[Transcript + Audio] Opendoor Q3 2022 Earnings Conference Call, Nov. 3 2022

Transcript

Operator

Good day, and thank you for standing by. Welcome to the Opendoor Third Quarter 2022 Earnings Call. Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Elise Wang, Vice President of Investor Relations. Please go ahead.

Elise Wang

Thank you, and good afternoon. Details of our results and additional management commentary are available in our earnings release and shareholder letter, which can be found on the Investor Relations section of our website at investor.opendoor.com. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2021, as updated by the periodic reports filed after that 10-K.

Any forward-looking statements made in this conference call, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law.

The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com.

I will now turn the call over to Eric Wu, Co-Founder, Chairman and Chief Executive Officer of Opendoor.

Eric Wu

Good afternoon. On the call with me is Carrie Wheeler, our Chief Financial Officer; and Andrew Low Ah Kee, our President. Let's start by hearing from one of our customers, Courtney Dent, who bought her Dream Home through Opendoor Exclusives.

Eric Wu

While navigating the current market uncertainty is at the forefront of our day-to-day, Courtney's story is a reminder of the impact of our work and the opportunity ahead for us to reshape the real estate transaction. And navigating a once in a 40-year market transition has not been easy. This moment has required us to both operate with discipline to improve the health of our inventory and move with urgency against new product initiatives.

To that end, we are aligning around 2 core product offerings that we believe will drive our growth and profitability in this next chapter. One is our first-party product that Opendoor is known for, where we purchase them directly from the seller and resell the home to a buyer. And this is the product that attracts hundreds of thousands of sellers as product market fit and powers our engine.

Two is our new marketplace exclusives, which is our third-party product, where we connect a seller with one of our buyers and facilitate the transaction. And this product has the potential to enable all sellers and buyers to leverage our platform. Together, these 2 products help deliver on our vision of enabling a seamless digital transaction, replacing the inefficiencies of a traditional listing process.

Starting with our first-party product, we are focused on 4 key areas to navigate this market transition and more importantly, thrive as the market recovers. First, we are focused on improving the health of our inventory by accelerating the resell of homes we made offers on during Q2. While this will come at the expense of margin losses in the short term, we expect it will enable us to put these losses behind us as expeditiously as possible and proceed with a fresh, lower risk and better performing book of inventory. As such, we have accelerated our clearance rate versus the market to more than double that of a quarter ago and are on track to have sold or be in resell contract on approximately 65% of these homes by year-end.

Second, we are focused on growing new acquisitions at spreads that we expect will enable positive contribution margin. For homes we made offers on in Q3, we expect those homes to perform within our contribution margin target of 4% to 6%. We feel confident these cohorts are meeting our expectations based on how they're performing today.

Third, we are executing on operational and platform changes that we expect will increase our resale velocity and reduce inventory hold times. One example amongst dozens includes reducing the time needed to do repairs and prepare the home for listing from an average of 23 days in Q1 to 15 days in Q3.

Last, we are reducing our cost structure to ensure we continue to adapt to the market environment and rightsize our overall cost structure. This includes our announced reduction of 550 employees or 18% of our workforce across all business functions. While this was an incredibly difficult decision, it was made to ensure that we forge ahead with a sustainable cost structure that will enable us to accomplish our long-term mission.

Ultimately, we believe the combination of having a product customers need, the ability to increase spreads to deliver on future contribution margins and a strong balance sheet enable us to safely and successfully navigate this market transition.

With regards to our second priority, our marketplace, it's important to remind us that since we started the company, our stated goal and vision was to build a digital-first platform to buy and sell a home. Our belief is that platforms are earned and not built. So our path to earning our platform was to make it easy to sell a home by buying it directly, leveraging the supply to build a better buying experience and then launch a marketplace to connect supply and demand, with Opendoor as a central transaction layer.

Years ago, we began the latest foundation to our marketplace, starting with institutional buyers who could easily adhere to our customer experience standards. In fact, this year, these institutional buyers purchased more than 10% of our homes directly, including over 1,800 homes where we secured a contract to resell before we close with our sellers.

Next, we aim to aggregate retail buyers and enable them to buy directly from our platform. Earlier this year, we built those pathways with Exclusives Listings and e-commerce-like experience to buy an Opendoor home directly from us, premarket and completely streamlined. Today, 20% of our homes listed on our Exclusives platform are under contract within 2 weeks, demonstrating the strong momentum we're driving with our direct buyer base. This results in a unique opportunity to instantly match hundreds of thousands of our sellers with our growing retail and institutional buyer base, all leveraging our platform to seamlessly transact.

Today, we are launching that vision under the brand umbrella Exclusives. With years of experience as one of the largest buyers and sellers of homes, our sellers can now connect directly with our buyers to transact without the hassle and complexity of a traditional listing. This benefits both buyers and sellers alike.

For home buyers, they will be the first to see unique homes before they hit the market. Each one of our homes comes with a buy now price, enabling customers to bid without negotiations or bidding wars. We back this up with an appraisal match guarantee of up to $50,000, which provides peace of mind around pricing as the buyer pays the price if it's lower.

For our home sellers, we are working to make the experience just as easy as selling to Opendoor. In addition to an Opendoor offer, we seek to bring homeowners additional offers without the need of repairs, extensive home prep for months of open houses or listings. Like an Opendoor offer, these offers require no commitment from the seller and come with the control and flexibility of an early closing. I believe this is a critical part of our next chapter, and we feel uniquely positioned to launch a managed marketplace that can benefit every single home seller and home buyer.

In summary, we continue to operate our first-party business with the requisite discipline to improve our inventory health and acquire new inventory in line with our contribution margin targets. And we will alongside accelerate the trajectory of our third-party product, leveraging our audience and capabilities built over the past 8 years.

I will now turn the call over to Carrie to discuss our financial performance.

Carrie Wheeler

Thanks, Eric. Last quarter, we outlined key actions we were taking to navigate the current market transition. Our third quarter results reflect the ongoing impact of those actions as risk management and overall inventory health priorities are driving expedient inventory sell-through, reduce acquisition pace and widening acquisition spreads. In addition to these measures, we are actively reducing our overall cost structure as we adapt to the market environment. We've made solid progress so far and are confident we'll weather this market downturn and emerge even stronger.

Before I discuss our Q3 financial results and Q4 guidance, it's important to level set that, based on our outlook for Q4, we expect to generate over $530 million in contribution profit for the full year or 3.5% contribution margin, which is just shy of our annual target margin range of 4% to 6%, notwithstanding the sharp housing market reset.

Turning now to our Q3 financial results. We significantly exceeded the high end of our revenue guidance, reflecting our decision to accelerate our pace of resales and further derisk our balance sheet. We sold about 2,400 more homes in the midpoint of what we've guided to, ahead of the seasonally slow fourth quarter. As a reminder, we refer to those homes priced before the housing market reset or offers made between March and June of this year as the Q2 offer cohort. As of the end of Q3, we had sold through or were in resale contract on over 40% of the Q2 offer cohort. And we expect to be approximately 65% of the way through by year-end.

Another one of our key actions have been to proactively slow down our pace of acquisitions via substantially higher spreads and lower marketing spend in light of our risk management priorities. This resulted in a 73% sequential decline in Q3 acquisition contracts and a 41% sequential decline in closed acquisitions. Those homes are currently performing well. And over time, we expect them to deliver margins in line with our targets.

As expected, our accelerated pace of resale came at the expense of unit margins, which resulted in lower-than-expected adjusted EBITDA for the quarter. Adjusted operating expenses totaled approximately $190 million for the quarter, consistent with our guidance.

Turning to our balance sheet. We're fortunate to have a substantial capital position by design to weather periods of market volatility. As of the end of the third quarter, we had $11.8 billion of borrowing capacity, of which $8.6 billion or over 70% was committed. We have deliberately focused our capital structure on having committed lending capacity with staggered rolling maturities. Despite market uncertainty, we continue to extend our existing lending facilities, which we believe speaks to the resilience of this capital structure.

We also recently closed 2 new financing facilities with our existing lenders, totaling over $700 million in borrowing capacity. These facilities will be used for financing homes remaining in the Q2 offer cohort and will give us flexibility to optimize how and when we sell these homes while allowing us to maintain more consistent performance in our other financing facilities.

In addition, we ended the third quarter with $1.5 billion in unrestricted cash and securities and $1.5 billion of equity invested in our homes. Looking ahead, we expect macro volatility to persist through year-end and into 2023 with the path of inflation and the size, frequency and duration of Fed rate hikes continue to dictate the outlook for housing. As a result, we will continue to operate our 1P product offering with a risk-off bias. We expect our Q4 revenue to be between $2.3 billion to $2.5 billion. Although similar to this quarter, we will continue to be opportunistic and accelerate our inventory sell-through based on market conditions.

We expect our contribution margins to reflect our resale mix of longer-dated, lower-margin homes as well as typical seasonal softness in the fourth quarter, while newly acquired homes are expected to perform in line with our contribution margin targets. Our newer book of inventory will be in sufficient scale to offset the negative margin profile of the Q2 offer cohort, given our current acquisition volume pacing. We anticipate the contribution profit will bottom in Q4 as we sunset more of the Q2 cohort and expect to have a higher proportion of fresh inventory for resale in future quarters.

Total adjusted operating expenses are expected to be approximately $145 million for Q4. As Eric noted, we are aggressively reducing costs across our operations and marketing commensurate with our volume expectations. Inclusive of the workforce reduction we announced yesterday, we estimate that we have reduced our run rate adjusted operating expenses by approximately $110 million on an annualized basis relative to this year's peak levels. Having to say goodbye to teammates is incredibly difficult, but these actions are necessary to rightsize our cost structure and are reflective of our commitment to returning the business to operating free cash flow positive and building a profitable generational company.

Elise Wang

Operator, before we take the first question, I also wanted to introduce Daniel Morillo, our Chief Investment Officer, who is also on the call with us today. In light of the current macro environment, we thought it would be helpful for Daniel to address any macro or pricing related questions that you have. Operator, on that note, we can take the first question.

Operator

Our first question comes from the line of Nick Jones with JMP Securities.

Nicholas Jones

Two, if I could sneak in 2. First one, I guess, is more kind of macro focused. There's been some headlines kind of indicating there might be some pretty steep home price declines into 2023. So I guess when you think about the inventory you're acquiring now, that can offset some of the 2Q inventory. What gives you confidence that you're maybe not exposed to additional risk? Are there certain markets that just aren't seeing kind of the same declines or as kind of rates keep going up and spreads widening, is that still just an inherent risk that we need to be cognizant of?

Carrie Wheeler

Nick, it's Carrie. I'll start, the answer to that question, I'll probably tag Danny for the second half and talk a little bit about macro outlook. For the homes that we have been offering an acquiring, say, from July going forward, those homes are that it was high spreads relative to the environment we're operating -- for all the reasons you just said, we're operating at peak uncertainty right now with an expectation of continued home price depreciation. But as we are selling through those homes, they're performing very well, and we expect them to continue to be in line with our target margins as we sell through the full cohort. So we feel good about the new book of inventory that we're building into right now, and we're pricing appropriately for the macro environment. Dan, do you want to comment on looking forward?

Daniel Morillo

Yes. Yes, Carrie. I guess the additional thing that I would say is, as Eric mentioned in the intro, we continue to carry a risk-off bias. And that means that we are being conservative in our expectations of the future macro environment. And so as we think about what we're pricing for, for offers we're making for today, we are incorporating an expectation that the current trend, which, as you know, is negative, not only will continue but will potentially worsen. So essentially, what I'm saying here is that the forecast that we are having in mind as we plan for our business into the next quarter and the next year is not only incorporating the current trends, but actually being reasonably conservative into a downside of those potential outcomes, right?

And so in that sense, we feel pretty comfortable that we have responded to what essentially has been continued surprises, they're just surprises on rent size and then a number of other items.

Nicholas Jones

Got it. And maybe a separate question. As some of the single-family rental companies have kind of stopped buying. And I know Eric made a comment about kind of 10% of buyers being institutional over time. How is that, in fact, impacting the business? And do we kind of need to see that come back as a sign of things improving?

Andrew Low Ah Kee

Nick, it's Andrew. Institutional buyers, as Eric mentioned, range from 10% to 20% of our business. And so it's a small minority overall. Certainly, we're in a lot of conversations with those folks. And there's a lot of reasons why they're adjusting their strategies as a market maker. We're in the business of providing liquidity into the market, and we're constantly buying and selling.

Operator

Our next question comes from the line of James McCanless with Wedbush.

James McCanless

There it is. Sorry about that. So I guess, congrats on being a net seller of homes this quarter. Is the expectation that, that's going to be the case again in the fourth quarter? And then my second question, I think you answered it when you were talking about expecting conditions to get worse. But I guess, how -- if you're taking 35% of this Q2 cohort, I guess, why not go ahead and be more aggressive in moving that inventory if you do think conditions are going to get worse? Because it doesn't seem like the valuations get better on those over time if we're looking into a down market for '23.

Carrie Wheeler

It's Carrie. I'll take the first part of that question. So I mean, we are deciding right now, as I think you saw in our earlier comments, to operate with a risk-off stance. We are embedding high spreads into our offers, and that is compressing volumes. And you're right, we do continue -- we expect to continue that pace through the fourth quarter. That means we'll sell more homes than we acquire in Q4. And that's a risk management decision we think is appropriate just given the overall macro environment.

Second part of your question was about why not sell faster on the Q2 cohort? And I would say, first of all, we've made really good progress selling homes. So that was our first directive coming out of Q2 is let's expeditiously and effectively as possible monetize the challenged Q2 cohort. And we should be around 2/3 of the way by the end of the year, and we expect to be through that cohort sometime by the first half of the next year. As to whether or we can accelerate, I mean that's about optimizing for a total outcome over time. But Dan, do you want to comment a little bit just on pace of resale?

Daniel Morillo

Yes. I guess what I would add in here is that the way we think about resell phase basically is essentially a trade-off between what we were observing in the market and obviously our expectations all of it. And essentially, the price action that you would have to take in order to accelerate that resell, right? And what you saw this last quarter that we were just reporting is that we had a much larger revenue than expected. I mean that's because we took the opportunity to do exactly that, right? And so I would expect, as Carrie said in the intro comments, that we would do that again as far as there's opportunity to see that trade-off to be beneficial.

But to be clear, in general, we would, in fact, expect to operate faster than we would have, right? So the market slows down, the market slowed down a lot, we would expect to slow down less than the market, precisely because we're looking to tick up as that trade-off, right? And we're incorporating that into our expectations, right, inclusive of those additional potential negative outputs.

James McCanless

Great. And then I guess just on these 2 facilities for the 35% cohort, what's the time frame on those facilities? And any rate information you can give us?

Carrie Wheeler

Yes. I mean we put those 2 new facilities in place really to address the Q2 offer cohort we had. We knew that they would be structurally lower margins. And so this is a way for us to have more flexibility about the pace of resale and optimize for overall outcomes. At the same time, we're managing for performance in our core facilities. It came at a slightly higher rate than our core facilities. I'm sure we break that out, but appropriate just given the short duration facility.

Operator

Our next question comes from the line of Jason Helfstein with Oppenheimer.

Jason Helfstein

Two questions. The first, on 3P, to the extent you hit your goal of 30% of transactions by the end of next year in 3P, do you think of this as additive to what you would have done with 1P or a substitute? Just obviously, we need to come up with our own modeling, and this has pretty significant kind of margin benefits. So just how are you thinking about that? And then I just have a follow-up after that.

Eric Wu

Thanks, Jason. It's Eric here. I view it as a substitute in the short term, an extremely additive long term. And so what I can tell you is that based on early tests, sellers are very excited to opt into the program. And that is above and beyond the pool of sellers that would have accepted an Opendoor offer. And so it can be additive long term. The target that we're putting out there that we're confident in hitting is based on traction we already see with the 2 products we've had in market, which is roughly 10% to REITs on the conservative side and roughly 20% direct to consumers on the Exclusives Listing side. And so that's what gets us to a number that we feel confident we can execute against. And there is upside to that if it's additive.

Jason Helfstein

Okay. That's helpful. And then just as a clarification on the inventory adjustment in the quarter. So was that basically a revaluation of the entire second quarter cohort kind of based on today? And so depending on market conditions, like we could be another write-off in subsequent quarters? Or is it like connect to home sold? Just how do we think about that $400 million, $500 million number?

Carrie Wheeler

Yes. I'll take that one. The way -- say, first of all, let's level set on what the valuation adjustment is. It's not a revaluation of our portfolio. It is taking a look per GAAP, they require us to do this, every quarter, all the assets we own and we're marking to the lower of cost or market, and we're just recognizing the losses. It is a one-way-only downward adjustment. There is no offset for any expected gains in the portfolio. And that would be like looking at your stock portfolio and marking all the losses and not having the asset and gains.

So it's not a revaluation portfolio. It's just a noncash charge to recognize expected losses. I guess that's point one.

Point 2 is, it is a projection. We, in this moment of, again, peak uncertainty, are taking what we believe is a very conservative forward view of where we expect these homes to sell over time. We are assuming additional downside even -- per Daniel's earlier comments to what we're already observing, which is continued home price depreciation, continued depression in transaction volumes and in clearance.

What we're doing today is taking those losses, resetting expectations, resetting our existing book of inventory and really pulling those losses forward this quarter and then looking forward.

To the other point of your question, this is largely about the Q2 cohort in 2 parts. One is there's a series of homes that we are under contract on. We made the decisions, we talked about last quarter to close on those homes. They're under contract. We didn't own them. We didn't touch them from an inventory valuation perspective. We are having to do so this quarter, and that's about 1/3 of the adjustment. The remainder is about just the continued deterioration we've seen in the forward expectations for the housing macro. And that's what comprises the charge we're having to take this quarter. Again, we think it's conservative. Those homes are going to sell over time. We're going to realize the losses over time and unleash the adjustment, but we're going to sell them next to the new cohort we're creating, which are performing very well. And we expect those to have the offset of expected gains and profitable margins, and we'll mix that in over time. But yes, that's the genesis of the evaluation adjustment.

Operator

Our next question comes from the line of Ryan Tomasello with KBW.

Ryan Tomasello

Can you walk us through how the restricted cash balance works in relation to your facilities and specifically, the drivers of the increase from last quarter? I know you mentioned in this shareholder letter that you expect to release some of the $1.8 billion of restricted cash as you liquidate, I think, about $350 million of the unlevered homes. But I guess that it still implies a pretty sizable remaining balance. So just wondering if we should expect any more of that to be released in coming quarters.

Carrie Wheeler

Yes. I mean, there's 2 components, I think, to what you're talking about there. One was on the restricted cash balance, yes, it was very inflated this quarter. We had a lot of cash that was trapped in the system. It's all secured by debt, and that's temporary because we just weren't creating new acquisition volumes. We weren't financing them, too. That's a function of just not having the volumes there. That will come down in Q4. That's number one.

I think you also alluded to, I think, Ryan, the $350 million we talked about in terms of the unlevered homes that we have equity invested in. Is that correct?

Ryan Tomasello

Yes.

Carrie Wheeler

That is going to be financed. It's in that process right now. That will come back to unrestricted cash for us in this quarter.

Ryan Tomasello

Okay. And then, I guess, a bigger-picture question around capital and scaling the business longer term. Obviously, the 3P product is a positive in terms of the capital-light nature and the scalability of that. But I guess as we consider the prospects for capital destruction near term, booked value was down 40% from last quarter, presumably will decline further. Is that changing how you're thinking about the capital position and the ability to scale the 1P product longer term?

Carrie Wheeler

I mean, at the highest level, we have plenty of capital. We have plenty of capital to navigate this period and the go forward. That's first and foremost. We are focused on making sure that we get back to a place where we are operating free cash flow breakeven. That's what we've got to get back to. But we're sort of separating what I'll call the asset losses, which you can time box, and we're getting our way through those, through line of sight to being done with the Q2 offer cohort. And we're building into new acquisitions into a fresh book of inventory and margins that are performing well that we're going to like a lot as we sell those homes. So no, we're not -- we don't feel capital constrained. We feel actually well capitalized for this moment in time.

Operator

Our next question comes from the line of Dae Lee with JPMorgan.

Dae Lee

First one, so looking at your ... per our profit -- contribution profit per home sold will be worse than what you saw in 3Q? If that's true, do you expect quarter 2 be the trough of -- I'm going to ... whether your 2Q, I guess, 2Q cohort? And moving into 1Q, do you expect the mix of your homes to shift more towards your newer home by that point and profit to improve from what you saw in 3Q?

Carrie Wheeler

We do expect Q4 to be the trough, and 2 reasons which you just called out. One is we're selling more of the Q2 offer cohort, you said 2/3 of the way through by the end of the year. At the same time, as we're doing that, we're not offsetting that by design with much at all in the way of new acquisitions because we're risk off. We're choosing to operate with high spreads. The market is uncertain. We're gaining the amount of new volumes in the system. As we sunset the Q2 offer cohort, we would expect to start to ramp up our mix of new acquisition volumes into the coming year. I can't give you a specific number for the first quarter. But obviously, that resale mix is going to change as we just change the mix of old book versus new book to use a short hand.

Dae Lee

And then as a follow-up, and this is more of a macro question. You talked about assuming conditions get worse from here. So looking ahead, what do you need to see for demand to come back? Is it more of people's perception changing to the new reality? Or do you need to see how housing prices come down further before, I guess, demand starts to recover?

Daniel Morillo

Yes, this is Daniel. Thanks for your question. I think the thing you want to think about it is that a lot of what we're observing now is mostly driven by the declining volumes, right? So as rates unexpectedly rose quite significantly, that resulted in potentially a decline in transactions, right, because the marginal buyer and seller and most people buy to sell and vice versa, finds the reset in that rate to be too onerous. And so volumes come down, and that's what then results in slowing down the clearance, price pressure, et cetera, right? And that's about to change in the rate.

And so the thing that we're looking for is stabilization in that rate outlook because we would expect that, that stabilization, even if it is at a high level, would result in stabilization of volumes and different price pressures, et cetera, right? And so what we're looking for here is not so much rates to come down or, for that matter, prices to get to any particular level, but simply for those volumes to get to sort of steady state given the high rate.

And in that context, we would expect price pressures to actually stabilize and somewhat normalize. And crucially for us, for clearance to be more manageable in terms of our projections in terms of what you have to do to buy and sell that inventory, right? And so it's that stabilization, reduction and uncertainty far more than what exactly the level is of either laser prices.

Carrie Wheeler

The only other thing I might add to that is, I just don't want to lose sight of the fact that, we continue to have a product that people love, right? People show up. They still convert at very high rates, notwithstanding, which are really high spreads. So your comments were like when do the buyers come back, we're still selling homes. We're still buying -- people are still buying homes from us. And certainly, we would expect to continue to increase our volumes over time. This is more about a temporary dislocation in the market that we're managing and their decision to really gate the volumes that we're taking in. But over time, again, the product still works even in this uncertain environment of high spreads.

Operator

Our next question comes from Curtis Nagle, Bank of America.

Curtis Nagle

So I guess the first one would be in terms of conversion rates for the homes that you're now buying or offering at higher spreads, what are the conversion rates now, say, compared to when you raised, I think, late last year? I don't know. I mean, I would imagine it's a little difficult, right, when you're in a market where home is less than it was a week or a month ago and the cost of finance is 50% or 60% higher. So would just be curious to hear what the conversion rates look like on these new homes you're buying? And what -- how much people are -- yes, well, what are the conversion rates?

Eric Wu

Curt, it's Eric. What I'd say is that we're observing conversion rates somewhere between 10% to 15% of true sellers, which is obviously lower than the north of 30 we've seen historically. But that is at fee -- spread levels we've never actually had in market. So to restate it, we're at peak uncertainty in this moment, which results in us having to take a risk-off stance, which means that we have the highest spreads in company history. And we're still seeing somewhere between 10% and 15% of sellers saying yes and loving the experience and delivering a north of 70 NPS experience.

The inputs to that really is as follows. One is, there are a set of customers that really value the convenience of not having open houses and visitors and some combination of to have kids or pets or the impact of COVID and the like. And so they're more price insensitive and really just the [indiscernible]. And as it turns out, there's also a set of customers that just really like the speed and certainty aspect of it. And what's happened is that over the course of 8 years, they've actually built up quite a bit of equity, and they're still -- and they're valuing their time or convenience versus maximizing their equity in a backdrop of massive uncertainty. And so the combination actually has surprised us on the upside that we're able to convert a meaningful amount of our customers with spread levels that we've never tested historically.

Curtis Nagle

Got it. Okay. And just as a follow-up, I guess why not have rolled out the 3P business sooner? Just given -- look, I would imagine the margins have to be a lot better. It's less capital risk, right? Is it a matter of just you didn't have the reach of the platform? Or I guess, why now, say, versus, I don't know, a year or 2 ago?

Eric Wu

Well, I'd say 2 things. Launching a managed marketplace has been our plan since we founded the company. And so if you look at our Series-A deck, we stated our platform will be used to connect buyers and sellers, of which Opendoor would be one of many buyers. And our stated ambition -- and it remains the state inhibition is to enable every single home buyer and seller to be a participant and earn them as a customer.

Transparently, I wanted to launch this in Q1 of 2020. And we knew we had a deep and large funnel of sellers. We're unique in that. But we needed to build the demand side to ensure that we can successfully launch the marketplace. Just having supply is not sufficient, obviously. And so we've made significant investments on the demand side, one, starting with our work with institutional investors, which has been a 4-plus year endeavor for us, building APIs and pathways to power those transactions against selling somewhere between 10% and 20% of those homes to institutional investors.

Another example of this is that we have secured in north of 5,000 resell contracts from REITs before even closing with the seller, right? And so logically, you would say, okay, we can make it possible to have those pathways connect directly as opposed to us closing twice on the home.

The second investment was made more than 12 months ago, which was the key piece for us, which is we needed to build a product that attracted demand. And so we invested in exclusive listings, again, the ability to buy from us directly with a very simple experience and features that aren't offered by the current marketplace. And we've demonstrated that we can sell 20% of our homes directly to buyers on opendoor.com.

If you measure that in 14 days, if you measure vis-a-vis the market, say, MLS is representing the market, our 20% maps to -- in our cities maps to something like 36% or 40% in the market. And so we're not, actually from a velocity standpoint, that too far behind what would be full distribution. And so that gives us a ton of confidence that there's product market fit and buyers love our product. And so -- yes, the assumption is that would we have liked to launch this 2 years ago? The answer is yes. I would have loved to launch this in Q1 2020, which was the original plan, but we had to solve the consumer demand side before launching it. And over the past year, we have good evidence that will be solved.

Operator

Our next question comes from the line of Justin Patterson with KeyBanc.

Justin Patterson

Two, if I can. First, for Eric, I wanted to circle back on Jason's question. As marketplaces scale, it becomes less of a substitute, more additive to the overall business. How do you think about reinvesting back into growth or letting it drop below the margin?

And then Dan, I appreciate your comments on watching for signs of stabilization. I realize this is more of a philosophical question. But when you see those signs emerge, how are you thinking about the speed in which you flip from risk off to risk on?

Eric Wu

Yes. I'll take the first question, which is as we think about this as being additive, how do we think about the trade-off of growth versus margin? What I can say is that marketplaces live or die based on the liquidity of both sides. And once you reach, let's say, velocity, that gives you a lot of defensibility and lots of opportunity for margin extraction or to increase your margins. And so they tend to kind of be built over a multiyear, multistep process.

And so in the short term, we would prioritize liquidity or growth of both sides without making substantial investments. And then long term, we will prioritize margin expansion. And that actually increases the expected value of the business unit and business line holistically.

And so to put it more succinctly, right now, we're focused on growth of both sellers and buyers within local marketplaces. And the benefit of having the 1P business alongside with that is that we believe we can do this with positive unit economics without having to go negative. And we can expand those margins over time as we get denser and denser within our cities.

I'll pass it to Daniel to answer the second part of that question.

Daniel Morillo

Yes. Thanks for the question. It's actually a good question. I think the thing that I would highlight there is now we're not so much looking to sort of read the tea leaves on the macro itself, right, like what did the Fed do or say and what ..., et cetera. And instead, we are very focused on building a series of indicators in our platform that give us what we believe is the best sort of set of diagnostics about what's happening on the market as compared to pretty much anywhere else -- anybody else out there, right? So we have literally real-time metrics for the full, I'm going to call it, funnel of behavior on both the buyer and the seller side. So how does the rating change result in changes in mortgage ops from there to applications from there to the actual behavior on the buying and selling side, like views of properties in the market, visits, how those visits are scheduled? How many people show up at those visits? Do they make offers or not? What sort of offers do they make? And so we have a pretty good mechanism to react.

Like I said, it's pretty much real time to how what we're observing on the macro side is really translating on the behavior side, right? And so from our point of view, what we're looking for is the sort of saddling of the stabilization in the macro, let's say that starts to happen, picking up tomorrow, we would want to observe that, that actually results in stabilization of the behavior that we observe real time in the market, right? And on the back of that, we would have pretty good confidence in taking action sort of across the spectrum of all the actions that we take, right? Everything from what our spread is to resale strategy, pricing strategy, negotiation strategy, et cetera.

Operator

Our next question comes from the line of Justin Ages with Berenberg.

Justin Ages

Just wondering if I could get a little more color on what is driving that reduction in renovations and the time taken on renovations and whether that's going to be the new normal going forward? Or that's just from a current push?

Andrew Low Ah Kee

It's Andrew. Andrew here, Justin. The teams in the current environment are focused on turning our homes as quickly as we can. And that push, that focus and that emphasis is showing up in a number of our operating metrics. You called out the Reno day improvement from 23 down to 15. That's really driven by improvements in the productivity of the team. And credit to our teams out in the fields who are finding new ways to reorganize the way they do work to drive those days down. And that's a big push. Equally important, we talked about our buyer cancellation rate improving 20% against a backdrop where the market actually -- market deteriorated. And all of those things contribute to us turning our homes and our book more quickly, and that's a focus and a press. And thanks to the teams who are all overdoing it.

Justin Ages

Great. And next, I was wondering if we could have a little more detail on geographic diversity on where you're seeing relative home price appreciation strength versus weakness? I think you gave some color last quarter, so just following on that.

Daniel Morillo

Yes, I'm happy to do that. This is Daniel. We are observing, broadly speaking, sort of a shape of -- not just frankly HPA, but as you think about some other metrics, volume metric, payment metrics. That is sort of similar to what we had seen last time around. So broadly speaking, we would say that the markets that were more volatile and that had higher price appreciation when the market goes hot. So think of this as generally sort of some of the larger Western markets, places like Phoenix and Austin, for example, they have generally done more poorly compared to the other markets. And that's not sort of surprising in the sense there was more room for that adjustment to take place in markets that have been hotter.

And then sort of on the other side of that, smaller and somewhat less expensive markets, at least when the market was really hot, have performed a little better. And so they tend to be more sort of Midwest and Eastern markets. So places like, say, Nashville and Orlando, for example, have tended to do better.

And again, not surprising, one of the things that I would highlight, for example, is a lot of what you saw when the market was hot in terms of price appreciation came from negotiation gains, people making over list offers -- multiple offers over list and that drove a significant part of the appreciation as the market cools they're far less likely to happen, and it's a bit symmetric, right? Once you start getting offers less than list, that sort of tends to equalize the behavior, and that's something you see similar across the regions.

I think one last thing that I was saying here that's important to note is that all of this is happening in the context of all of the markets are looking pretty negative, right? So we're talking about differences sort of in relative performance, but the reality is you're seeing the decline in volume, the decline in clearance, the decline in -- or at least increasing price pressures that's pretty common across. These are just the relative differences in that larger concept.

Operator

Our last question comes from the line of Ryan McKeveny with Zelman.

Ryan McKeveny

One more on the 3P marketplace. So the letter mentions 5% service fees. Obviously, that helps us think about the revenue side. Assumingly, without being the principle, the margins should be pretty high. But I guess if you can help us think about what you anticipate the cost structure or margin profile potentially looking at -- looking like within the 3P marketplace as that scales up?

Eric Wu

Ryan, it's Eric. We're not giving guidance on the cost structure yet. I think the assumption that this should be -- should drop to our bottom line and demonstrate really positive unit economics is correct. And what we are guiding to is, again, the goal of north of 30% in the short term by the end of 2023. And I would also say, to the question earlier, that I fundamentally believe this could be very accretive as well, which is this increases our TAM over time and that we're able to service our customers independent of buy box constraints and operational constraints. And we're able to actually service all sellers in all different home types. But from a breakdown on the unit economics, we're not disclosing at this time.

Ryan McKeveny

Got it. That's very helpful. And Eric, maybe one more on kind of the opportunities to expand this. I guess, geographically, it's fair to assume your current footprint, effectively where you're also acting as 1P, would be kind of the road map with the 3P marketplace? Or could we envision something 10 years down the road where there's markets where you're just the 3P player? Or do you expect to always be a 1P player to some degree within the markets where this is available?

Eric Wu

What I can tell you is that in the short term, it's really important to focus on density and liquidity. And so the goal is to get a sizable portion of sellers and buyers come to Opendoor at the same time and providing a solution that works for all of them and then expanding that playbook to all of our 50-plus markets.

I would say, also in the short term, both the 1P business, the first-party business and third-party business are essential and complementary in nature. The ability to get an offer in minutes from Opendoor attracts the hundreds of thousands of series sellers. The ability to buy from us in a different way attracts the hundreds of thousands of buyers. And so the model is additive to the 3P -- the 1P model is additive to the 3P business today.

In 10 years, I think if we are able to build our brand in a way that people trust the platform, and we have services that enable a seamless transaction in a market where we're not actually operating a 1P business, that's within the realm of possibility, but not on the short-term road map.

Operator

Thank you. I would now like to hand the conference back over to Eric Wu for closing remarks.

Eric Wu

Yes, I'd like to close with -- while challenging, and I think many of the folks around this table can attest to that, we will navigate this moment with both the necessary discipline and focus that will enable us to manage short-term uncertainty, customer financial goals long term. Thank you for attending.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.