B (4:49)

Based on the OPEX metrics today versus when you stepped in, you've done something about that. So I think it's been reflected in terms of your actions. I want to go back a little bit to your point on the attachment and even just higher level. When I first came across Open Door, I had a very simple view that it was essentially a real estate asset manager based around tech. And that is overly simplified, but you clearly distinguished it as a software platform. How do you think about the capital intensity and the underwriting skill set required to run the business when you're clearly aiding all that with the technology? But how do you think about that aspect of it, which I think many, let's say traditional investors, the east coast types, can get hung up on?

C (5:42)

I think that the underlying assumption about the business are just fundamentally wrong. And by the way, I say the underlying assumptions are fundamentally wrong. Those assumptions were held by some people inside the building for a while. It's not like people in New York were wrong. People in San Francisco were also wrong. Saying Open Door is An asset manager that happens to have software is like saying Amazon in its early day was a warehouser of books that just happened to have software. Did Amazon warehouse books? Sure. But was it a warehouser of books? No. Like, that's not where the leverage comes from. The very real difference between being a prop desk and a market maker, like, if you're a prop desk and you hold assets for profit, you do one set of things. If you're a market maker and your fundamental job is to not hold assets for profit, you do a different set of things. Opendoor is a market maker, not a prop desk at core asset level. So do we have to be very good at underwriting? Damn right we do. We have the best underwriting engine in the business. There's nothing close to it. Right. And I say this as a honest to goodness nerd, but there is a very real difference about where that underwriting engine is pointed towards. If you look at a company like Citadel, Citadel gathers a crap ton of data. Why do they do it like the end matters as much as the means matter?

B (7:19)

I'm coming to appreciate many people got caught up with trust the process. I think you're really like, trust the outcome and trust the endpoint. You're putting that into vogue, which I can appreciate. And on that point, I think it's a really great way to distinguish market maker versus prop desk. It gets into this concept around spread versus velocity. What does it mean in practice to really focus on velocity? Is it really focusing on markets where there's higher turnover of homes? Is it really just focusing on capturing less spread? Therefore, we can sell faster. If you were to rank the really important drivers to that focus on velocity, what would those be?

C (8:03)

If you think about it, Opendoor has an embedded advantage compared to every other buyer and seller of real estate. In our cost of capital, we're just bigger, right? We're just relatively big. Very great capital markets team. But that has not been adequately used by the company. The best reason why you want to always be in a flow market at the end of the day, like hard counters at a blackjack table, play every hand. The reason they play every hand is to get more information. The information is the point, right? When we buy lots of homes and sell them very quickly, we get very live feedback about actual market conditions. Not just about the clearance price, also about the renovation process, also about the demand that impacts every other demand. We actually pick up data in a way that no one else does. And by the way, we're ahead of the market. So even if you were Scraping all data you could from MLS's like 90, 120 days behind us. Because we're picking it up live, we have access to data in a way that very few people do. Right? Like when you are a market maker on a stock exchange, everyone sees the up and down. We have a 90 to 120 day advantage on the market. It's a very real thing. But you can't use that advantage if you decide you want to have very high margin on every single trade. Right? Let's say you want to have high spreads in buying an asset. So I come to you, you think your home is worth $400,000. I agree it's worth $400,000. If I offer you $300,000 for it, you will tell me to take a hike. The only scenario under which you will not tell me to take a hike is if you know things I do not know. I am paying for a negative feedback loop. I'm not actually getting $100,000 a spread. There isn't that much arb in real estate. But if I actually am able to have very tight spreads such that you can say, look, if I list my home, I have to pay realtor fees, taxes, holding costs, I have to have an odd of the home falling through. I have to have 90 to 120 day hold period. So it has a cost to me. If I can add those up and I can come to you saying, look, I will do it for you faster, cheaper, more certain, you'll say yes to me as a rational human being and I still have significant room for margin. If I can compress that so I can buy from you at a better deal with more certainty than you would sell into market and sell to the next person at a better deal, more certain than you would buy from the market, I'm just increasing my information advantage. And by the way, as we've shown, we also have significant attach opportunities. We own a title and escrow business which is growing very quickly. We have a mortgage product which is just excellent. And the things you need to do to underwrite a home to acquire it, underwrite the home for mortgage and underwrite a home for insurance are all identical to each other. In a traditional market maker world, like in the stock market, the attached opportunities aren't as significant, whereas in this world the attached opportunities are significant. So as long as I can move fast, the business works.

B (11:25)

If I were to ever want to sell my house, why would I pick opendoor? Because I could do it faster, I could get the offer quickly. The likelihood of Closing. I know there's still not every contract you go into closes, but that's focused on speed and almost removing the inconveniences associated with real estate sales, which there are many. Would you say that's an accurate depiction or am I shrinking the customer base too widely? When you think about who the ideal

C (11:55)

partners are, no, you're shrinking the customer base too widely. I think what you're saying was true of the company some time ago, where the people who sold to Opendoor were people who wanted to move fast at a high cost, right? Death, divorce, delinquencies. If you look at the family that we talked about in earnings, the Watsons, they weren't in that much of a rush. They wanted to move from California to Colorado. They could have moved at any time. But Open Door, they bought a home from Opendoor because it was a great deal. They took a mortgage from Opendoor because it was a great deal, and they sold the home to Opendoor because it was objectively a great deal. But it wasn't that they value certainty, obviously, but they could have tested the market and they would have been worse off. My job is to go to family and say the product genuinely is better for you, and that's what we want to do. By the way, overwhelmingly, that is true. Now, we are going to get better and better at this. Our spreads are going to get tighter and tighter over time. But my job is to make sure that when you want to take your next move and you want to buy a home, sell a home, that you think of Open Door the way you think about Uber, the way you think about Amazon, the way you think about your market maker.

B (13:16)

So your point on attachment possibilities, you've started to roll out some of these various options out there. And I am curious, when you think about long term, that spread being tight, seeing more velocity going through, what do those represent just in terms of the profit pool and the pie for the business?

C (13:38)

What are the things that naturally attach to real estate and what are the embedded margin or at least the embedded gross cost? Opportunity, right? There's a transaction cost of 6 to 7%. Everyone understands it. The title and escrow cost of 1 to 2% there. There is mortgage, where the average margin is 300, 350, 400 basis points there. There's insurance, where the average margin is 100, 200 basis points there. There is home care, there is satellite. There's satellite, there's solar. All these things add up, right? Some of these are friction, some of these are premium products. Some of the things you have to have like mortgage isn't an option for most people. You have to have a mortgage provider. Now if I can take a series of services in a highly fragmented market, all of whom have very low NPS scores and jam them all together and say great, all the profit made by all these players in the stack and all the inefficiencies by all these players in the stack because they all have to pay for CAC and I don't. They'll have to pay for gathering of information. I don't. That's like the opportunity. And look, it is the single largest market in the world. It is significantly bigger than the stock market. And I think you can believe like whatever you want about the underlying business of Opendoor. You have a variety of opinions about Opendoor and me. What I think is very hard to say is that the largest real estate company on the public market in the United States should not be very large. There isn't $100 billion market cap real estate company in the public markets US that does feel like a flaw in

B (15:44)

the matrix on the attachment opportunities. You are often mentioning that you don't like to announce or tease products before they are formally launched. But if you just think about prioritization, which is a big thing for you in rollouts, do you have an order of operations or an order of focus when it comes to mortgage title and escrow attachment rate? Just generally speaking, anything along those lines,

C (16:13)

what you want to create in order to simplify a system is a thin waste, right? You want to be able to actually have a thin waste so you can simplify the rest of it for E commerce. That's checkout. The checkout is what actually runs the business logic on either side of transaction that doesn't exist in real estate. So for us the priority is creating checkout for real estate in the United States. That by necessity means we care a lot about title. Nescro. Title NESCRO is a thing we care a lot about on title nescro. Once we solve that, lots of other things, the system just becomes simpler. It's public that we have a mortgage product, live in Colorado and we'll have a bunch of other states soon. That's obviously second. I think home warranty is very high on the priority stack than insurance, than a bunch of other services. I think for what it's worth, I think like it's not that hard to imagine why Opendoor is almost an ideal provider of solar services.

B (17:15)

Give me that vision.

C (17:16)

We buy homes, lots of homes. We buy, lease their solar panels from Someone else. It's very easy to imagine how we can buy those solar panels and then lease them to nexteller. That's just the easiest version of it. There's a couple of versions that get slightly more complicated, but. But more importantly, just go down the stack of financing. You're an ex banker, you're good at this. Imagine what it takes to underwrite the risk of any given asset class. How correlated is a risk to leasing someone a solar panel to underlying home? How correlated is that risk to a mortgage? How correlated are all these risks to insurance? I think that you'll get to a point where you used to actually buy cars have a very interesting history. You used to buy your engine separately from the carriage. It was actually a real thing. The people who make the body of the car, people make the engine and just go buy them. But we decided that was exceptionally dumb. But we still buy homes the same way. The way we buy cars is we use usually get financing from the person who sells us the car. The car usually comes the way we want it. But the way we buy a home is we deal with a couple of dozen different parties in the system and they all hate each other. It's a very, very weird hack on the system that has been maintained when

B (18:48)

you think about introducing those various things that you could attach to the purchase or sale of a home. Each one does potentially involve friction. You know, the mortgage doesn't go through or the insurance. Any one of these things. How do you solve for that? When yes, it's naturally, you know, would be a great thing. But could they add friction, slow things down in terms of velocity? Tell me where that that thesis is wrong or how you solve for that.

C (19:16)

Matt, I think you're just straight up wrong, man. I think there's a very real thing. I think there's a lot of fud that comes from people who provide point solutions that say, my point solution is so complex that you could possibly never mix it with another one. Let me give you an example. There are two products at Shopify, Shopify Payments and Shopify Tax, both of which had extremely high penetration rates and used by basically everyone. If you happen to own a restaurant in New York and you went to got your payment provider and said, hey, I'm considering getting this tax, can you do tax for me? Oh no, you should stay with us because it's so complicated. Look, are there complexity in the system? Of course there are. Of course there are. But for 80% of people, 100% of these services are relatively vanilla. 80% of the people are the margin opportunity that pays for 20% of complexity. That's just the deems terrible for those 80%. Do I think someone who wants to buy a $14 million mansion, who has no US residency, who has trusts all over the world and multiple cars should be able to use Open Door Home Loan and Open Door insurance and all the other services? No, I don't think they should use us. But I don't think the average American living in South Dakota should pay for that subsidy. Like our job is to make life easier for the average person. Like the school teacher, the plumber, the electrician. They should not have to pay more because complexity exists in the system. And by the way, I say this as a guy who has complexity in his life. There's no reason why the average person should subsidize my life. That sounds insane, but that's what we have. That's the world we live in. My job is this at Opendoor. I want the teacher in Kansas City to have a one click mortgage, title escrow and home buying experience and home selling experience. That's what we're going to work on. We're going to solve this for a teacher in Kansas City. The dudes living where you live with their Maseratis can go to someone else.

B (21:31)

No Maseratis in the garage. In terms of the go forward you brought up multiple times, you know you have this path to profitability, but also you're not afraid to invest in the business. And I just want to think about that philosophically how you approach that because sometimes you want to heavily invest when there's an opportunity to go after something. You've made it clear that that path to profitability at certain points in time in terms of EBITDA positive and adjusted net income positive by year end, how are you balancing that with whatever need there is to reinvest back in the business or how you're going to balance the investment back in the business with that.

C (22:15)

My wife wanted me to work out so she bought me some weights and a bench and then I like just totally ignored them and didn't work out. So she then put the bench at our bedroom door and the weights on it. I couldn't get out of bedroom without actually seeing those things. I think Opendoor requires some of that energy. I think Opendoor has had too little discipline when it comes to being a for profit business because has been able to reach for capital markets over and over again and I think that has been actually bad for Opendoor. So I think it's incredibly important for us to Be incredibly disciplined. And this will be painful as hell. It'll just be painful. This will hopefully be the last job I ever have. And I care about my job and the company I'm running a decade from now. And the best thing I can do for that company is ensure this company is the most disciplined and most aggressive tech company in the market. That's the real answer. Now, am I foregoing area of growth that I would not foregrow if I had lots of profits? Yes, I am, for sure am. But I think there's a very real thing, man, where I think this is healthy discipline. I think it's healthy, and I think it's important that Opendoor be funded by its cash flow. I think it actually would surprise people to learn how few engineers work at Opendoor. Opendoor has fewer than 70 engineers. I think that would surprise most people. We're getting a crap ton done with those 70 engineers, but I promise you, I know what every single one of them is working on because we don't have the luxury of waste.

B (23:58)

I heard you mention in another interview that you've had some people make some pretty powerful changes within the business along the lines of engineering changes, but they did it with AI system. So it's actually a nice segue into that question. I mean, how much is your ability to operate with 70 engineers? Just the power of both those engineers and those without an engineering background able to do a lot more in that

C (24:26)

regard, our engineers are just excellent, just genuinely excellent. Our head of data is ex signal Intelligence officer who used to run a very complicated system for one of the world's largest militaries. We have multiple YC founders in the building that have joined in the last few months, two from my batch at YC alone. So we have excellent, just genuinely excellent engineers here. We have excellent engineers, but there's a division of labor between systems that create leverage for other people and those front ends. Our engineers spend their time creating systems that allow other people who are not engineers to create leverage for themselves. When I got here, we had an entire service whose job it was to calculate and was maintained by an engineer whose job was to calculate RSU allocations for employees. I can't tell you how nutty of waste of time that is for an engineer, but basically all companies have this. I'm like, why is an engineer working on this? Look, if you cannot using Claude or ChatGPT or Codex or Groq, write a SQL query, you should not be working at a tech company. This is a tech company. I can see actually our head of internal comms right there. Our PR consultants all quit when I joined. They actually onrage quit and I can tell you the head of internal comms who now actually side of her desk does this work for us. Spends most of our time on Claude and so is everyone else in the company and I think that is different than most other companies.

B (26:04)

Thank you very much for taking the time after that conference call that you just had. I appreciate it and I will say the words that are always important after earnings. Congrats on a great quarter.

C (26:16)

Have a great day dude.

B (26:17)

Likewise,

D (26:22)

Business Breakdowns is a series of conversations with investors and operators diving deep into a single business. All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts, podcast guests, their employers or affiliates may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.