Opendoor CEO: Building the Amazon for Homes

Erik Torenberg 0:00 There are things you have to deal with in a public company that are m- uh, amplified. Like in a private company, these problems are discussed with your VCs at a board table. In a public company, they're discussed on Reddit, and it's said in the Wall Street Journal. So if you care a great deal about what's said about you in the Wall Street Journal, running a public company is incredibly difficult. It's just very difficult. Luckily, I just don't care.

Kaz Nejatian 0:22 [laughs]

Erik Torenberg 0:25 Kaz, welcome to the podcast.

Kaz Nejatian 0:27 Thanks for having me, man.

Erik Torenberg 0:28 I feel like you're the man of the moment. You recently took over as Opendoor's CEO. It's been a few weeks, a month.

Kaz Nejatian 0:33 Uh, it's day 16, I think.

Erik Torenberg 0:34 Day 16. And I feel like you're, I feel like you're pioneering in a new way of being a public company CEO. W- what was your mindset sort of... W- w- first, what got you excited about the opportunity? And then, you know, coming into it, what was your mindset g- going into how you're gonna be CEO of this company?

Kaz Nejatian 0:47 In... I, I, I think Opendoor will become like this generational company because I think people do a lot of like when they, when, like when you go to business school, they're like, "You shall have a business plan, and it should be 17 pages, and it should have like Porter's five forces on it."

Erik Torenberg 1:02 Yeah.

Kaz Nejatian 1:02 "And that's how it's gonna work." And that's just like generally not how great businesses are built, at least not that many of them. I think it's important that like great businesses start with a very like simple statement that people can buy into or disagree with, right? Like it's... That, that's when you know it's actually important that you're saying something.

Erik Torenberg 1:21 Yeah.

Kaz Nejatian 1:22 I think like homeownership is good for the world.

Erik Torenberg 1:25 Mm.

Kaz Nejatian 1:25 The more people that can own a home, the better off we are. This is objectively a broken process, so we can fix it. So I think I was just like generally excited by the mission, uh, of the company.

Erik Torenberg 1:36 Yeah.

Kaz Nejatian 1:37 And, uh, gen- I've just been a fan of it for a while, and looking from the outside in, I'm like, "Look, I... This is like a, this feels like a type of problem that I can help with." So, you know, we're 16 days into this journey. Let's find out that it ends

Kaz Nejatian 1:51 up being true.

Erik Torenberg 1:51 Wow. Well, let, let's, let's trace a little bit of the, of the history. Alex, y- you led our investment in-

Kaz Nejatian 1:56 Yeah

Erik Torenberg 1:56 ... into the company. What was the, the thesis or vision that, that got you so excited about it?

Speaker 2:00 Well, I'm gonna, I'm gonna talk for a little bit of, of the background.

Erik Torenberg 2:03 Sure.

Speaker 2:03 And I'm gonna start with Amazon, and then I'll get to Opendoor. Um, so I remember I met Eric Wu, uh, when he had first started Opendoor with Keith, and I think they had, they had flipped maybe like 70, 80 homes in, like right around Phoenix.

Erik Torenberg 2:16 Mm-hmm.

Speaker 2:17 Um, and the reason why Phoenix is a very interesting market is there, there's a term that I'm sure you're intimately familiar with called cap rate or capitalization rate, and think of it as like the income of some asset divided by the price of the asset. So, um, the Bay Area has very low cap rates, so you could buy like a $20 million house in Pac Heights. If you wanted to rent it, it might rent for like $10,000 a month or 20, like which is a lot, but not as a percentage of the price of the asset. Like that is very, very low yield. In a place like Phoenix, all the homes are pretty similar. I'm, I'm exaggerating for, you know-

Erik Torenberg 2:48 Yeah

Speaker 2:48 ... so don't... I'm not trying to upset people who live in Phoenix. Um, but you would have like a $200,000 house that might rent for $20,000 a year, so like a 10%. So the, the, the net operating income divided by the asset, like that's your cap rate, 10%. 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. I'm holding a house. I don't have to sell it to another person that wants to buy a house. I can now rent it out. And because I can get a mortgage from a bank for like 5%, like I can make the whole math work." So Eric had started flipping homes in Phoenix and made money on most of them, but I was like, "Ah, you know, I don't know. Flipping homes seems kinda challenging." I mean, it sounds great when all prices go up, but what I was really drawn to, uh, is the vision that he laid out. And when I finally invested, I thought he was pretty along, um, towards getting that vision become a reality, which was... This is what I mentioned I'm gonna talk about Amazon. Amazon started off in the '90s basically selling every book in the world, hence Amazon, in like Jeff Bezos' garage or basement or, or, you know, s- the warehouse or something. And by selling every book, like having infinite supply of books, he got all of the demand. Um, and then because he got all of the demand, he could say, "All right. I wanna now sell something that isn't books. I'm gonna sell CDs and DVDs." That was the next, but also still stock those in the warehouse. But eventually, it's like, "I'm gonna sell TVs. I'm gonna sell something else. I'm not going to stock them, but I already have all the demand."

Erik Torenberg 4:10 Yeah.

Speaker 4:11 Um, and I got the demand because I had all the supply for something else. So I start up because this is the chicken and egg problem. Like do you start off with supply, or do you start off with demand? And marketplaces we know are very, very valuable, but you have to start somewhere because nobody wants to sell if nobody wants to... if nobody's buying. Nobody wants to buy if nobody's selling. So the Amazon model was like find something in like one niche, use that to get all of the demand, and then once you get all the demand, now you can actually attract the supply in a non-principal risk-taking way. So fast-forward to Opendoor. So I remember when Eric was flipping all the homes

Speaker 4:43 in Phoenix. I was like, "That's clever, but like, I don't know." Like I know other people that flipped homes in, in, uh, in Phoenix. Um, but I think it got to the point where in one of the markets, I think it was Charlotte, if I remember correctly, almost 10% of homes in Charlotte that were under a certain price, call it like $600,000 homes, which actually got- buys you a lot of house in Charlotte, um, 10% of the homes were bought by Opendoor. So now imagine that I wanna go buy a house in Charlotte. I can go to the multiple listing service, the MLS, which is you, you see that on Zillow, Redfin, all of these other sites, kind of they just mirror the MLS. But that's only gonna show me 90% of homes for sale. The other 10% are only on this thing called opendoor.com. So you don't have to get 100% of the homes in order to get 100% of the users. You get 10% of the homes. You get 5%. It's kinda like the Laffer curve. 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. And once you have 100% of the demand, now you can break this all, you can break this like horrible monopoly, uh, and I, I did this whole video on it, which I know I sent you, this horrible monopoly of real estate agentdom, and you can say, "You can list your house on opendoor.com, and we'll charge 1%." And if you pull that off, it's the biggest market in the world. And that's what made me so excited because eBay is a marketplace for everything except for homes.Um, and it's a $45 billion company. Um, there aren't actually big companies in residential real estate. It's kinda strange. Yeah. Like the biggest ones are CoStar and Zillow. Um, there's no $100 billion-plus company in residential real estate, which is kinda bonkers because it's a bigger asset class than like everything sold on eBay. And so why is that? Why is that? Because it's so hard to aggregate the supply and the demand. And what Zillow and others do is they just do lead generation. It's a terrible business model from a consumer perspective. Like it should have like negative 100 NPS because they're just, you're just getting called all day by real estate agents. You're not actually improving the value proposition. And Opendoor, it's not about flipping homes. I mean, may- maybe it is. You, you, you run the company. It's about how do you build a marketplace, the biggest marketplace in the world. I mean, to give you a sense of how crazy this is, there's a company called Copart, um, public company. You know what they do? It is auctions for like not used cars, but for like totaled cars. [chuckles] 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? They sell it on Copart. Copart, I think it has like a $70 billion market cap. Who buys it? Uh, who buys it? Like people in Russia. Well, no, no Russia anymore. [chuckles] But like all sorts of like, "I buy it for parts"- Yeah ... or, "I'm gonna go fix it up." But Copart is a bigger company than Zillow, right? How is that possible? And it's just because nobody's tackled this. It's the biggest market in the world, but you have to build hopefully a capital light marketplace. Yeah, I think this is actually like a very... Like I think Opendoor is like deeply misunderstood as a company. Like I think you have to think about companies as like category problems are real in public market investing. Like I remember like when I first joined Shopify in 2019, I think it was like among the sh- highest, most shorted stocks on Wall Street because people made a category mistake, uh, about Shopify. They're like, "Well, it's another e-commerce company. Like what are the odds it will build all the warehouses that's gonna like, like..." That's a category mistake. Shopify does e-commerce. It's not an e-commerce company. Like just the very real, the, the, the, the leverage point for Shopify does not come from e-commerce. It obviously comes from software because it's very much just like a software. And I think that's actually a problem that, that Opendoor has had, is that like externally and for admittedly for some time internally, the company thought of itself as essentially an investor in real, like real estate as an asset class, which is not the job of the company. Like this is not, that's not what the company does. It's a software company designed to solve that problem. And I think if you, if you attack it like that, you just fundamentally do different things, right? Yeah. Like if you look at, I mean, it's a publicly traded company, you can actually look at the, uh, numbers. The company has repeatedly been buying fewer and fewer homes every year, right? Because they're like, "Okay, cool, I'm, I'm gonna buy an asset class." You only buy homes that are mispriced. But turns out not that much in the world is mispriced for a very long time. Yeah. Right? And that just becomes a... I mean, it may become a good business, it just won't become a big business. Um, and that's like I think a fundamental mistake the company has made in the past few years. Yeah.

Speaker 9:15 Let, let, let's then just understand this problem a bit, a, a bit deeper. Maybe Alex, you could share a couple points from the, the talk that you gave or maybe explain more sort of the monopoly, you know, the real estate agents have, or give some more context here. So real estate agents, um, for a very, very long time, there are about two million registered real estate agents in the United States of America, and, and the, the stat that I quoted a couple years ago, I assume it's still the stat, but if- It is. I, I looked it up. It's- Um, so if you remember mean, median, mode. Mean is the average, median is the one in the middle, and mode is the most frequently occurring number. The mode number of transactions per agent per year is zero. So of the... It's kind of like, uh, "Well, I'm an actor." "Oh, well, what was the last film that you were in?" "Well, I'm kind of a waiter right now. I'm waiting to get a film job." And like that's what a lot of real estate agents are. So even the really good ones, they don't do that many transactions per year, and they fundamentally are misaligned with their customers because if I'm a buy-side agent, um, the more money you spend, the more, the more commission I get. So I'm, and I normally get two and a half to 3% as a buy-side agent. So normally you have five to 6% as a commission pool, half of who- half of which goes to the sell side agent, half of which goes to the buy side agent. And, um, there have been numerous, numerous lawsuits, some of which have gone to the Supreme Court attacking this as this kind of like evil, not oligopoly, but this m- monopoly behavior. And there's an expression that I love, um, it's by the playwright George Bernard Shaw, "Every profession is a conspiracy against the laity." And it's very, very hard to deal with problems of concentrated benefit and diffuse harm. So there's a concentrated benefit to the two million real estate agents, you know, small number of whom actually do active transactions, but they conspire, l- literally conspire to keep these commissions very, very high because you buy a house once every 10 years. And you are absolutely harmed because if you're a buyer, well, wait a minute, like the more that you convince me to pay, you get more of that. And then why is it misaligned as a seller? Because the seller gets more... Like the seller, sell side agent is getting more if you sell for more because they just wanna move on and get their check tomorrow. So if I say, "Okay, you're selling a $10 million house, that's a, that's a lot of money." Um, and then there's another seller who will offer you $10,000,010. Well, the, the sell side agent's like, "Well, I get 3% of that. I don't really care." But like you get an extra $10,000. Like you really do care about that. So there's just... This is where the whole, uh, the phra- the phrase, uh, principal-agent problem. Doesn't come from this, but it's like this is a personification or like a real-life version of the principal-agent problem. So there are just so many things broken, um, where it's like every other, uh, auction is fair. It's like I see, okay, I wanna go list at, uh... I can, I can sell a used car on eBay. They actually do a pretty good job of that. And I see there are 24 bids. Here's my reserve price. And like it's just very opaque. Um, and because it's a very infrequent transaction and you have concentrated benefit and diffuse harm, um, there have been

Speaker 12:00 so many attempts to like really, really violently disrupt this industry. And, and one of them, and I, I should, I should, um, say I- I'm on the board of Rocket Mortgage, which bought Redfin, and Glenn Kelman is an amazing guy, started Redfin, and really wanted to disrupt real estate, um, and said, "Okay, we're gonna ch- we're only gonna charge you 1%." Or actually, let, let me take a step back. The funny thing about real estate agents, I've bought many houses. I've never used a real estate agent. Actually, that's not true.I did use a real estate agent one time to buy a house, but I was trying to say, "I don't wanna use a real estate agent to buy a house because you're gonna charge me money." He's like, "No, no, no, you don't pay me. The seller pays me." And I'm like, "Where does the seller get the money from?" They're like, "Well, from their bank account." I was like, "No, no. I send the money to the escrow agent, and then the seller gets the money from the escrow agent and then pays you." "No, no, no. It's different money."

Kaz Nejatian 12:46 [chuckles]

Speaker 12:47 It's like... And I, I remember like talking-- But this is when I bought a house with Paul Alter. I told the real estate agent, I will, I will not name and shame him. I was like, uh, you know, "With all respect," or maybe whenever you say that you mean no respect.

Kaz Nejatian 12:58 [chuckles]

Speaker 12:58 "But with all due respect, either-"

Kaz Nejatian 13:00 You mean all due respect. [chuckles]

Speaker 13:01 Yes. "With all due respect, of which I give you none, you must think I'm an idiot or I think you're an idiot." And like those are the only two options, because it's like, it's just absurd to say that like it's free to be represented by a buy-side agent. So what Redfin started doing, and this actually did have like a very, very positive impact on the industry, was like, "Why don't we bring down the 3% buy-side fee to 1% by rebating part of it back to the, to the, the consumer?" But you know, the state of Oregon bans that, going back to every profession is a conspiracy against the lady. If I say, "Hey, use, use me, Erik, and not Kaz to buy your house, and I'm gonna take that 3% that's, uh, that's advertised-

Kaz Nejatian 13:40 Sure

Speaker 13:40 ... as a commission, and I'm gonna share it back with you." Nope, you'll go to jail. You can't do that. It's like, that's absurd. So, uh, and then even if you say, "I'm gonna do buy-side representation for 1%," well, the seller is supposed to pay 4% now, right? Because if it's a 3% listing, uh, arrangement and then 1%, you know, and maybe it's 6% all in, but like of the 3%, 2% goes back to you, the whole thing is messed up. So the only way to really violently change this is to have your own marketplace, in my, my, my perspective.

Kaz Nejatian 14:09 I think, I think actually the, the key part here is

Kaz Nejatian 14:13 like transactions that happen incredibly infrequently usually end up being full of fraud, which is the reason why carneys leave town.

Speaker 14:23 [chuckles]

Kaz Nejatian 14:24 That's a real thing, right? There's a thing like, "I got your money, I'm out of here." Like the odds are you're gonna buy maybe two homes in your lifetime, and the odds are you're not gonna use the same process to buy both of them. And it's like people, people intuitively understand this about used car dealers, right? They're like, "Hey, like I'm not gonna go to a used car dealer that doesn't offer certified pre-owned cars because I don't like... I don't trust the counterparty. I need someone else to certify this thing," right? That's a very real thing. Um, this is why like, by the way, in software we have a very hard time understanding this problem, because in software, like most of us get paid every month someone uses our product. It's a long-term relationship, right? Like the more you use it, the more money I make. Um, but it's the same experience through a software, and back then software was also had this problem. [chuckles] Like you kind of want to... The best way to align counterparties is to take the transaction and stretch it out over time-

Speaker 15:25 Hmm

Kaz Nejatian 15:25 ... to make sure that I'm interested in you liking me 10 years from now. And if you do that, most of these problems tend to get solved. But in order to do that, you need a counterparty or at least a third party to certify that this thing is good, that has an interest outside that one transaction immediately. Um, and it's part of why like Amazon works so seemingly well. Like you buy things from Amazon, you didn't like it, you can return it. Which by the way, we launched this yesterday at Opendoor in Dallas, Texas. You buy a home from Opendoor, you don't like it, you can return it.

Speaker 15:56 Wow.

Kaz Nejatian 15:56 Like you can move in early.

Speaker 15:58 Yeah.

Kaz Nejatian 15:58 Try it out. Don't like it? Return it.

Speaker 16:00 Wow.

Kaz Nejatian 16:01 And this is like no one would do that, like this is not a thing that would happen regularly with a regular real estate transaction, which is why if you've ever bought a house, your agent has said something along the lines of this: "Oh, they just turned down an offer exactly like that." Or, "Oh, they have another offer coming on Tuesday." They never have another offer coming on Tuesday. They didn't just turn down an offer like that. So I think there's a very real thing that like you just need to, A, have a counterparty who is interested in the long term, right? Stretch out a transaction.

Speaker 16:34 Hmm.

Kaz Nejatian 16:34 And B, remove the, "I make all my money from this one thing transaction right now" thing. And that's both of those things just tend to, in any market, lead to bad outcomes, where your agency problems still lead to terrible outcomes.

Speaker 16:47 Yeah. Well, there's a corollary to

Speaker 16:49 that as well, which is on the financial services side. So part of it is like, well, if you... If I only make a transaction happen every once every 10 years, I don't know it that well.

Kaz Nejatian 16:57 Yeah.

Speaker 16:58 But if you're only doing two of these a year, candidly you don't know it that well.

Kaz Nejatian 17:01 Yeah.

Speaker 17:02 And then you have this other complicated thing like how do you buy a house? How do you afford a house? And to me it's kind of crazy that like the financing stuff is totally divorced from like the buying and selling, which is like, I mean, part of how we, we became friendly is through a firm, right?

Kaz Nejatian 17:17 Yeah.

Speaker 17:17 Where how do you divorce buying and selling from financing? They are one and the same. And like I can't, I can't buy a house until I sell my current house, and like the real estate agent's not gonna help me with that. They don't have a big checkbook.

Kaz Nejatian 17:29 No, I think the agency problem, by far forth with the agency problem that exists in real estate is actually multiplied, uh, along the chain, because there's usually an agent involved in the mortgage, there's usually an agent involved in the insurance, there's usually... Like in every single thing you do, sometimes even the escrow. Like there's usually like... So you have like, like let's say one principal agent problem is a bad one. In a real estate transaction, you usually have five.

Speaker 17:58 Yep.

Kaz Nejatian 17:59 So it's multiplied. And let's say one person making money off you once and never seeing you again is bad. In a real estate transaction, you usually have at least like, at least five, sometimes a lot bigger number. Like the guy who does the inspection for your house. You're never gonna see that guy again. But like, like you just, you know, like it's a very re- And I think that actually is... But I think people can have very good people along this chain of com- the whole chain, and you end up with very terrible outcomes.

Speaker 18:27 Right.

Kaz Nejatian 18:28 Uh, because the system's basically designed to not lead to good outcomes.

Speaker 18:32 Well, and the thing is, you have a lot of these sub-scale things that actually are pretty cool that have never been productized and rolled out. So, uh, if you are an English professor at Princeton or Stanford, you probably can't afford to buy a house.

Kaz Nejatian 18:46 Right.

Speaker 18:47 The university helps you buy a house.

Kaz Nejatian 18:48 Yeah.

Speaker 18:49 Or they will subsidize a mortgage. Um, or, uh, you know, one of my favorite examples is, uh, there's something called seller financing. So every now and then you'll see a house sold by a very rich person who is like, "You know what? Uh, I don't need all the cash right now. You can pay me over time." It's like, like BNP- I mean, a mortgage is BNPL, but like this is somebody saying, "I will be your financing option and not a bank." These are all really interesting ideas, but like, you know, only Stanford and Princeton and other schools do that for their English professors, and only really rich people do this for homes where you could see, oh, here's a home that's listed for sale that has this like special financing.

Kaz Nejatian 19:24 Mm-hmm.

Speaker 19:24 And that's done in like the brick-and-mortar like retail world every day. That's called like every day that ends in Y. It's like, oh, we wanna sell more stuff. Like Procter & Gamble, we wanna sell more stuff, here's a coupon. Um, or Xbox wants to sell more things or, you know, Lexus wants to sell more cars, you know, 0% financing, 0% APR Labor Day sale. Like-

Kaz Nejatian 19:42 You know-

Speaker 19:42 ... doing that for homes makes so much sense, but like the real estate agents are not... They just don't, they just don't know what they're doing.

Kaz Nejatian 19:49 There, there is one area in real estate where I think actually there's far fewer of these problems, which is when you buy a brand-new home from a builder.

Speaker 19:56 Yes.

Kaz Nejatian 19:57 When you buy a brand-new home from a builder, like when you walk into a Lennar community and buy a home from them, like mo- they've solved most of these problems.

Speaker 20:05 Yeah. It's a production line. I know exactly what you mean.

Kaz Nejatian 20:06 Like they're like-

Speaker 20:07 Yeah

Kaz Nejatian 20:08 ... everything is bundled. You, you have very few agency problems. You have some still even then if you shop with your own financing, but the odds are you shouldn't, you should just take their financing 'cause it's like optimized for you. Um, and this is, I think, the second, like a very classical problem in basically it's a marketplace problem that you have to solve, and I agree with you. The way to solve it is, um, you need to just gather significant inventory, uh, and make it possible for counterparties to like, make it desirable for a p- counterparty to come to you to buy it, right? This is like we spent so much of our time in the first 16 days of this c- like me being in this company working on buyer stuff because like it must be beneficial to buy a home from us in a way it wouldn't be somewhere else, so you can actually

Kaz Nejatian 20:54 start the flywheel.

Speaker 20:55 Yeah. And you, you said a, a company that could do that will be one of the biggest in the world. Has a company like Amazon or, or other big companies tried to do something like this, or is it just so far field that they wouldn't, would never? Well, the other thing that's I think very unique about this industry is it's so fundamentally local. So if you say, "I want to beat the MLS," there is no MLS Inc.

Kaz Nejatian 21:16 Hmm.

Speaker 21:16 It's not like, "Ooh, I'm gonna go beat those guys."

Kaz Nejatian 21:19 Yeah.

Speaker 21:19 And the commander's intent of the general is like, "Take that hill." You d- it's every market is different, and that's the thing. It's like just because like you could dominate Charlotte and that does not make a single dent at all in Hawaii. Um, and, uh, actually, the, the one case where I, I used a real estate agent to buy my house was in Hawaii.

Kaz Nejatian 21:37 [chuckles]

Speaker 21:37 I, I have a house in Hawaii, and they don't use the MLS there. It's just like this captive system where it's just like they make sure that you go through, and like those agents do so well because like it just shows the value of a marketplace. But you could have a company that decides, "I'm gonna go run the table in X, Y, Z place," and it doesn't show up in a different geography. So what, uh, what you do see, going back to these kind of pockets of esoteric, you know, products, either financial or, or real estate, um, executive moving. This is actually like a big thing. So imagine that you're hired as... Actually, I have a friend who was hired as the CMO at Home Depot, and, uh, she and her husband lived in New York. And guess what? Home Depot's not in New York. They're in Atlanta. They're like, "Okay, we will buy your old house from you, um, and we'll pay like top dollar cash. We'll help you buy a house over here. We'll put you up in an apartment for two months. We'll do all of these things." Why? Because they want to get this person hired as the CMO of Home Depot, and they bundle in all these other things. They're not trying to say, "I wanna go disrupt the MLS." I mean, they should. I mean, I, I would hope that eBay, and I, I don't know the, the history on this. I'm sure you probably have looked into it. Like, I know eBay has tried doing real estate, and, uh, there's another company called auction.com that really got into the distressed commercial real estate space and some distressed, uh, residential because if it's distressed, like you haven't paid your property taxes, government seizes your home. Ne- government doesn't wanna hold onto a home and pay its own property taxes to itself, so it auctions it off, and it needs to close within five days. Like, that's what like something like auction.com is like very well situated to do. But I find that you have some of these bespoke products for, as an example, executive moves, and those are done in a very, very first-class way. Like why can't... This is the cool thing about technology. It's like, would you rather be the richest person in the world in 1900 with no penicillin and no iPhone and no Netflix, or a middle, lower middle-class person in 2025 with penicillin and i- you know, and Netflix and an iPh- I'd much rather be the lower middle-class person than the richest person in the world in 1900. What technology often does is it helps diffuse these amazing products down to everybody, where like everybody gets the education of a billionaire. Like that's the, I think that's the motto of, uh, of AlphaScore, right? Like, let's do all of these things. So you have some of these products, um, for executive moves, and I would kind of point to that as an example. And you have had attempts at like kind of taking parts of the market and turning it into like an actual, you know, either open outcry English auction or what's called a second price auction, a Vickrey auction. Like do all of these cool things that are known to work, that know- that are known to maximize the price, but they'll work for one market. Um, and then just because I got one market, it doesn't help me at all. And then by the way, you have like two million people, uh, but call it a subset of those two million people who are like, "I want you dead, and I will vote to change the law in Oregon to like ban this product." So like this is, this is what everybody's up against.

Kaz Nejatian 24:21 Yeah. I think, I think actually it is a hard pro- look, I think it's a hard problem, which is why no one has solved it, and like lots of smart people have worked on this problem, or at least saw parts of it. So I think like there's been threeLike structural flaws that have basically killed every attempt to solve this. The first one is like, let me solve a part of it. Let me solve the tiniest, like most profitable part of it first, which objectively has failed like every single time it's been tried. Like, like when Amazon started, they didn't say, "Hey, let me solve... Like selling books is not that profitable, but it's a really good way to get inventory," right? So you can get all inventory for all books. There's a PDF you get, and it has literally every book. So like the, the first problem's been like essentially like narrowing yourself down to one thing. The second problem has been basically a channel problem, which is that like, "Hey, I'm gonna solve this problem through the traditional channels." And that objectively just has failed, like I think miserably, like every single time. And the third problem, which is like some people have gone like relatively like start some relatively large businesses that do this in some pockets of the world, but they all essentially tip over and fail because they've solved it by throwing human beings and treating it as like an operational problem. You do like, like I said, it's three buckets of problems why no one's kind of solved this. Um, and fourth, I think before like Carvana solved it for cars, this exact same problem was like the exact same set of problems, same way it was existed for cars. It's a very... But Carvana is like 3% US car market. I don't know how much, but like probably somewhere around there. So I think there's very real like parallels of like there are things that probably could not have been solved in a way that was affordable and efficient like 10 years ago.

Speaker 26:12 Yeah.

Kaz Nejatian 26:12 So I generally think it's actually a real thing. Um, and there were other problems that were solved the wrong way because for a brief period of time, money was free.

Speaker 26:21 Yeah.

Kaz Nejatian 26:22 And like so everyone made all the wrong decisions they possibly could. But I do think we're in this like special time, this window where like basically all the tools you need to solve this problem kind of exist.

Speaker 26:34 Hmm. We just get deeper there, but like how, how much is real

Speaker 26:39 estate like healthcare, where sort of the regulatory landscape has distorted the, the market and prevented, um, you know, mass, mass... And feel free to quibble with that even framing of healthcare, but... Or is it just a hard, uh, is it like emer... The, the market dynamics you were describing, is that just emergent in how real estate sort of works?

Kaz Nejatian 26:57 Well, uh, so I think the, I think it's far more similar to, uh, automobiles than it is to healthcare.

Speaker 27:02 I agree.

Kaz Nejatian 27:03 Like they're just like basically identical. Honestly, like if you look at like how cars were sold [clears throat] basically till Tesla, everyone had a dealer network because once you had a dealer network, one was required. But Tesla's like, "Hold on a second. If I don't have one dealer, I don't have to have any dealers?" And the answer is yes, outside New Jersey, I think, right?

Speaker 27:22 And I think Texas-

Kaz Nejatian 27:24 Yeah

Speaker 27:24 ... you're not allowed to buy a car unless it's sold at a car dealer.

Kaz Nejatian 27:26 Yeah.

Speaker 27:26 So like again, regulatory capture-

Kaz Nejatian 27:28 There's a couple of, there's a couple of these things

Speaker 27:29 ... a couple of places.

Kaz Nejatian 27:29 So for example, in, uh, North Carolina, uh, Georgia, and Louisiana, I think those three states, you can't close a real estate transaction digitally. You have to have a wet signature. That's kind of annoying.

Speaker 27:41 Yeah.

Kaz Nejatian 27:41 That's a real thing. But, but it's not at all like the healthcare system. It's much more similar... Like there are regulations, some of them good, some of them terrible. Um, but they're in nature much more similar to how cars were dealt.

Speaker 27:54 But then how come we've solved this in cars and it's just 'cause it's-

Kaz Nejatian 27:56 We hadn't solved this in car, we had not solved this in car until like five years ago.

Speaker 27:59 Yeah.

Kaz Nejatian 27:59 Like we solved this car... For new cars, Tesla solved this, and for used cars, Carvana solved this. Um, and keep in mind, like there's actually like, there are very real operational challenges for, like Carvana has that don't exist for homes, right? Like Carvana moves every single car they buy. Like Opendoor does not move homes.

Speaker 28:23 Yeah.

Kaz Nejatian 28:23 Like homes stay where they are.

Speaker 28:25 Yeah.

Kaz Nejatian 28:25 Um, so there's a very real, like there are upsides to trying to solve this problem in homes other than cars. There are obvious downsides too. Um, but I think there's like a very real... And underwriting for what it's worth is like similar-ish. The underwriting of a car is as, is difficult. Underwriting a home is difficult. They're not-- They're similar-ish difficult. Like different problems, but similar-ish problems.

Speaker 28:48 Well, this is the nice thing, is that you can really sub-segment the market. I mean, the reason why health- I, I can, we could talk for like 10 hours about why healthcare is messed up, but fundamentally there are no prices.

Kaz Nejatian 28:56 Yeah.

Speaker 28:56 It's like how much does this cost? Like the doctor doesn't even know. And then like, "Oh, well, we're gonna bill your insurance company this much." They won't pay it, and then because they won't pay it, like the doctor charges more. It's like the whole thing is messed up. And here you have price transparency for sure. Like I know exactly how much everything is gonna cost. You get a little bit misled by some of the agents who say like, "Oh, buy side is free because the seller pays," blah, blah, blah. But, um, there are... You could, you could chop this up into different markets, right? So I mean, this is what's very helpful to understand, like selling $50 million luxury homes and like how to price those. Like a $50 million house that's a spec home could sell for 25.

Kaz Nejatian 29:30 Yeah.

Speaker 29:30 Like there's not really... But this is the cool thing, like for real estate, because you are almost more so than cars, real estate, people need to live somewhere, and they either rent or they own. And then of course, there are different models in between. You can like, you know, rent to own.

Kaz Nejatian 29:43 Yeah.

Speaker 29:44 Um, you, you can, uh, you can, you can like get your friend to like give you a free spot and not charge you anything. But, um, you either rent or you own. And then the floor on valuation is what's the rental price and how does that compare, going back to like cap rates, like how does that compare to the cost of capital? So, um, the vast majority of homes in America, number one, they qualify for what are called conforming mortgages. So there already is this idea of it's like whether they're like really expensive homes, and you get like a jumbo mortgage, and then there's like everything else. And the pricing of everything else is a lot more like cars.

Kaz Nejatian 30:15 It's actually-

Speaker 30:15 It's like-

Kaz Nejatian 30:15 ... more transparent too. It's far-

Speaker 30:17 Yeah

Kaz Nejatian 30:17 ... more transparent than cars. Like this is a very real... Like you don't, like this is a very... Like with cars, there's a very real thing about repair of cars where like it's very opaque. You can't really know. Like it's just very hard, like-

Speaker 30:30 Structural damage.

Kaz Nejatian 30:31 Structural damage, like, or like, like your fan belt. I don't know what a fan... Like there's very distinct, there's things that are like difficult and there's, oh, yeah, and like this whole thing, like-Like an OEM part, non-OEM part. There's like a variety of like things that make... The, the decision matrix is much bigger. Whereas for homes, it's relatively transparent. And by the way, like to Opendoor's credit, this is a thing that Opendoor's exceptionally good at. Opendoor is exceptionally good at pricing renovations and change. Like just, they have just like, like zero credit to me. They've dialed this in, um, and, uh, like in a way that's actually surprisingly good. So-

Speaker 31:10 Which, which makes sense because who's going to get a better shipping rate with UPS?

Kaz Nejatian 31:15 Right.

Speaker 31:15 Me, who ships one package a year, or like Amazon-

Kaz Nejatian 31:18 Yeah

Speaker 31:18 ... who eventually got such a good shipping rate that they couldn't get any better unless they started their own shipping network called Amazon Delivery, right? So-

Kaz Nejatian 31:23 Yeah

Speaker 31:24 ... you have economies of scale-

Kaz Nejatian 31:25 Yeah

Speaker 31:26 ... that never go to the agent, that never go to the customer-

Kaz Nejatian 31:29 Yeah

Speaker 31:29 ... but that should go to a company.

Kaz Nejatian 31:30 Yeah. I guess the real thing, and this is like actually like the real thing. This is like I'm, I'm relatively, um, ideological about this. Like I think you can make it such a... Like Opendoor is an exceptionally good business, and the average person pays less for a house, and the average person sells a house for more. Like I think you can lit- it's actually not, the, the math here is not that difficult, um, how do you do that? Well, there's so much friction involved. Like if just, just, let me just give you an example. If Opendoor does nothing else than help you time your closing of your new house with buying your new h- old, like selling of your old house with closing of your new house. Like if just, if that's all Opendoor does, you would now have avoided on average about three mortgage payments. Like, like who is getting paid that money?

Speaker 32:19 Right.

Kaz Nejatian 32:20 Like why? Like why, why, why, like and that's a real thing that everyone, like everyone pays at least one extra mortgage payment or one extra rent payment, as frequently more. That's just like one thing. And that to me, that's like a service that Opendoor can deliver to most people even without buying their house. Like it's a very real thing. So like I think there's a bunch of these things that exist and like the, the agency problem is real. Um, the very real thing on cost of capital, which like when you aggregate lots of homes, your cost of capital tends to be lower, therefore you're like, that's a real thing. The very real thing about like the level of underwriting you can do on warranties, like the reason Opendoor

Kaz Nejatian 33:02 can offer, you know, a seven-day trial of a home is because we own lots of homes. Like you don't like this one, if we take it back, the odds are you're gonna buy another house from us, right? So this is like the, there's all these frictions in, that exist because the system everywhere is subscale, one. Two, because there's so many principal agency problems, right? That's the second one. And third, because there's so many of these transactions that are one-time transactions.

Speaker 33:28 Yeah. Okay, let's zoom back into the company for a second. So Alex, you, you make the investment and you've got this vision for the company, uh, and the opportunity. What have we learned about the feasibility of the opportunity

Speaker 33:40 based on the company performance? It's another way of asking like for people who haven't been following the company trajectory, w- you know, how have things gone? What, what have we learned? What have the ups and downs been, et cetera? Well, so, uh, there was a point in time where Opendoor was such a good idea. Um, you know, there, there's a saying we use a lot in venture capital. It's like, you know, you want to invest in a bad idea that something that looks like a bad idea that's actually a good idea, because if it looks like a good idea, then it becomes a bad idea. Um, and Opendoor was somewhere in between the two of these because Zillow was like, "Oh my God," like, you know, Rich Barton comes back to Zillow, Spencer leaves, and it's like, "I have to go do what Opendoor does."

Kaz Nejatian 34:18 Yeah.

Speaker 34:18 Um, everybody was getting into iBuying and Offerpad, you know, popped up, but like Zillow was the big one, and, um-

Kaz Nejatian 34:23 They couldn't do it.

Speaker 34:24 Uh, well, so but, but here's why they couldn't do it. It's an interesting story, and like the other part of the story is like Ben Thompson wrote a post-

Kaz Nejatian 34:31 Yeah

Speaker 34:31 ... that almost like kind of summarizes in a more eloquent form like what I was talking about with like, you know, if you get all the, if you get all the supply or just a small sliver of proprietary supply, you get all the demand, and once you have all the demand, then you can have your own, then supply just comes to you. And that's how you finally build a marketplace. And I think rumor has it that Rich Barton reads Ben Thompson, uh, as, as everybody should because Ben Thompson is very, very smart. Like, "Holy shit, we have to do this."

Kaz Nejatian 34:53 Yeah.

Speaker 34:53 Um, so they start doing this, and they're making infinite money. Um, but this is where cohort math is so important because the first homes to sell are the positive selection homes. So imagine that, you know, what is it? It's October right now. Kaz and I buy 1,000 homes today. The best homes will sell tomorrow. Um, and then the homes that we're stuck with two years from now, like, you know, there are ghosts that live in those homes or like the termites, like they're like mega termites. Like there are things that are wrong with it. So Zillow thought as a public company operating in the public limelight, they're like, "We're making so much money on iBuying because we're holding everything that hasn't sold at NAV, a net asset value, and then we're yielding profits all along the way." But you have to let the whole cohort cure, as the term goes, and then it's like, "Uh-oh, we lost a lot of money on that cohort." So what happened was Opendoor now is getting outbid by, uh, because this was such a good idea. Everybody thinks it's a good idea. It kind of started becoming a little bit of a bad idea pre-marketplace. Um, Zillow starts paying more. In fact, Zillow even had like, "Hey, don't sell to Opendoor. Sell to us. We'll pay a dollar more." And you always have to realize if you talk to anybody who's a professional trader in the equity markets, they're like, "You have to assume that it's an adversarial process," is that, you know, any time that you have anybody, somebody hits your bid, like there's something wrong, right? It's like you, you should assume that you're about to get taken advantage of. Zillow didn't really understand that, but they kind of muddied the waters for everybody else. Eventually, Zillow pulled out of that business. Um, money started becoming not free, and if you're stuck with a huge amount of inventory, you know, being a market maker, I mean, if you look at the most profitable companies in the world, like Jane Street is a market maker, Virtu is a market maker, Citadel Securities is a market maker. They don't win all of the time, because if they did, then they were doing something, you know, probably illegal. They make money most of the time. They have a weighted coin, and they hold inventory, and they're making money on this bid-ask spread, um, from somebody who's hopefully not taking advantage of them, which is why they want retail flow. And what happens, though, is that if you... Like a lot of the market makers in the equities world, they don't like to hold positions overnight.Because things could change. So Opendoor is holding a lot of positions beyond just overnight, and then interest rates went from like 0% to like 4%. And 4% is not high in the history of the world, but is really high to go from like zero to like 4% in like a few months.

Kaz Nejatian 37:10 The pace at which interest rate increased-

Speaker 37:12 Right

Kaz Nejatian 37:12 ... were, um, I mean, I think we can say in hindsight this was objectively, like deeply irresponsible for the country. Like I don't think... I, I think it was very re- like I don't-

Speaker 37:21 That's why Silicon Valley Bank went bankrupt, right?

Kaz Nejatian 37:23 I think this is actually a very-

Speaker 37:23 Asset prices went down. Yeah.

Kaz Nejatian 37:25 I think this is like, look, I don- I think Opendoor made lots of mistakes regardless of interest rates, but like there's a very real thing that happened which, and companies shouldn't take credit or blame for macro, but what happened in the US with interest rates had basically never happened before, and I think will literally never happen again because it was so obviously stupid.

Speaker 37:46 So, so ba- basically what happens is like you're left with all this inventory, um, and the whole point is like if you're just buying and selling and you make money 51% of the time and you're earning a spread between like, you know, the... basically you have the, the top bid and the lowest ask, and then there's like this, this margin in between, and if you just kinda keep buying, keep selling, you can actually make this work. Um, and this is again how, this is why Jane Street makes a lot of money, or Citadel Securities or any of these companies that you've heard of, they're doing it very, very frequently. They're typically not holding onto assets for a very long period of time. Some of them never hold onto assets overnight just as a standing rule. And Opendoor has a lot of assets, and then what happens is when asset, when, sorry, when interest rates go up, what happens to asset prices? They tend to go down. Because now it's like think of it in, in terms of like a mortgage payment. Like well, before my mortgage payment used to be a thousand, like I only have $1,000 a month to sh- to switch from like my rental payment to buying a house because I can make a down payment. Well, wait a minute, now it costs me $2,000 a month, so therefore I don't wanna buy the house. What happens when aggregate demand goes down? Well, prices go down. And actually this didn't happen as much in housing as would've been anticipated because we have a shortage of homes, and that's a separate topic. But asset prices in general went down. Like SVB, Silicon Valley Bank, went bankrupt because interest rates go up, and if you're stuck with a bunch of like, you know, 75 basis point 10-year T-bills, they're worth half as much as they were before. Now you have to go sell them. Uh-oh, you're bankrupt. Um, so the pace that this happened was very, very high. Nobody really... I mean, people anticipated, okay, our, our rates are, are low, but it's like, oh, well the Fed will raise by 25 basis, by another 20. Like, it wasn't like boom, and that was the like five sigma or I'm making up the number of sigmas. But it was a many, many standard deviations beyond the norm in terms of what you can anticipate, and then it's like all of the risk cap- actually, it was kind of a double whammy because risk capital, like, you know, venture capital is risk capital. So when interest rates are low, well, I don't wanna earn 75 basis points on T-bills, I'm gonna invest in riskier things. I'm gonna give it to venture capital. I'm gonna give it to private equity. So risk capital kinda pulls back. Um, asset prices go down. Um, demand for homes goes down because interest rates went up, so my monthly... So it was kind of like this everything went wrong at the same time. Um, and the vision of the company, at least my, my vision of the co- I'm not the founder, but like my vision as an investor was like you guys have a chance at building a marketplace, but it's gonna take time. You can't just like snap your fingers and boom, you have a marketplace. Like, how long did it take Amazon to build a marketplace? How many like very, very sad, despondent shareholder letters did Jeff Bezos have to write before a marketplace appeared? A long, long time, and then Opendoor I think was on the path, but then just kinda got hit with this like triple, quadruple, or maybe a quintuple whammy.

Kaz Nejatian 40:27 There,

Kaz Nejatian 40:28 and, and also a real thing, look, I think companies, um, it's very good when companies are blamed for their mistakes. Actually a good thing for the world and we should all admit our mistakes 'cause that's how we learn. Um, the same thing happened to Amazon much earlier and to Carvana around the same time.

Speaker 40:45 Yeah.

Kaz Nejatian 40:46 But Amazon and Carvana reacted differently to that thing happening. Like Amazon and Carvana are like, "Cool, was the original idea a good idea? All right. What was the mistake? Let's just shed the mistakes and go." I think what Opendoor publicly did was essentially abandon the original mission. Was like, "Cool, we're gonna de-risk this company a lot. We're just gonna like de-risk the company across the entire segment." Um, and I think that actually is a very hard spiral to recover from 'cause you've now made it, like you've now made a category mistake about who you are, which makes it really easy for everyone else to make the same mistake. And then like I, I don't... I think it's if Opendoor is an old-fashioned operational house flipper, like that's not that... it could be meaningful, it's not that big a business, right?

Speaker 41:41 And they, they lost faith in the original vision and the feasibility of it, or w-what explained the sort of-

Kaz Nejatian 41:46 Uh, I mean, I think, look, I think there's a very real thing about being a public company that like, um, there are things you have to deal with in a public company that are, uh, amplified. But I think private companies basically all have the exact same problems. But in a public company, like in a private company, these problems are discussed with your VCs at a board table. In a public company, they're discussed on Reddit, and it's heard in the Wall Street Journal. So if you care a great deal about what's said about you in the Wall Street Journal, running a public company is incredibly difficult. It's just very difficult. Luckily, I just don't care.

Speaker 42:18 [laughs]

Kaz Nejatian 42:19 Um, so like it, it's a for, for, it's slightly-

Speaker 42:23 Right. So you-

Kaz Nejatian 42:24 ... fair.

Speaker 42:24 So you've come back and you s- you, you, you're, you've joined and you've said, "Hey, let's, let's go back. The original vision was a good idea. Let, let's, let's bring it," or how did you say?

Kaz Nejatian 42:31 Well, look, I, I think the mission is a worthwhile one. I think Opendoor has made mistakes along the path, and we should learn from our mistakes. Um, but the company is not made better by becoming meeker, right?

Speaker 42:48 Yeah.

Kaz Nejatian 42:48 Like, so that's a very real thing. Will we, will we make mistakes again? 100%. We will for sure make mistakes again. Like we just launched, tried before this, this seven-day trial of homes in Dallas, Texas-It's day one, I don't know how it's gonna go. We'll find out. Um, but I was telling this to, um, one of our product managers, um, this morning. I got to Opendoor, and it felt... Have you ever watched, um, Braveheart to the scene where Mel Gibson's standing in front of the Scottish army, and the English are coming with, like, weapons, and Mel Gibson's standing there saying, "Hold! Hold!" I'm like, "Don't, don't hold. Attack."

Erik Torenberg 43:28 [chuckles]

Kaz Nejatian 43:28 I got to Opendoor, and I felt like for, like three years, someone had stood in front of our company saying, "Hold! Hold! Wait!" Like, just wait for the macro to recover. Um, and you just don't tend to build great software companies like that. I think you can build great hedge funds like that, but Opendoor's not a hedge fund. If it was a hedge fund, it needs to be six guys in New York with laptops. We're not that. We're a software company, and software companies need to be basically always on attack.

Erik Torenberg 43:58 Yeah.

Kaz Nejatian 43:58 Like always, always, always on attack. Um, we'll attack some wrong hills. We'll accidentally, like, lose some ships, but, like, always on attack.

Erik Torenberg 44:10 Yeah. A-Alex, what a- what advice, uh, have, have you given to Kaz or, or what would you be thinking about in terms of what strategic decisions you have to make, um, or what's important if, if, if you were taking over as CEO?

Speaker 44:22 Uh, well, luckily I'm not.

Erik Torenberg 44:23 [chuckles]

Speaker 44:23 So thank, thank you for doing this service for mankind. Um, I, I think a lot of it, I, I think, uh, when I first heard that he was taking the job, I think I sent you my YouTube video. You had a p- It's actually my most viewed ever video, largely by real estate agents who hate me and wanna kill me.

Erik Torenberg 44:37 [chuckles]

Speaker 44:38 Uh, this was, like circulating, speaking of Reddit, and, uh, you know, "The Courage to Be Disliked." It's a good book. "Courage to Be Disliked."

Kaz Nejatian 44:43 It's Courage-- It's an excellent book. So I, I took camo.

Erik Torenberg 44:46 Yeah.

Kaz Nejatian 44:46 "Courage to Be Disliked" is among the best books you to read as a founder. You must read it.

Speaker 44:50 Yeah. It's this-

Kaz Nejatian 44:51 Excellent

Speaker 44:51 ... it's this whole, like, Socratic dialogue, uh, like i-in this Abelardian psychology m-mode. It's, it's very, very interesting. So after giving that talk, oh my God, the number of real estate agent hate mail. I didn't know that there was a such thing as, like, real estate agent hate mail because I was basically saying, like, these people are like leeches on society, and like, lo and behold, they don't like being called that.

Kaz Nejatian 45:12 [chuckles] They don't like being called leeches on society.

Speaker 45:13 Um, and I know some real estate agents, but it's just, like the whole process doesn't make sense. There should not be a 6% tax, which by the way, uh, I make this point in the presentation, um, it's unique to America. You go pick any other country in the world, it's nowhere near that-

Kaz Nejatian 45:26 Yeah

Speaker 45:26 ... that level of spread, and you don't have all this regulatory capture. It doesn't make any sense. So I think my, my big thing was it's like if you have a marketplace for homes, it is the biggest marketplace in the world, right?

Kaz Nejatian 45:39 Mm-hmm.

Speaker 45:39 Like, we know that the stock market is big, but you know what? The residential real estate market-

Kaz Nejatian 45:43 Bigger

Speaker 45:43 ... is bigger.

Kaz Nejatian 45:44 Bigger.

Speaker 45:44 So we know that, you know, everybody... Like why is the NYSE and Nasdaq worth a lot? Like, why is eBay worth... Like, all of these things that do everything but homes, um, if we, if you stick to that, which I think the company, I mean, this is what Eric Wu was kinda committed to doing, and it just became... It, it was an untenable situation where it's like all of your public... It's hard to do it in the public eye for sure, because-

Kaz Nejatian 46:05 I think it's harder, but I don't think it's... Like, I think the company could have still died in the public eye, but just the company just had to, had to learn a bunch of wrong lessons.

Speaker 46:13 Yeah. A-and, and that was, that was the point. It's like when money is free, like success is a terrible teacher, and it's like, "Oh, we're making all this money flipping homes." And the real, the real magic is going to happen if it's like opendoor.com does not take principal risk on a house, and it just means that, like it's the lowest cost to sell.

Kaz Nejatian 46:28 Mm-hmm.

Speaker 46:28 It's the, it's the best way to buy, and that's what, by the way, like buying stuff on Amazon is. That's what buying stuff, I mean, eBay has kinda lost its luster, but still, if I catch-

Kaz Nejatian 46:37 Yeah

Speaker 46:38 ... a new home run at a Giants game, where do I go sell that? Who has the deepest liquidity? It's gonna be eBay.

Kaz Nejatian 46:44 Yeah.

Speaker 46:44 And I'm gonna sell it there, and everybody who wants to buy a baseball, they go to eBay, and like eBay does not have to take possession of the baseball. That's why they have an amazing business. They probably have too many people that work there. They have, you know... It, it's a shadow of its former self. Apparently, it's still using the same .NET library in like 1997, so all sorts of issues there. But like, I-I'm just excited about this vision of having, um, a housing marketplace, and then also kind of coming up with creative financing options because finance is like all these are one-offs, to your point. And then by the way, you can come up with like better insurance options.

Kaz Nejatian 47:16 Yeah.

Speaker 47:16 Like if you control the entire thing, and to your point, if you have like a lifelong relationship with that customer, there are so many things that you can give.

Kaz Nejatian 47:22 This is a, this is a very... I mean, look, underwriting a home for mortgage and underwriting a home for insurance and underwriting a home for buying it, like fundamentally not that different as exercises. They really, they really aren't. But all the players in this space come up with different answers to these questions, [chuckles] right? It's just like th-this, this all should very clearly be done by one person. Like it's very clearly one company should do this. And I mean, you and I like are money nerds, so I, I, I literally wrote a book about that.

Speaker 47:56 Yeah, I know. You did.

Kaz Nejatian 47:57 "MF The US". So I, I think there's a very... I'm, I'm genuinely excited about this. I do think, for what it's worth, that the right model actually is much closer to Amazon than to eBay.

Speaker 48:08 Yeah.

Kaz Nejatian 48:09 Because I actually think for... I think Opendoor will have principal risk on quite a lot of its inventory for a very long time. Now, should it only have that? Obviously not. Uh, and it's also not a binary thing. It's not like zero risk or 100% risk. There's like, it's a gradient. You can live anywhere along the chain. You can deliver different values to like, like we don't have to agree with a seller on the price of the home. We can say, "Cool, we agree it's at least this."

Speaker 48:37 Right. Right.

Kaz Nejatian 48:37 "We'll give you at least that, and then let's sell it. You take the rest of the risk. We'll take the risk for the first bit, first bit."

Speaker 48:43 Yeah.

Kaz Nejatian 48:43 And there's a lot you can do here that's not like quite binary. That becomes like a UX problem rather than an underwriting problem, but fixable.

Speaker 48:51 Well, as well, Amazon is a, last I checked, $2 trillion company. eBay is a $40 billion company. So, so objectively, I hope you become Amazon and not eBay. Well, there's the thing, it's like there's a market order

Speaker 49:01 and a limit order.

Kaz Nejatian 49:02 Yes. Yes.

Speaker 49:02 And, uh, there's a val- There, there's a place for both.

Kaz Nejatian 49:05 Yeah.

Speaker 49:05 And there's a lot of liquidity, you know, beneath

Kaz Nejatian 49:08 Uh, the kind of the, the top big and the lowest ask.

Erik Torenberg 49:12 Yeah.

Kaz Nejatian 49:12 There's, there's always a lot of liquidity there, and those are the limit orders.

Erik Torenberg 49:15 Mm-hmm. Gearing towards the, the future, um, what, what else can you hint at in terms of the biggest, uh, priorities or decisions or strategic directions that you're, you're focused on?

Kaz Nejatian 49:28 I, I think there's a very, like, um... Like, there isn't a five-year Soviet plan here.

Erik Torenberg 49:34 [chuckles]

Kaz Nejatian 49:34 There just isn't one.

Erik Torenberg 49:36 Right.

Kaz Nejatian 49:37 Um, because I think that's just like-

Erik Torenberg 49:39 To plan not to work out anyways

Kaz Nejatian 49:40 ... that just doesn't work out that well. Um, the thing I admired, deeply admired about my time at Shopify is that, like, if you actually, if you watch chess players, like go back in time and like start chess, they'll teach you like opening strategies. Opening str- like this is what you should do. If you look at modern chess players, they do something called positional chess, right? Like, always put yourself in a better position.

Erik Torenberg 50:05 Mm.

Kaz Nejatian 50:05 Like, play for the next position, the one after that, and just like give yourself more options, and that's actually is the right way to build a company transparently. Like, you don't wanna like... Like, you wanna hold the strategy very loosely. Not the mission, the strategy. So I don't have like a secret bag of tricks, um, but I think there's a very real thing where Opendoor does too little for its sellers and does almost nothing for its buyers. Like that's, like we'll solve both of those problems. Uh, I think there's a very real thing where like, I think due to some bad advice, the company tried for a little while to essentially only buy homes that were mispriced. Like, we will only buy homes that are mispriced by 20%. And it turns out just... Yeah, you can build a hedge fund doing that. You can't really build a software company doing that. Like, our goal is to buy and sell homes for a fair price. Like, for a fair price, we will buy and sell homes. And, um, I think those are like three big, like, like every one that way-ish. And then what we'll do is we'll just like ask people to hold us to account against this mission. Like, hold us to account against this mission, that what we are going to do out there is try to be the, the person you transact with quite frequently when buying, selling homes, not just like .5% of the time, but a significant percentage of the time. Uh, and then, well, I, I, I think that's like... And by the way, we've already, like when I started at Opendoor, Opendoor was only available in 48 buckets in the US. It is now available in every market in the US because, like, you can push pixels relatively easily.

Erik Torenberg 51:51 Yeah.

Kaz Nejatian 51:52 So there's a bun- there's a bunch of that stuff that's like, I think, I think you should, people should expect us to be a much more ambitious company.

Erik Torenberg 51:58 Well, in terms of holding you to account, one, one thing that's remarkable about the company, among other things, is how many people on the internet feel so passionate [chuckles] about the company, the, the Open Army. H-how do we explain why, why Opendoor is a company that so many people feel so passionate about, and how do, how does that, you know, impact at all sort of the, the business or how, how you think about it?

Kaz Nejatian 52:16 Look, I, I never, um, I never worked on Wall Street, and until I started this job, I owned one ticker.

Erik Torenberg 52:24 [chuckles]

Kaz Nejatian 52:25 It was Shopify. At some point soon, I'll own this ticker.

Erik Torenberg 52:28 Yeah.

Kaz Nejatian 52:28 Um, once, you know, I'm allowed to.

Erik Torenberg 52:31 Yeah.

Kaz Nejatian 52:31 Uh, I'm not like a, I'm not a stock analyst. I'm just not one. I build products for a living. Um, but I think there's a very real thing that happens where people feel like the natural intuitions of the average American is a very good indicator of what's true.

Erik Torenberg 52:51 Hmm.

Kaz Nejatian 52:51 Like William Buckley used to say, he used to, used to rather grab the phone book of Boston, Massachusetts than go to a Harvard professor's book for, like, advice.

Erik Torenberg 52:59 Yeah.

Kaz Nejatian 53:00 Because it's a very real thing about the natural int- in- intuition of people is real, and I think people look at real estate and how those transactions are done, and they say, "Well, this is stupid."

Erik Torenberg 53:11 Yeah.

Kaz Nejatian 53:11 Like, this is not how this should be. And it makes it like, I think that's what it is. I think that like people are looking at it saying, "Hey, this is not how this should work. There's a company out there who's supposed to s- who has told us they're gonna fix this problem. We want them to go fix it." And by the way, I think like this is the, the most wonderful thing about this is that, um, if you engage with the average person, they tend to be deeply reasonable, ask really good questions, have really good ideas. Whereas if you engage with like supposed experts, they have like pre- perceived biases and they're like usually wrong. There's like a whole like pretense of knowledge thing that happens. Um, so I think it's actually deeply helpful for the company to be a company where like, like, cool, you know who I want advice from? The average person who owns a stock and is about to buy or sell a home. I want advice from that person.

Erik Torenberg 54:05 Yeah.

Kaz Nejatian 54:05 Because the odds are they have a wider aperture of possibility. Like there's this real question that someone asked me the other day saying, "Hey, why can't, why can I return what I buy on Amazon and not a home?" Like, that's a really decent question. It's like the honest to goodness, it's like, like from the time someone asked that question to the time we launched the product was maybe I think 12 days.

Erik Torenberg 54:32 Gosh.

Kaz Nejatian 54:34 Because there's a certain amount of like, there's something broken here that is like, it is intuition, like is... Intuition is crystallized knowledge, and intuition by lots of people is literally knowledge of like a significant number of people, and I think it's important.

Erik Torenberg 54:46 Yeah. I think it's a good place to, to wrap.

Kaz Nejatian 54:49 Can I do the thing I'm supposed to do and plug for a second?

Erik Torenberg 54:51 Please. Yeah.

Kaz Nejatian 54:52 Um-

Erik Torenberg 54:53 So please, please, any plugs.

Kaz Nejatian 54:54 Uh, look, uh, it is a bad thing for the world that people in this country can't afford to own their home. Like, people who own homes, kids that grow up in homes that are owned by their parents have better life outcomes. People who live in homes have better communities, lower crime, higher health results. If you're so inclined to solve this problem with us, my DMs are open. Find me. We are going to build the most aggressive team in software. [upbeat music]