a16z Podcast - How to Build a Real Estate Marketplace - Kaz Nejatian, Opendoor CEO

Episode Date: October 7, 2025

Opendoor is trying to make it easier to buy a home. Kaz Nejatian just joined as CEO to help them succeed.In this episode, a16z General Partners Alex Rampell and Erik Torenberg sit down with Kaz to cover all things real estate and marketplaces. They cover Kaz’s vision for Opendoor, the problem with copying the hedge fund model, how to build through economic downturns, and the importance of ambition and long-term thinking. Resources:Follow Kaz on X: https://x.com/CanadaKazFollow Alex on X: https://x.com/arampell Stay Updated: If you enjoyed this episode, be sure to like, subscribe, and share with your friends!Resources:Find a16z on X: https://x.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zListen to the a16z Podcast on Spotify: https://open.spotify.com/show/5bC65RDvs3oxnLyqqvkUYXListen to the a16z Podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/a16z-podcast/id842818711Follow our host: https://x.com/eriktorenbergPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Stay Updated:Find a16z on XFind a16z on LinkedInListen to the a16z Podcast on SpotifyListen to the a16z Podcast on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

There are things you have to deal with in a public company that are 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 kind of in the Wall Street Journal. So, like, 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.

Buying a home is supposed to be the American dream. Instead, it's one of the most painful, opaque, and inefficient markets in the economy. On this episode of the A16Z podcast, I'm joined by A16Z general partner, Alliter Ampell, who leads our app's practice and Open Doors' new CEO, Kaz Najation, to talk about fixing those issues. We discussed why real estate has resisted disruption for decades, how a marketplace model could finally break the real estate agency cartel, and why Open Doors' mission to make buying and selling a home as seamless as clicking buy now is much bigger than just flipping houses. Cass shares what is really like stepping into the CEO's seat of a public company. why Open Door is really a software business and how he's putting the company back on offense. Let's get started.

Kaz, welcome to the podcast. Thanks for having me, man. I feel like you're the man of the moment. You recently took over as Open Door CEO. It's been a few weeks, a month. It's Day 16, I think. Day 16. And I feel like you're pioneering a new way

of being a public company CEO. First, what got you excited about the opportunity and then coming into it? What was your mindset going into how you were going to be CEO of this company? I think Open Door will become like to see. generational company because I think people like when you go to business school

you should have a business plan and it shall be 17 pages and you should have like Porter's five forces on it and that's how it's going to 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 great businesses start with a very like simple statement that people can buy into or disagree with right like it's that that's been you're actually important

that you're saying something I think home ownership is good for the world. The more people that can own a home, the better off we are. It's objectively a broken process so we can fix it. So I think I was just generally excited by the mission of the company. And I'm 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. So we're 16 days into this journey. Let's find out if that ends up being true. Wow. Well, let's trace a little bit of the history. Alex, you led our investment

into the company. What was the thesis or vision that got you so excited about it? I'm going to talk for a little bit of the background, and I'm going to start with Amazon, and then I'll get to Open Door. So I remember I met Eric Wu when he had first started Open Door with Keith, and I think they had flipped maybe 70, 80 homes, like right around Phoenix. 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. And think of it as like the income of some asset divided by the price of the asset. So the Bay Area, has very low cap rates.

So you can buy like a $20 million house in Pack Heights. If you wanted to rent it, it might rent for like $10,000 a month or $20, which is a lot, but not as a percentage of the price of the asset. That is very, very low yield. And a place like Phoenix, all of the homes are pretty similar. I'm exaggerating.

I'm not trying to outside people who live in Phoenix. But you would have a $200,000 house that might rent for $20,000 a year. So like a 10%, so 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 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, I don't know, flipping homes seems kind of challenging. I mean, it sounds great when all prices go up, but what I was really drawn to is the vision that he laid out, 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. I'm going to talk about Amazon.

Amazon started off in the 90s, basically selling every book in the world, hence Amazon, and Jeff Bezos's garage or basement or warehouse or something. And by selling every book, like having infinite supply of books, he got all of the demand. And then because he got all of the demand, he could say, all right, I want to now sell something that isn't books. I'm going to sell CDs and DVDs. that was next, but I also still stock those in the warehouse. But eventually it's, I'm going to sell TVs, I'm going to sell something else. I'm not going to stock them, but I already have all the demand. 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. Do you start off with supply or do you start off with demand? And marketplaces, we know, are very valuable, but you have to start somewhere because nobody wants to sell if nobody's buying. Nobody wants to buy if nobody's selling. So the Amazon model was like, find something in 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 Open Door.

So I remember when Eric was flipping all the homes at Phoenix. I was like, that's clever, but I don't know. Like, I know other people that flips homes in Phoenix. 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 buys you a lot of house in Charlotte. but 10% of the homes were bought by Open Door. So now, imagine that I want to go buy a house in Charlotte. 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. But that's only going to show me 90% of homes for sale. The other 10% are only on this thing called Open Door.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 kind of 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 could break this horrible monopoly. I did this whole video out of which I always said to 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. And it's a $45 billion company. There aren't actually big companies in residential real estate. It's kind of strange. Like the biggest ones are co-star and Zillow. 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. 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 you're just getting called all day by real estate agents. You're not actually improving the value proposition. And Open Door, it's not about flipping homes. Maybe it is,

you're, you rather 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, public company. You know what they do? It is auctions for not used cars, but for like total cars. 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? Who buys it?

Like, people are to rush it. But no rush it anymore. But like all sorts of like, I buy it for parts or I'm going to go fix it up. But Copart is a bigger company than Zillow. How is that possible? 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.

Like I think Open Doors are deep clean the centers. There's a company. Like, I think you have to think about companies as, like, Like, category problems are real in public market investing. I remember, like, when I first joined Shopify in 2019, I think it was, like, among their most shorted stocks on Wall Street. Because people made a category mistake about Shopify. They're like, well, it's another e-commerce company.

What are the odds it will build all the warehouses that's going to, like, that's like, it's category mistake, shopfways. Does e-commerce, it's not an e-commerce company. Like, just the leverage point for Shopify does not come from e-commerce. it obviously comes from software. It's very much just like the software. I think that's actually a problem that Open Door has had is that like externally and for admittedly,

for sometime internally, the company thought of itself as essentially an investor in real estate as an asset class, which is not the job of the company. This is not left up what the company does. It's a software company designed to solve that problem. I think if you attack it like that, you just fundamentally do different things, right? If you look at, I mean, it's a publicly traded company,

you can actually look at the numbers. The company has repeatedly been buying fewer and fewer homes every year, right? Because if they're like, if you're cool, I'm going to 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? It may become a good business, just won't become a big business. And that's, I think, a fundamental mistake the company has made in the past few years. Yeah. Let's understand this problem a bit deeper. Maybe Alex, you could share a couple points

the talk that you gave or maybe explain more sort of the monopoly real estate agents have or give some more context here. So real estate agents for a very, very long time, there are about 2 million registered real estate agents in the United States of America. And the stat that I quoted a couple years ago, I assume it's still the stat, but it is. I looked it up. It's true. 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 it's kind of like, well, I'm an actor. Oh, well, what was the last film that you're in? Well, I'm kind of a waiter. right now. I'm waiting to get a film job, and 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, the more money you spend, the more commission I get. So I normally get two and a half to three percent as a buy-side agent. So normally you have five to six percent as a commission pool, half of which goes to the sell-side agent, half of which goes to the buy-side agent. And 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 monopoly behavior.

And there's an expression that I love 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, small number of whom actually do active transactions,

but they conspire, 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 saleside agent is getting more if you sell for more, because they just want to move on and get their check tomorrow. So if I say, okay, you're selling a $10 million house. That's a lot of money. And then there's another seller who will offer you $10,000, $10,000. Well, the saleside

agent is like, well, I get 3% of that. I don't really care about that. You get an extra $10,000. Like, you really do care about that. So there's just, this is where the whole, the frame, the phrase principal agent problem. It 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

where it's like every other auction is fair. It's like I see, okay, I want to go list at, 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. And because it's a very infrequent transaction

and you have concentrated benefit and diffuse harm, there have been so many attempts to like really, really violently disrupt this industry and one of them, and I should say, 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

and said, okay, we're only going to charge you 1%. Actually, 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 want to use a real estate agent to buy a house because you're going to charge me money.

It's like, no, 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, 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.

It's like, and I remember, like, this is when I bought a house at Palo Alto. I told the real estate agent, I will not name and shame him. I was like, you know, with all respect, or maybe whenever he's, said, you mean no respect. But with all due respect, you mean all due respect. 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 by 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% buyside fee to 1% by rebating part of it back to the, to the, to the, the, consumer. But you know, the state of Oregon bans that, going back to every profession as a conspiracy against the lady. If I say, hey, use me, Eric, and not CASS to buy your house, and I'm going to take that 3% that's advertised as a commission, and I'm going to share it back with you. Nope, you'll go to

jail. You can't do that. It's like, that's absurd. So, and then even if you say, I'm going to do buy side representation for 1%, well, the seller still has to pay 4% now, right? Because if it's a 3% listing arrangement and then one percent, you know, 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 perspective. I think I think actually the key part here is like transactions that happen incredibly infrequently usually end up being full of fraud. Like there's a reason why Carney's leave town. That's real. That's real. thing, right?

It's like, I got your money, I'm out of here. Like, the odds are you're going to buy maybe two homes in your lifetime, and the odds are you're not going to use the same process to buy both of them. And it's like people, people intuitively understand this about use car dealers, right? They're like, hey, like, I'm not going to go to a use 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.

This is why, 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. But it still didn't also use to be as true in software, and back-time software was also had this problem.

Like, you kind of want to, the best way to align counterparties is to take the transaction and stretch it out over time. Sure. 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. And it's why Amazon worked so obscenely well. Like, you buy things from Amazon, you don't like it. You can return it. Which, by the way, we launched just yesterday at Open Door in Dallas, Texas. you buy a home from open door, you don't like it, you can return it. Like, you can move in early, try it out, don't like it, return it. Wow.

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, to stretch out a transaction, 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 there are agency problems still lead to terrible outcomes. Yeah. Well, there's a corollary to 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. But if you're only doing two of these a year, candidly, you don't know it that well. 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 became friendly is through a firm, right? Where how do you divorce buying and selling from financing? They are one and the same.

And I can't buy a house until I sell my current house. And like the real estate agent is not going to help me with that. They don't have a big checkbook. No, I think the agency problem, but at first point, the agency problem that exists in real estate is actually multiplied 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 in 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. So it's multiplied. And let's say one person making money off you once and never seen again is bad. In a real estate transaction usually have at least like at least five, sometimes a bigger number. Like the guy who does the inspection for your house, you're never going to see that guy again. Like, like it's a very real.

And I think that actually is, but I think people, you kind of very good people along this chain of the whole chain and you end up with very terrible outcomes because the system is basically designed to not lead to good outcomes. Well, and the thing is, you have a lot of these subscale things

that actually are pretty cool that have never been productized and rolled out. So if you are an English professor at Princeton or Stanford, you probably can't afford to buy a house, but the university helps you buy a house where they will subsidize a mortgage or, you know, one of my favorite examples is 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, I don't need all the cash right now, you can pay me over time. It's like, it's 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 can see,

oh, here's a home that's listed for sale that has this, like, special financing. 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 want to sell more stuff. Like, Procter, again, we want to sell more stuff, here's a coupon.

Or Xbox wants to sell more things, or, you know, Lexus wants to sell more cars, you know, zero percent financing, zero percent APR Labor Day sale. Like, 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.

There is one area in real estate where I think actually there's far fewer these problems, which is when you buy a brand new home from a builder. Yes. When you buy a brand new home from a builder, like when you walk into a Linar community and buy a home from them, like, they've solved most of these problems. They're like, they're like, everything is bundled. 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 just take their financing. because it's like optimized for you. And this is, I think, this is 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 you need to just gather significant inventory and make it possible for counterparties to like make it desirable for a counterpart to come to you to buy it. This is like we spend so much of our time enough for 16 days of this 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 start the flywheel yeah and you said a company that could do that will be one of the biggest in the world has a company like amazon or other big companies

tried to do something like this or is it just so far field that they 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 ink. Sure. It's not like, ooh, I'm going to go beat those guys. And the commander's intent of the general is like, take that hill. You, 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. And actually, the one case where I used a real estate agent to buy my house was in Hawaii. 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,

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 going to go run the table in XYZ place, and it doesn't show up in a different geography. So what you do see, going back to these kind of pockets of esoteric, you know, products, either financial or real estate, 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 she and her husband lived in New York. And guess what? Home Depot is not in New York. They're in Atlanta.

They're like, okay, we will buy your old house from you. 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 want to go disrupt the MLS. I mean, they should. I mean, I would hope that eBay, and I don't know the history on this, I'm sure you probably have looked into it. Like, I know eBay has tried doing real estate, and there's another company called Auction.com that really got into the distressed commercial real estate space and some distressed residential,

because if it's distressed, like, you haven't paid your property taxes, government seizes your home, government doesn't want to hold on to 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 the 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 lower-middle-class person in 2025

with penicillin and Netflix and iPhone? 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. Like, everybody gets the education of a billionaire. Like, that's the, I think that's the motto of alpha score, right?

It's like, let's do all of these things. So you have some of these products for executive moves, and I 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 the second price auction,

a Vickery auction, like do all of these cool things that are known to work, that are known to maximize the price, but they'll work for one market. And then just because I got one market, it doesn't help me at all. And then, by the way, you have like 2 million people, but call it a subset of those 2 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 what everybody's up against. Yeah, I think it actually is a hard problem. Look, I think it's a hard problem, which is why I don't want to solve it. And, like, lots of smart people have worked on this problem, or at least subparts of it. Do I think, like, there's been three, like,

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, like, 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? Because you can get all inventory of all books. There's a PDF you get, and it has literally every book. So, like, the first problem has 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 going to 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 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's an operational problem. There's like three buckets of problems why no one's kind of solved this and forth was I think before like Carvana solved it for cars this exact same problem was like the exact same set of problems

same way was existed for cars it's a very I'm by the carwana is like 3% of US car market I don't know how much but probably somewhere around there so I think there's a 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. I generally think it's actually a real thing. And there were other problems that were solved the wrong way because for a brief period time, money was free. And like everyone made all the wrong decisions they possibly could. But I do think we're in this special time,

this window where like basically all the tools you need to solve this problem kind of exist. We just get deeper. there for say, how much is real estate like health care where sort of the regulatory landscape has distorted the market and prevented, you know, mass, and feel free to quibble with that even framing of health care? Or is it just a hard, is it like the market dynamics that you were describing? Is that just immersion in how real estate sort of works? So I think that I think

it's far more similar to automobiles as health care. I agree. Like it's just like basically identical. Honestly, like, if you look at how cars were sold, basically tell Tesla, everyone had a dealer network because once you had a dealer network, one was required. But Tesla's like, hold on 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. And I think Texas, you're not allowed to buy a car unless it's sold at a car dealer. So, like, again, regulatory capture... There's a couple of these things. So, for example, in North Carolina Georgia and Louisiana, I think, those three states. You can't close a real estate transaction digitally. You have to have a white signature. That's kind of annoying.

That's a real thing. But it's not at all like the healthcare system. It's much more similar. There are regulations. Some of them good. Some of them are terrible. But they're in nature much more similar to how cars were dealt. But how come we've solved this in cars?

It's just because it's... We hadn't solved this car. We had not solved this in car until like five years ago. Yeah. Like we solved this car. For new cars, Tesla saw this, and for used cars, Carvana saw this. And keep on, like, those are actually, like, there are very real operational challenges that Carvana has that don't exist for homes, right? Like, Carvona moves every single car they buy.

Like, Open Door does not move homes. Like, homes stay where they are. Yeah. So there's a very real, like, there are upsides to try and solve this problem in, like, open doors. homes that are than cars. They're obvious downsides too. But I think there's like a very real and the underwriting for what's worth is like similar-ish.

The underwriting of a car is as is difficult. Arriding of a home is difficult. They're not, they're similar-ish difficult. Like different problems with similarish problems. Well, this is the nice thing is that you can really sub-segment the market. I mean, the reason why I can, we can talk for like 10 hours about why healthcare is messed up, but fundamentally there are no prices.

Yeah. It's like, how much does this cost? Like the doctor doesn't even know. And then like, oh, well, we're going to 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. It's like, I know exactly how much everything is going to 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 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. 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. Yeah. You can, you can, like, get your friend to, like, give you a free spot and not charge you anything. But 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 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 where they're like really expensive homes, that's where 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. It's like more transparent too. It's far more transparent than cars. Like this is a very real, like you don't, like this is very, like with cars, there's a very real thing about repair of cars where like it's very opaque. It can't really know, like it's just very hard. like...

Structural damage. Structural damage. Or like your fan belt. I don't know what a fan... Like, there's things that are like difficult and there's OEM, like this whole thing, like an OEM part, not OEM part. There's like a variety of like things that... The decision matrix is much bigger. Whereas for homes, it's relatively transparent.

And by the way, like two open doors required. This is a thing that open doors exceptionally good at. Open doors exceptionally good at pricing renovation. and change it, like, just, they have just, like, like, zero-corrected me. They've dialed this in. And, like, in a way that's actually surprisingly good. So. Which makes sense, because who's going to get a better shipping rate with UPS?

Right. Me, who ships one package a year, or, like, Amazon, who eventually got such a good shipping rate that they couldn't get any better unless they started their own shipping number called Amazon delivery, right? So, you have economies of scale that never go to the agent, that never go to the customer, but that should go to a company. Yeah. I guess the real thing,

and this is actually like the real thing, this is like, I'm relatively ideological about this. Like, I think you can make it such a, like, Open Door is an exceptionally good business. And the average person pays less for a house, an average person sells a house for more.

Like, I think you can, it's actually not, the math here is not that difficult. How did you do that? Well, there's just so much friction at home. But if just, just, let me just give an example. If Open Doors does nothing else, then help you time your closing of your new house with buying your new house, like selling up your old house with closing of your new house. Like, if that's all Open Door does, you would now have a void on average about three mortgage payments.

Like, like, who was getting paid that money? Right. Like, why? Like, 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's like a service that open door can deliver

to most people, even without buying their house. Like, there's a very real thing. So, like, I think there's a bunch of these things that exist and the agency problem is real. The very real thing on cost of capital, which, like, when you aggregate lots of homes, your cost of capital time to be lower. Therefore, like, that's a real thing.

It's a very real thing about, like, the level of underwriting you can do on warranties. Like, the reason open door 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 going to buy another house from us, right? So this is like, there's all these frictions that exist because the system everywhere is subscale.

One, two, because there's so many principal agency problems, right? The second one. And third, because there's so many. these transactions or one-time transactions. Yeah. Okay, let's zoom back into the company for a second. So, Alex, you make the investment and you've got this vision for the company

and the opportunity. What have we learned about the feasibility of the opportunity based on the company performance? It's another way of asking, like, for people who haven't been following the company trajectory, you know, how have things gone? What have we learned? What have the ups and downs been, et cetera?

Well, so there was a point in time where Open Door was such a good idea. You know, there's a saying that we use a lot of venture capital It's like, you know, you want to invest in a bad idea That's something that looks like a bad idea That's actually a good idea Because if it looks like a good idea That it becomes a bad idea

And Open Door 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 Open Door does. Everybody was getting into iBind and offer pad, you know, popped up. But like Zillow was the big one. And they couldn't do it.

Well, so, 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 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 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, as everybody should, because Ben Thompson is very, very smart. I was like, holy shit, we have to do this. Yeah. So they start doing this, and they're making infinite money.

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. 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 megatermites. Like, there are things that are wrong with it. So Zillow thought as a public company operating the public limelight, they're like, we're making so much money on I buying 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 Open Door now is getting outbid by, because this is 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. Zillow starts paying more. In fact, Zillow even had like, hey, don't sell the Open Door, 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,

anytime that you have, anybody, somebody hits your bid, like, there's something wrong, right? It's like, 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.

money started becoming not free and if you're stuck with a huge amount of inventory being a market maker I mean if you look at the most profitable companies like Jane Street is a market maker Virtue is a market maker Citadel security 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-ass spread from somebody who's hopefully not taking advantage of them which is why they want retail flow

and what happens though is that a lot of the market makers in the equities world, they don't like to hold positions overnight because things could change. So Open Door 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 it's really high to go from like zero to like 4% in like a few months. The pace at which interest rate increased were, I mean, I think we can say in hindsight this was a deeply irresponsible for the country. Like I don't think,

I think it was very... So why Silicon Valley Bank went bankrupt. I think asset prices went down, yeah. I think this is like, look, I think Open Door had 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.

So basically what happens? Like, you're left with all this inventory. 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, basically you have the top bid and the lowest ask and then there's like this margin in between and if you just kind of keep buying, keep selling,

you can actually make this work. 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 on to assets for a very long period of time. Some of them never hold on to assets overnight.

just does a standing rule. An open door 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 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 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 want to buy the house. What happens when aggregate demand goes down while prices go to? down. And actually, this didn't happen as much in housing as would have 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. So the pace that this happened was very, very high. Nobody really – I mean, people anticipated, okay, our rates are low, but it's like a oh, well, the Fed were raised by 25 basis point, another 20, like, it wasn't like, boom. And that was the, like, five sigma, or making up the number of sigmas. But it was 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 want to earn 75 basis points on T bills. I'm going to invest in riskier things. I'm going to give it to venture capital. I'm going to give it to private equity. So risk capital kind of pulls back. Asset prices go down. Demand for homes goes down because interest rates went up. So it was kind of like this, everything went wrong at the same time.

And the vision of the company, at least my vision of the company, I'm not the founder, but my vision as an investor was like, you guys have a chance of building a marketplace, but it's going to 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 to Jeff Bezos have to write, before Marketplace appeared a long, long time, and then Open Door, I think, was on the path,

but then just kind of got hit with this, like, triple quadruple, or maybe quintuple-wam it. I mean, there's also a real thing, look. I think companies should, it's very good when companies are blamed for the mistakes. It's actually a good thing for the world, and we should all admit our mistakes because that's how we learned.

The same thing happened to Amazon, much earlier, and to Carvona around the same time. Yeah. But Amazon and Carvona reacted differently to that thing happening. Like, I'm not going to be like, cool, was the original idea a good idea? All right. What was a mistake?

Let's just shed the mistakes and go. I think what Open DoorCard publicly did was essentially abandon the original mission. It was like, cool, we're going to de-risk this company a lot. We're just going to, like, de-risk the company across the entire segment. I think that actually is a very hard spiral to recover from. because 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 don't I think if open door is an old fashioned operational house flipper like

it's not that it could be meaningful it's not that big a business right and they lost faith in the original vision and the feasibility of it or would explain to the sort of I think look I think there's a very real thing about being a

public company that like there are things you have to deal with a public company that are amplified but I think private companies basically all have the exact same problems but a public company like in a private company these problems are discussed with your bc's at a board table in a public company they're discussed on the reddit and it's from 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 So, like, it's a, for, it's slightly easier. So you've come back and you, you're, you've joined and you've said,

hey, let's go back. The original vision was a good idea. Let's, let's bring it. Well, look, I think the mission is a worthwhile one. I think Open Door has made mistakes along the path, and we should learn from our mistakes. But the company is not made better by becoming unique. Right? Yeah.

That's a very real thing. Will we make mistakes again? 100%. We will for sure make mistakes again. Like we just launched, try before this seven-day trial of homes in Dallas, Texas. It's day one. I don't know how it's going to go.

We'll find out. But it was telling us to one of our product managers this morning. I got to Open Door and I felt, have you ever watched Braveheart? There's a scene where Mel Gibson's, standing in front of the Scottish Army, and the English are coming with, like, weapons. And Mel Gibson standing there saying, hold, hold, hold.

I'm like, don't hold, attack. I got to Open Door, and I felt like for like three years, someone had stood in front of a company saying, hold, hold, wait. Like, just wait for the macro to recover. And you just don't tend to build great software companies like that. I think you can build great hedge funds like that. But Open Door is not a hedge fund. If it was a hedge fund, it needed to be six guys in New York with laptops.

We're not that. We're software company. And software companies need to be basically always on attack. Yeah. Like always, always, always on attack. We'll attack some wrong hills. We'll accidentally lose some ships, but like always on attack. Yeah.

What advice have you given a CAS? What would you be thinking about in terms of what strategic decisions? you have to make or what's important if you were taking over as CEO? I think a lot of it, I think when I first heard that he was taking the job, I think I sent you my YouTube video. It's actually my most viewed ever video, largely by real estate agents who hate me and want to kill them. This was like circulating, speaking of Reddit and the courage to be disliked. It's a good book called Courage to be disliked.

It's an excellent book. To a camera. Courage to be disliked is among the best books to read as a founder. You must read it. It's excellent. It's this whole like Socratic Dialogue. like in this Adlerian psychology mode, 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 them. They don't like being called leach of society.

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, I make this point in the presentation, it's unique to America. you go pick any other country in the world. It's nowhere near that level of spread, and you don't have all this regulatory capture.

It doesn't make any sense. So I think my big thing was it's like, if you have a marketplace for homes, it is the biggest marketplace in the world, right? Like, we know that the stock market is big. But you know what? The residential real estate market is bigger. Bigger.

So we know that everybody, like, why is the NYSC and NASDAQ worth a lot? Like, why is eBay worth, like all of these things that do everything but homes? If you stick to that, which I think the company, I mean, this is what Eric Wu was kind of committed to doing, and it just became, 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. 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 learn a bunch of wrong lessons. Yeah, and 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 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. 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 kind of lost its luster. But still, if I catch a new home run at a Giants game, where do I go sell that? Who has the deepest liquidity? It's going to be eBay. And I'm going to 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 the work there. They have, you know, it's a shadow of its former self. Apparently, it's still using the same dot net library in like 1997. So all sorts of issues there. But like, I'm just excited about this vision of having a housing marketplace and then also kind of coming up with creative

financing options. Because finance, it's like all of these are one-offs, to your point. And then, by the way, you can come up with like better insurance options. 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 do. 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, right? It's just like, this all should very clearly be done by one person. Like, it's very clearly one company should do this. and you and I like are money nerds so I later wrote a book about payment yeah I know you did

you do you do so I think there's a very I'm generally excited about this I do think for what it's worth that the right model actually is much closer to Amazon than to eBay because I actually think for I think Open Door will have

principal risk on quite a lot of inventory for a very long time now should only have that obviously not And it's also not a binary thing. It's not like zero risk or a hundred percent risk. There's like, it's a gradient. You can live anywhere along the chain. It 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. Right, right. 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. Yeah.

And there's a lot you can do here that's not like quite binary and becomes like a U.S. rather than an underwriting problem, but fixable. Well, this is the thing. It's like there was a market order and a limit order. Yes, yes. And there's a value, there's a place for both. Yeah. And there's a lot of liquidity, you know, beneath the kind of the top big and the lowest

ask. There's always a lot of liquidity there, and those are the limit orders. Gearing towards the future, what else can you hint at in terms of the biggest priorities or decisions or strategic directions that you're focused on the thing i admired deeply admired about my time at shop five 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 or please like this is what you should do if you look at modern chess players to do something called positional chess right like always put yourself in a better position like play for the next position they want after that and just like

give yourself more options. And actually is the right way to build a company transparently. Like you don't want to like, you want to hold the strategy very loosely. Not the mission, but the strategy. So I don't have like a secret bag of tricks. But I think there's a very real thing where Open Door does too little for its sellers and does almost nothing for its buyers. Like that's like we'll solve both of those problems.

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, again, 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 I think, those are like three begin, like everyone 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 person you transact with quite frequently when buying selling homes. Not just like 0.5% of time, but a significant percentage of the time. And then, well, I think that's like, and by the way, we've already, like, when I start at Open Door,

it was only available in 48 markets in the U.S. It is now available in every market in the U.S. Because, like, you can push pixels relatively easily. Yeah. So there's a bunch of that stuff that's like, I think, I think people should expect us to be a much more ambitious company. Well, in terms of holding you to account, one thing that's so remarkable about the company, among other things, is how many people on the internet feel so passionate about, the company the open army how do we explain why open doors a company that so many people feel

so passionate about and how do you how does that you know impact at all sort of the the business or how you think about well i i never um i never worked on wall street and until i start this job i owned one ticker it was shopify at some point soon so not own this ticker um once you know i'm not like i'm not a stock analyst i'm just not one I build products for a living. 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. Like William Buckley used to say you used to rather grab the phone book of Boston, Massachusetts, then go to Harvard professor's book for like advice. Because it's a very real thing about the natural 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. Yeah. 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 and saying, hey, this is not how this should work. There's a company out there who's supposed to, who is told us they're going to fix this problem. We want them to go fix it. And what I think like this is the most wonderful thing about this is that 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 perceived biases and they're like usually wrong. There's like a whole like pretense of knowledge thing that happens. So I think it's actually deeply helpful for the company to be a company where like, cool, you know how I want advice from? The average person who owns this stock and is about to buy or sell a home. I want advice from that person because the odds are they have a wider aperture

of possibility. Like, there's a real question that someone asked me to 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 and goes, like

from the time someone asked that question to the time we launched a product was maybe I think 12 days. because there's a certain amount of like there's something broken here that it's like intuition like is intuition is crystallized knowledge

and intuition by lots of people is literally knowledge of like significant number of people and I think it's important 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, and we're always recruiting. Thanks for listening to this episode of the A16Z podcast.

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