We have spoken a lot over the years about Opendoor. And for a period of time, iBuying seemed like a very good idea. Zillow go into it. Redfin got into it. Everybody was iBuying. But then this year everybody started losing money, mostly due to algorithms that could not contend with falling prices.

It turns out that being a market maker for homes can be a tough business because there is a lag between when you buy the home and when you hope to sell it. And so right now, few people want to be an iBuyer. Zillow no longer does it. Redfin no longer does it. And Opendoor's stock is, at the time of writing this post, down 87.19% YTD.

It is pretty easy to be pessimistic on this space, and that pessimism may be warranted. Though it may not be. My thinking has always been as follows. The process of buying and selling a home will eventually move online. The industry is ripe for change and there is no debating that. The real question is: how the hell do you do it? Everybody, including me in my late 20s, has tried.

Two-sided marketplaces are tricky, because you always run into a chicken-and-egg problem. If you don't have buyers, no seller is going to bother with your real estate marketplace. And if you don't have sellers (i.e. homes), no buyer is going to bother with your real estate marketplace. So generally speaking, the way to build a marketplace is to start with one side, somehow get them on and using the platform, and then open it up to the other side.

And this is exactly what iBuying hopes to do. Today it is largely a tool for sellers. It is a tool that says, "I will give you instant liquidity for your home so you don't have to worry or care about who might actually buy it." This is, of course, convenient for sellers, which is why people have been using it; but it is capital intensive and, as we have seen this year, it transfers some risk to the iBuyer.

In the world of Opendoor, they call this a first-party (1P) transaction. It is them buying directly from sellers. But the larger vision is for Opendoor to become more of a transaction layer and instead just facilitate third-party (3P) transactions. This is currently being done through Opendoor Exclusives and the objective here is to match buyers and sellers directly, so that Opendoor can avoid taking on the risk of actually owning homes for a period of time.

Will this work? I don't really know. But I do think it is exciting and I do think it is the way to think about what Opendoor is ultimately trying to do with their business.

Reminder: I am long $OPEN

Matt Levine's latest Money Stuff column does a good job explaining why a lot of smart people are trying to figure out a market-making model for homes (see companies such as Opendoor):

People want to apply the market-making model to homes. This makes sense. Buying or selling a home is a long slow uncertain annoying process. The value of immediacy is high, especially for a seller. If you decide to sell your house and go to a website and spend 10 minutes filling out a form and then someone wires you cash for the value of your house, that is much much much better than hiring a broker and listing the house and holding open houses and so forth. You’d be willing to pay a market maker a lot for that immediacy. (By selling your house to the market maker at a discount.) And if the market maker is good at acquiring houses, then it will have a lot of inventory, which will make it a good seller of houses. If you want to buy a house, you will naturally go to the market maker’s website, because it’s where the houses are.

Levine also explains why a market-making model is that much more difficult for homes compared to things like stocks. In a slowing/slumping housing market, it's pretty easy to lose money as a market maker. (That is, unless you can somehow accurately predict that a slump is coming.)

Last month, Opendoor lost money on 42% of its home transactions. This is a result of them buying homes from people when prices were X and then selling these homes many months later when prices were less than X.

However, I'm not so sure that this has to be an existential problem. Opendoor's primary value proposition is instant liquidity for homeowners. And this value proposition is at its strongest when the market is in fact slumping. Because the alternative -- selling with a broker -- is less attractive.

So the current environment may eventually turn out to be a boon for Opendoor. Of course, we won't know for a number of months.

Full disclosure: I am long $OPEN. And yes, it is painful right now.

I woke up this morning to this view:

I then went for a swim. The water tends to be on the cooler side in the Georgian Bay, but with the weather we’ve been having it’s pretty perfect right now.

At this point I’m thinking about a beer and some reading. I have Capital in the Twenty-First Century by Thomas Piketty sitting in my car. It’s next in the queue.

I am telling you all of this simply to be transparent. 

Recently I had someone caution me that I should be careful about being too public and too open. I won’t get into specifics, but I was told that sometimes it’s better to just fly under the radar.

I recognize that there have to be limits to transparency, but as a rule of thumb I subscribe to the opposite approach. When possible and when appropriate, I would rather be more, rather than less, transparent. 

This blog is who I am. It’s indicative of how I think. And it discloses what I’m doing. So I don’t see a lot of downside. What you read is what you get. You’ll know if we should be friends and/or do business together.

After I wrote about what I’m doing next I had a bunch of emails come in from various people telling me what they’re doing and, in some cases, suggesting that we work together. Some people had development sites that they thought I should take a look at. And some people immediately asked if I was hiring.

I am grateful for each of those emails. But I also know that they’re an outcome of openness and transparency.