:13 it’s
0:42:14 slightly
0:42:15 right
0:42:17 so you’ve
0:42:17 come back
0:42:18 and you’ve
0:42:19 joined
0:42:19 and you’ve
0:42:19 said hey
0:42:20 let’s go
0:42:20 back
0:42:21 the original
0:42:21 vision was
0:42:21 a good
0:42:21 idea
0:42:22 let’s
0:42:23 bring it
0:42:23 or
0:42:24 how would you
0:42:24 look
0:42:25 I think
0:42:26 the mission
0:42:26 is a
0:42:27 worthwhile
0:42:27 one
0:42:28 I think
0:42:29 Open Door
0:42:30 has made
0:42:31 mistakes
0:42:31 along the
0:42:32 path
0:42:32 and we
0:42:32 should
0:42:32 learn
0:42:32 from
0:42:33 our
0:42:33 mistakes
0:42:35 but the
0:42:36 company is
0:42:36 not made
0:42:37 better by
0:42:38 becoming
0:42:38 meeker
0:42:40 right
0:42:41 that’s a
0:42:42 very real
0:42:42 thing
0:42:43 will we
0:42:44 make mistakes
0:42:44 again
0:42:46 100%
0:42:46 we will
0:42:47 for sure
0:42:47 make mistakes
0:42:47 again
0:42:49 like we
0:42:49 just launched
0:42:51 the seven
0:42:51 day trial
0:42:52 of homes
0:42:52 in Dallas
0:42:52 Texas
0:42:54 it’s day
0:42:55 one I
0:42:55 don’t know
0:42:55 how it’s
0:42:55 going to
0:42:55 go
0:42:56 we’ll
0:42:56 find out
0:42:58 but
0:42:59 I was
0:43:00 telling this
0:43:00 to
0:43:02 one of
0:43:02 our
0:43:02 product
0:43:02 managers
0:43:04 this
0:43:04 morning
0:43:06 I got
0:43:06 to
0:43:06 Open Door
0:43:06 and I
0:43:07 felt
0:43:07 have you
0:43:08 ever
0:43:08 watched
0:43:09 Braveheart
0:43:10 the scene
0:43:10 where Mel Gibson
0:43:11 is standing
0:43:11 in front of
0:43:12 the Scottish
0:43:12 army
0:43:13 and the
0:43:13 English
0:43:14 are coming
0:43:14 with like
0:43:15 weapons
0:43:15 and Mel Gibson
0:43:16 is standing
0:43:16 there saying
0:43:17 hold
0:43:18 hold
0:43:19 don’t hold
0:43:20 attack
0:43:21 I got to
0:43:21 Open Door
0:43:22 and I felt
0:43:22 like for
0:43:23 like three
0:43:23 years
0:43:24 someone had
0:43:24 stood in
0:43:24 front of
0:43:24 a company
0:43:25 saying
0:43:25 hold
0:43:26 hold
0:43:26 wait
0:43:27 like just
0:43:28 wait for
0:43:28 the macro
0:43:28 to recover
0:43:30 and you
0:43:31 just don’t
0:43:32 tend to
0:43:32 build
0:43:33 great
0:43:33 software
0:43:33 companies
0:43:34 like that
0:43:35 I think
0:43:35 you can
0:43:35 build
0:43:35 great
0:43:36 hedge
0:43:36 funds
0:43:36 like
0:43:36 that
0:43:38 but
0:43:39 Open Door
0:43:39 is not a
0:43:39 hedge fund
0:43:40 if it was a hedge fund
0:43:41 it needed to be
0:43:42 six guys in New York
0:43:43 with laptops
0:43:44 we’re not that
0:43:45 we’re a software
0:43:45 company
0:43:47 and software
0:43:48 companies need to be
0:43:49 basically always on
0:43:49 attack
0:43:51 like always
0:43:51 always
0:43:52 always on
0:43:53 attack
0:43:55 we’ll attack
0:43:56 some wrong hills
0:43:57 we’ll accidentally
0:43:58 like lose
0:43:58 some ships
0:43:59 but
0:44:00 like
0:44:02 always on
0:44:02 attack
0:44:03 yeah
0:44:05 what advice
0:44:07 have you given
0:44:07 to Kaz
0:44:08 or what would
0:44:08 you be thinking
0:44:08 about in terms
0:44:09 of what strategic
0:44:10 decisions you have
0:44:10 to make
0:44:11 or what’s
0:44:11 important
0:44:12 if you were
0:44:13 taking over
0:44:13 as CEO
0:44:14 I think a lot
0:44:15 of it
0:44:15 I think
0:44:16 when I first
0:44:17 heard that he
0:44:17 was taking
0:44:17 the job
0:44:18 I think I
0:44:18 sent you
0:44:19 my YouTube
0:44:19 video
0:44:20 it’s actually
0:44:20 my most
0:44:21 viewed ever
0:44:21 video
0:44:22 largely by real
0:44:23 estate agents
0:44:23 who hate me
0:44:23 and want to
0:44:24 kill me
0:44:25 this was like
0:44:25 circulating
0:44:26 speaking of
0:44:26 Reddit
0:44:27 and you know
0:44:27 The Courage
0:44:28 to be Disliked
0:44:29 it’s a good book
0:44:29 called Courage
0:44:30 to be Disliked
0:44:31 it’s an excellent
0:44:31 book
0:44:32 to the camera
0:44:34 Courage to be Disliked
0:44:34 is among the best
0:44:35 books to read
0:44:36 as a founder
0:44:37 you must read it
0:44:38 it’s excellent
0:44:38 it’s this whole
0:44:39 like Socratic
0:44:39 dialogue
0:44:41 like in this
0:44:43 Adlerian psychology
0:44:43 mode
0:44:44 it’s very very
0:44:44 interesting
0:44:45 so
0:44:46 after giving
0:44:47 that talk
0:44:48 oh my god
0:44:48 the number
0:44:49 of real estate
0:44:50 agent hate mail
0:44:50 I didn’t know
0:44:50 that there was
0:44:51 a such thing
0:44:52 as like real estate
0:44:52 agent hate mail
0:44:52 because I was
0:44:53 basically saying
0:44:54 like these people
0:44:55 are like leeches
0:44:56 on society
0:44:57 and like lo and behold
0:44:58 they don’t like
0:44:58 being called that
0:44:59 they don’t like
0:44:59 being called leeches
0:45:00 on society
0:45:00 and I know
0:45:01 some real estate agents
0:45:02 but it’s just
0:45:02 like the whole process
0:45:03 doesn’t make sense
0:45:04 there should not be
0:45:05 a 6% tax
0:45:05 which by the way
0:45:06 I make this point
0:45:07 in the presentation
0:45:09 it’s unique to America
0:45:10 you go pick any other
0:45:11 country in the world
0:45:12 it’s nowhere near
0:45:14 that level of spread
0:45:15 and you don’t have
0:45:16 all this regulatory capture
0:45:16 it doesn’t make any sense
0:45:18 so I think my big thing
0:45:18 was it’s like
0:45:20 if you have a marketplace
0:45:22 for homes
0:45:24 it is the biggest
0:45:25 marketplace in the world
0:45:25 right
0:45:26 like we know
0:45:27 that the stock market
0:45:27 is big
0:45:28 but you know what
0:45:29 the residential real estate
0:45:30 market is bigger
0:45:32 so we know that
0:45:33 you know everybody
0:45:34 like why is the NYSE
0:45:35 and NASDAQ
0:45:36 worth a lot
0:45:36 like why is eBay
0:45:37 worth like all of these
0:45:38 things that do everything
0:45:39 but homes
0:45:40 if we
0:45:41 if you stick to that
0:45:42 which I think the company
0:45:43 I mean this is what
0:45:44 Eric Wu was kind of
0:45:45 committed to doing
0:45:45 and it just became
0:45:47 it was an untenable
0:45:48 situation
0:45:48 where it’s like
0:45:49 all of your public
0:45:50 it’s hard to do it
0:45:50 in the public eye
0:45:51 for sure
0:45:52 I think it’s harder
0:45:54 but I don’t think it’s
0:45:55 like I think the company
0:45:56 could have still died
0:45:57 in the public eye
0:45:58 but just the company
0:45:58 just had learned
0:45:59 a bunch of wrong lessons
0:46:00 yeah and that was
0:46:01 that was the point
0:46:01 it’s like when money is free
0:46:02 like success is a terrible
0:46:03 teacher and it’s like
0:46:04 oh we’re making all this
0:46:05 money flipping homes
0:46:06 and the real
0:46:07 the real magic
0:46:07 is going to happen
0:46:08 if it’s like
0:46:09 opendoor.com
0:46:10 does not take
0:46:12 principal risk on a house
0:46:13 and it just means
0:46:13 that like
0:46:14 it’s the lowest cost
0:46:15 to sell
0:46:16 it’s the best way
0:46:16 to buy
0:46:17 and that’s what
0:46:18 by the way
0:46:19 like buying stuff
0:46:19 on Amazon is
0:46:20 that’s what
0:46:20 buying stuff
0:46:20 I mean
0:46:21 eBay has kind of
0:46:22 lost its luster
0:46:23 but still
0:46:24 if I catch
0:46:25 a new home run
0:46:26 at a Giants game
0:46:27 where do I go sell that
0:46:28 who has the deepest
0:46:29 liquidity
0:46:30 it’s going to be eBay
0:46:31 and I’m going to sell it there
0:46:32 and everybody who wants
0:46:33 to buy a baseball
0:46:34 they go to eBay
0:46:34 and like eBay
0:46:35 does not have to take
0:46:36 possession of the baseball
0:46:37 that’s why
0:46:38 they have an amazing business
0:46:39 they probably have
0:46:39 too many people
0:46:40 that work there
0:46:40 they have
0:46:41 you know
0:46:42 it’s a shadow
0:46:43 of its former self
0:46:43 apparently it’s still
0:46:44 using the same
0:46:45 .NET library
0:46:46 in like 1997
0:46:47 so all sorts
0:46:48 of issues there
0:46:48 but like
0:46:49 I’m just excited
0:46:50 about this vision
0:46:51 of having
0:46:53 a housing marketplace
0:46:53 and then also
0:46:54 kind of coming up
0:46:55 with creative financing
0:46:56 options
0:46:57 because finance
0:46:58 it’s like
0:46:58 all these are one-offs
0:46:59 to your point
0:46:59 and then by the way
0:47:00 you can come up
0:47:00 with like
0:47:02 better insurance options
0:47:03 like if you control
0:47:04 the entire thing
0:47:05 and to your point
0:47:06 if you have like
0:47:06 a lifelong relationship
0:47:07 with that customer
0:47:08 there are so many
0:47:09 things that you can do
0:47:10 this is a very
0:47:10 I mean look
0:47:11 underwriting a home
0:47:12 for mortgage
0:47:12 and underwriting a home
0:47:13 for insurance
0:47:14 and underwriting a home
0:47:15 for buying it
0:47:17 like fundamentally
0:47:18 not that different
0:47:19 as exercises
0:47:20 there really
0:47:21 there really aren’t
0:47:22 but
0:47:24 all the players
0:47:25 in this space
0:47:26 come up with
0:47:27 different answers
0:47:28 to these questions
0:47:30 right
0:47:30 it’s just like
0:47:32 this all should
0:47:33 very clearly
0:47:34 be done by one person
0:47:35 like it’s very clearly
0:47:35 one company
0:47:36 should do this
0:47:37 and
0:47:38 I mean you and I
0:47:39 like
0:47:40 are money nerds
0:47:40 so
0:47:41 I later
0:47:42 wrote a book
0:47:42 about
0:47:43 payments
0:47:44 in the US
0:47:46 so I think
0:47:46 there’s a very
0:47:47 I’m generally
0:47:48 excited about this
0:47:49 I do think
0:47:49 for what it’s worth
0:47:51 that the right
0:47:51 model actually
0:47:52 is
0:47:53 much closer
0:47:54 to Amazon
0:47:55 than to eBay
0:47:55 yeah
0:47:56 because I actually
0:47:57 think for
0:47:58 I think
0:47:59 open door
0:47:59 will have
0:48:00 principal risk
0:48:01 on quite a lot
0:48:01 of this inventory
0:48:02 for a very long
0:48:03 time
0:48:03 now should
0:48:04 only have that
0:48:05 obviously not
0:48:06 and it’s also
0:48:07 not a binary thing
0:48:08 it’s not like
0:48:08 zero risk
0:48:09 or 100% risk
0:48:10 there’s like
0:48:11 it’s a gradient
0:48:12 you can live
0:48:13 anywhere along the chain
0:48:14 you can deliver
0:48:14 different values
0:48:15 like
0:48:17 we don’t have
0:48:18 to agree
0:48:19 with a seller
0:48:20 on the price
0:48:21 of the home
0:48:21 we can say
0:48:22 cool we agree
0:48:23 it’s at least this
0:48:23 right
0:48:24 we’ll give you
0:48:25 at least that
0:48:27 and then let’s sell it
0:48:27 you take the rest
0:48:28 of the risk
0:48:28 we’ll take the risk
0:48:29 for the first bit
0:48:30 and there’s a lot
0:48:31 you can do here
0:48:32 that’s not like
0:48:33 quite binary
0:48:34 and becomes like
0:48:35 a UX problem
0:48:35 rather than
0:48:36 an underwriting problem
0:48:37 but fixable
0:48:38 well here’s the thing
0:48:38 it’s like
0:48:39 there’s a market order
0:48:40 and a limit order
0:48:40 yes
0:48:42 and there’s a value
0:48:43 there’s a place
0:48:43 for both
0:48:44 and there’s a lot
0:48:45 of liquidity
0:48:45 you know
0:48:46 beneath
0:48:48 the kind of
0:48:49 the top big
0:48:50 and the lowest ask
0:48:51 there’s always
0:48:52 a lot of liquidity
0:48:52 there
0:48:52 and those are
0:48:53 the limit orders
0:48:55 gearing towards
0:48:56 the future
0:48:58 what else
0:48:59 can you hint at
0:49:00 in terms of
0:49:00 the biggest
0:49:01 priorities
0:49:03 or decisions
0:49:04 or strategic directions
0:49:04 that you’re
0:49:05 focused on
0:49:06 the thing
0:49:06 the thing
0:49:07 I admired
0:49:08 deeply admired
0:49:09 about my time
0:49:09 at Shopify
0:49:11 is that
0:49:12 like if you actually
0:49:14 if you watch chess players
0:49:15 like go back in time
0:49:16 and like start chess
0:49:18 they’ll teach you
0:49:19 like opening strategies
0:49:20 like this is what
0:49:20 you should do
0:49:21 if you look at
0:49:22 modern chess players
0:49:22 they do something
0:49:23 called positional chess
0:49:24 right
0:49:26 like always put yourself
0:49:27 in a better position
0:49:28 like play for the next
0:49:28 position
0:49:29 and one after that
0:49:30 and just like
0:49:31 give yourself more options
0:49:32 and that actually
0:49:33 is the right way
0:49:34 to build a company
0:49:34 transparently
0:49:35 like you don’t want
0:49:35 to like
0:49:37 like you want
0:49:37 to hold
0:49:38 the strategy
0:49:39 very loosely
0:49:40 not the mission
0:49:40 but the strategy
0:49:42 so I don’t have
0:49:44 like a secret
0:49:44 bag of tricks
0:49:46 but I think
0:49:47 there’s a very
0:49:47 real thing
0:49:48 where Opendoor
0:49:50 does too little
0:49:51 for its sellers
0:49:53 and does almost
0:49:54 nothing for its buyers
0:49:55 like that’s
0:49:56 like we’ll solve
0:49:57 both of those problems
0:49:59 I think there’s
0:50:00 a very real thing
0:50:00 where like
0:50:02 I think due to
0:50:03 some bad advice
0:50:04 the company
0:50:06 tried for a little while
0:50:06 to essentially
0:50:07 only buy homes
0:50:08 that were mispriced
0:50:10 like we will only
0:50:10 buy homes
0:50:11 that are mispriced
0:50:12 by 20%
0:50:13 and turns out
0:50:14 just
0:50:17 again you can
0:50:17 build a hedge fund
0:50:19 doing that
0:50:19 you can’t really
0:50:20 build a software
0:50:21 company doing that
0:50:22 like our goal
0:50:23 is to buy
0:50:24 and sell homes
0:50:25 for a fair price
0:50:26 like for a fair price
0:50:27 we will buy
0:50:27 and sell homes
0:50:29 and
0:50:30 I think those are like
0:50:31 three biggest
0:50:31 like
0:50:33 everyone that way
0:50:34 ish
0:50:36 and then what we’ll do
0:50:36 is we’ll just like
0:50:39 ask people
0:50:40 to hold us
0:50:40 to account
0:50:42 against this mission
0:50:44 like hold us
0:50:44 to account
0:50:45 against this mission
0:50:46 that what we are
0:50:47 going to do out there
0:50:48 is try
0:50:49 to be
0:50:50 the person
0:50:50 you transact
0:50:51 with
0:50:52 quite frequently
0:50:53 when buying
0:50:53 selling homes
0:50:54 not just like
0:50:55 0.5% of the time
0:50:57 but a significant
0:50:58 percentage of the time
0:50:59 and then
0:51:00 well I think
0:51:01 that’s like
0:51:02 and by the way
0:51:02 we’ve already
0:51:02 like
0:51:04 when I started
0:51:05 at Open Door
0:51:05 Open Door was only available
0:51:07 in 48 markets
0:51:07 in the US
0:51:09 it is now available
0:51:09 in every market
0:51:10 in the US
0:51:11 because like
0:51:13 you can push pixels
0:51:13 relatively easily
0:51:15 so there’s a bunch
0:51:15 but a bunch
0:51:16 of that stuff
0:51:16 that’s like
0:51:17 I think
0:51:18 people should expect
0:51:18 us to be a much
0:51:20 more ambitious company
0:51:21 well in terms of
0:51:22 holding you to account
0:51:22 one thing that’s so remarkable
0:51:23 about the company
0:51:24 among other things
0:51:25 is how many people
0:51:26 on the internet
0:51:27 feel so passionate
0:51:28 about the company
0:51:29 the Open Army
0:51:30 how do we explain
0:51:31 why Open Door
0:51:31 is a company
0:51:32 that so many people
0:51:33 feel so passionate
0:51:33 about
0:51:34 and how does that
0:51:35 impact at all
0:51:36 sort of the business
0:51:37 or how you think about
0:51:39 I never
0:51:41 I never
0:51:43 worked on Wall Street
0:51:44 and
0:51:45 until I started this job
0:51:46 I owned one ticker
0:51:48 it was Shopify
0:51:49 at some point
0:51:50 so I owned this ticker
0:51:52 once
0:51:53 you know
0:51:53 I’m allowed to
0:51:55 I’m not like
0:51:56 I’m not a
0:51:57 stock analyst
0:51:58 I’m just not one
0:51:59 I build products
0:51:59 for a living
0:52:01 but I think
0:52:02 there’s a very real
0:52:03 thing that happens
0:52:04 where
0:52:05 people feel
0:52:06 like
0:52:08 the natural
0:52:09 intuitions
0:52:09 of the average
0:52:10 American
0:52:12 is a very good
0:52:13 indicator of what’s true
0:52:14 like William Buckley
0:52:15 used to say
0:52:15 he used to rather
0:52:16 grab the
0:52:17 phone book
0:52:18 of Boston
0:52:18 Massachusetts
0:52:19 than go to
0:52:20 Harvard professor’s
0:52:20 book
0:52:21 for like
0:52:21 advice
0:52:23 because it’s a
0:52:24 very real thing
0:52:24 about the natural
0:52:26 intuition of people
0:52:27 is real
0:52:27 and I think people
0:52:28 look at real estate
0:52:30 and how those
0:52:31 transactions are done
0:52:32 and they say
0:52:33 well this is stupid
0:52:34 like this is not
0:52:36 how this should be
0:52:36 and it makes
0:52:37 it like
0:52:38 I think that’s
0:52:38 what it is
0:52:39 I think that like
0:52:39 people are looking
0:52:40 at it and saying
0:52:40 hey this is not
0:52:41 how this should
0:52:41 work
0:52:43 there’s a company
0:52:43 out there
0:52:43 who’s supposed
0:52:44 to who has told
0:52:45 us they’re going
0:52:45 to fix this
0:52:46 problem
0:52:47 we want them
0:52:47 to go fix
0:52:48 it
0:52:49 and by the way
0:52:49 I think like
0:52:50 this is the most
0:52:51 wonderful thing
0:52:52 about this
0:52:53 is
0:52:54 that
0:52:56 if you engage
0:52:57 with the average
0:52:57 person
0:52:59 they tend to be
0:53:00 deeply reasonable
0:53:01 ask really good
0:53:01 questions
0:53:02 have really good
0:53:03 ideas
0:53:04 whereas if you
0:53:05 engage with
0:53:06 like supposed
0:53:06 experts
0:53:07 they have like
0:53:08 perceived biases
0:53:09 and they’re like
0:53:10 usually wrong
0:53:11 there’s like a whole
0:53:12 like pretense of
0:53:13 knowledge thing that
0:53:13 happens
0:53:15 so I think it’s
0:53:16 actually deeply
0:53:16 helpful for the
0:53:17 company
0:53:18 to be a company
0:53:18 more like
0:53:19 cool
0:53:20 you know who I want
0:53:21 advice from
0:53:22 the average person
0:53:23 who owns the stock
0:53:24 and is about to
0:53:25 buy or sell a home
0:53:26 I want advice from
0:53:27 that person
0:53:28 because the odds
0:53:29 are
0:53:30 they have a
0:53:31 wider aperture
0:53:31 of possibility
0:53:32 like there’s a
0:53:32 real question
0:53:33 that someone
0:53:33 asked me the other
0:53:34 day saying
0:53:34 hey
0:53:37 why can’t
0:53:38 why can I
0:53:39 return
0:53:40 what I buy
0:53:41 on Amazon
0:53:41 and not
0:53:42 a home
0:53:43 like
0:53:44 that’s a really
0:53:45 decent question
0:53:45 that’s like the
0:53:46 honestly
0:53:46 like
0:53:48 from the time
0:53:49 someone asked
0:53:49 that question
0:53:50 to the time
0:53:50 we
0:53:52 launched
0:53:52 the product
0:53:53 was maybe
0:53:53 I think
0:53:54 12 days
0:53:57 because there’s
0:53:57 a certain amount
0:53:58 of like
0:53:58 there’s something
0:53:59 broken here
0:54:00 that is like
0:54:00 it is intuition
0:54:01 like is
0:54:02 intuition
0:54:03 is crystallized
0:54:03 knowledge
0:54:04 and intuition
0:54:05 by lots of
0:54:05 people
0:54:06 is literally
0:54:06 knowledge
0:54:07 of like
0:54:07 significant
0:54:07 number
0:54:08 of people
0:54:08 and I think
0:54:08 it’s important
0:54:10 it is a bad
0:54:11 thing for the
0:54:11 world
0:54:12 that people
0:54:12 in this country
0:54:13 can’t afford
0:54:14 to own their
0:54:14 home
0:54:16 like people
0:54:16 who own
0:54:16 homes
0:54:17 kids that
0:54:18 grow up
0:54:18 in homes
0:54:19 that are owned
0:54:20 by their parents
0:54:20 have better
0:54:21 life outcomes
0:54:22 people who
0:54:23 live in homes
0:54:23 have better
0:54:24 communities
0:54:25 lower crime
0:54:26 higher health
0:54:26 results
0:54:28 if you’re
0:54:29 so inclined
0:54:29 to solve
0:54:30 this problem
0:54:31 with us
0:54:33 my DMs
0:54:33 are open
0:54:34 find me
0:54:35 we are
0:54:36 going to
0:54:36 build
0:54:37 the most
0:54:38 aggressive
0:54:39 team
0:54:40 in software
0:54:41 and we’re
0:54:41 always
0:54:41 recruiting
0:54:45 thanks for
0:54:45 listening to
0:54:46 this episode
0:54:46 of the
0:54:46 A16Z
0:54:47 podcast
0:54:48 if you
0:54:48 liked this
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0:55:06 thanks again
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0:55:07 and I’ll see you
0:55:07 in the next
0:55:08 episode
0:55:10 as a reminder
0:55:10 the content
0:55:11 here is for
0:55:11 informational
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