Earnings Call Transcript - OPEN Q4 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Opendoor Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Elise Wang, Vice President of Investor Relations. Please go ahead.

Elise Wang, Vice President of Investor Relations

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 fact 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, 2022, as updated by our periodic report 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 information, future events 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 Carrie Wheeler, Chief Executive Officer of Opendoor.

Carrie Wheeler, CEO

Good afternoon. Also on the call with me today is Christy Schwartz, our Interim Chief Financial Officer; and Dod Fraser, President of Capital Markets and our Enterprise Business. I am looking forward to speaking with you today, not only because it’s my first earnings call as CEO, but because of our clarity as to the path ahead, which I believe will make Opendoor stronger than before. While navigating a major housing cycle has not been easy, we have never lost sight of our vision. We are building a managed marketplace for residential real estate that will enable consumers to buy, sell and move at the tap of a button. Challenging times like these have the benefit of increasing urgency, demanding focus and putting teamwork front and center that’s energizing and part of why I decided to take the CEO role. It’s clear to me what our value proposition is for customers and where we need to focus at this moment. I also believe deeply in what we are building towards. Our value proposition is incredibly strong; about 99% of home sellers still go through the traditional real estate process, a process that remains offline and uncertain and totally broken. Customers come to us because they create the certainty and convenience of our cash offer that they cannot get anywhere else. Even in this moment of high spreads, we are able to convert over 10% of resellers and earn an NPS of nearly 80. We stand alone in what we can offer consumers today. Given our current coverage of almost 30% of all real estate transactions in the U.S. today between our buy box and the markets we are in, we have a significant runway for future growth. As for right now, we are highly focused on stabilizing our core business and ultimately returning to positive free cash flow, and we are making solid progress. As of year-end, we sold or were in contract to sell two-thirds of the loss-making homes acquired before the housing market reset, also known as our Q2 cohort, and we expect we will be behind it shortly. The homes we have acquired since the reset are outperforming our expectations and are on track to deliver contribution margins in line with our 4% to 6% annual margin target once they are fully sold. However, we have lowered our acquisition volumes via higher spreads in our offers, coupled with lower marketing spending. We expect to keep relatively high spreads in the near term given continued uncertainty in how the housing market will perform. That said, we have reduced our spreads from last year’s record level, based on early indicators of stabilization in the housing market, and we will continue to do so as we see more consistent positive macro signs. Ultimately, we would expect lower spreads to translate into higher acquisition volumes. In the meantime, we are going to manage our cost structure in light of how expected volumes are pacing this year and next, with the goal of returning the business to adjusted net income profitability in 2024, assuming some normalization in the housing market. In addition to stabilizing our first-party business, we are aligning on three key areas in 2023 to further our progress towards building the managed marketplace for residential real estate. First is to enable more sellers to choose Opendoor. No matter the macro backdrop, sellers value the certainty and simplicity that an Opendoor offer provides. This year, we are focused on diversifying our demand funnel so that more home sellers start the journey with Opendoor. The recent launch of our Zillow partnership is one key example set to substantially increase our reach in a scalable and efficient way. We are also expanding our list of certainty product, which gives sellers the option of listing on the MLS while retaining the certainty of an Opendoor offer that they can take at any time. Second is to realize greater operational efficiencies throughout the business by shifting our focus from building for scale and velocity to strengthening our foundational pricing, operations and customer platforms. This includes continued improvement in pricing capabilities to increase offer competitiveness and inventory turns. We will also invest in refactoring our tech platform and infrastructure to enhance productivity and reduce fixed expenses. We are going after at least 100 basis points of margin improvement from all these initiatives by year-end, the full impact of which we expect to realize in 2024. I will be disappointed if we don’t do better than that. And finally, we are building exclusives, our third-party product offering that will be critical to creating a managed marketplace. This will position Opendoor to have a mix of on- and off-balance sheet transaction volumes to enable capital-efficient market share gain for years to come. We plan to scale this product in three phases; first, we are focused on perfecting the consumer experience; second, we will build liquidity and network effects in an individual market; and third, we will refine our playbook and scale to all markets. Given our highly focused investment approach this year, we expect to be in Phase 1 and 2 for 2023, meaning we will go deep in selected markets to build liquidity and selection that's required for a great user experience. While our ambitions remain significant long-term, we are realigning our near-term goal to 30% of transactions in our marketplace by the end of the year in those markets where we have launched exclusives. As we look ahead, we are energized about our future. We have set clear goals that will stabilize the business in the short term, while strengthening our foundation for the long term, and we believe we have the team, the balance sheet and plans in place to ensure we realize these goals. With every customer we serve, we are more convinced that the current process of buying and selling a home is broken and that Opendoor is in a position like no other to continue to transform the status quo and be the category winner that we have always envisioned. With that, I will pass the call over to Christy to discuss our financial highlights.

Christy Schwartz, Interim CFO

Thanks, Carrie. Our fourth quarter results reflect actions taken since Q2 to navigate changes in the housing market. We delivered $2.9 billion of revenue, down 25% versus prior year due to slower resale clearance rates and our decision to reduce our acquisition pace beginning midyear during a time of significant market uncertainty. However, we ended the full year with $15.6 billion in revenue, which was 94% higher than 2021. This growth was driven by our strong first-half performance. We purchased 3,427 homes in the fourth quarter, down 64% versus the prior year. For the full year, we acquired 34,962 homes, down 5% versus 2021. Our gross profit was 2.5% and our contribution margin was negative 7.2% in the fourth quarter, which reflects our resale mix that is weighted to the Q2 cohort of longer dated lower margin homes, as well as the seasonal softness typically seen in the fourth quarter. Our new book of homes, or homes we offered on starting in July of last year, is performing well above our expectations and off to a stronger start than acquisition cohorts from prior years. This demonstrates the strength of our value proposition, which despite record spreads still enables us to create attractive cohorts in a negative home price appreciation environment. Notwithstanding the macro challenges we faced beginning in the second quarter of 2022, our full-year contribution margin was 3.4%, compared to our annual contribution margin target of 4% to 6%. Adjusted EBITDA loss was $351 million and adjusted operating expenses totaled $144 million in the fourth quarter, both consistent with guidance. We ended 2022 with adjusted EBITDA loss of $168 million versus adjusted EBITDA of $58 million in 2021. Turning to our balance sheet. As of the end of the year, we had total capital of $2 billion comprised of $1.3 billion in unrestricted cash, cash equivalents and marketable securities, and $670 million of equity invested in our homes. In addition, we had $12 billion in non-recourse asset-backed facilities, which is significantly in excess of current inventory levels. We expect that we will reduce our committed capacity in 2023. This will lower our required restricted cash levels and associated interest costs. As we enter 2023, we are highly focused on preserving capital and operating with strong cost discipline; our goal is to return the business to positive adjusted net income upon delivering approximately $10 billion of annualized retail revenue, which we expect to achieve by mid-2024. Assuming some normalization in the housing market, we expect to be able to return to this pace by resuming the market share we had three years ago, adjusted for the more than doubling of our market footprint. We are continuing to operate with a cautious stance in the near term as we believe the Fed’s actions will continue to dictate the outlook for housing. That said, as Carrie mentioned, we have started to see some early signs of housing stabilization, which has in turn allowed us to reduce spreads from the record levels we were embedding for most of the back half of last year. In terms of guidance, we expect our Q1 revenue to be between $2.45 billion to $2.65 billion and adjusted EBITDA loss to be between $350 million and $370 million. Adjusted operating expenses, which we define as the delta between contribution margin and adjusted EBITDA, is expected to be around $130 million. Consistent with this guidance, we expect our contribution margins will trough in the first quarter before returning to positive levels in the second half of the year as we increase our new book of inventory. 2023 is an important year for Opendoor. We will lean into our core strengths and operate with agility and efficiency across the business to ensure that we exit the year stronger and more resilient. We will also invest our capital wisely, focusing on the initiatives that best position us for long-term sustainable growth. Our goal remains to be a profitable market leader and generational company. I will now open the call for questions.

Operator, Operator

Thank you. Our first question comes from the line of Nick Jones with JMP Securities. Your line is now open.

Nick Jones, Analyst

Great. Thank you for taking the question. If I could ask two. First, just around negative unit margins. When we think about the full year, it sounds like maybe the first half will still be negative and then improve in the back half, is that the right way to think about it? And then I have a follow-up.

Carrie Wheeler, CEO

Hey. I will return it over to Christy. The new voice on our call today. Just by way of background, Christy’s been with Opendoor for six years. She’s our Chief Accounting Officer and has very capably accepted to be Interim CFO role. So I will hand over to you, Christy.

Christy Schwartz, Interim CFO

Hi, Nick. Happy to take the question. We expect to return to positive unit margins by the second half of 2023. Right now our results are reflecting a mix of old book and new book, and we have added some transparency on the margins of each book into our shareholder letter. We have been very focused on selling our old book as expeditiously as possible, while also preserving margins, and we expect 85% to be pulled through or in contract by the end of Q1. As soon as we cycle through the Q2 offer cohort, raise new book inventory and we feel really good about those margins. The new book of inventory delivered 9.7% contribution margin in Q4 and we expect it to perform in line with our target of 4% to 6% contribution margin once fully flowed through. So as such, we expect to return to positive unit margins by the second half as the mix of inventory we are selling transitions to the new book.

Nick Jones, Analyst

Great. Thanks. And then maybe on just some of the efficiencies, can you maybe unpack where we should look to see those show up as we progress through 2023?

Carrie Wheeler, CEO

Yeah. I mean I will take that, Nick. It’s Carrie. I mean it’s really across the entirety of our business. It will show up a little bit in the contribution margin line, but it will also show up in our variable SG&A and our fixed OpEx structure. It’s really a host of initiatives designed to improve margins, reduce costs, increase operating efficiency, or what have you. So it will show up across the board.

Nick Jones, Analyst

Great. Thank you both.

Operator, Operator

Thank you. Our next question comes from the line of Jay McCanless with Wedbush. Your line is now open.

Jay McCanless, Analyst

Hey. Thanks for taking my questions. I guess the first one, could you talk again, I missed what you were saying about the 100 basis points, I guess, of cost reductions by 2024 from structural efficiencies and cost savings. Could you break that out, please?

Carrie Wheeler, CEO

I’m happy to help. It's Carrie again. We're currently experiencing lower volumes in the system, which presents us with a great opportunity to target a number of basis points we have in place and enhance our efficiency. We have been working for years to achieve scale and speed, and now our focus is on fostering long-term efficiency to bring sustainable savings back into the business. These savings will manifest in various areas. Some will be reflected in our contribution margin, specifically in the unit line, while others will be apparent in our variable SG&A, stemming from the efficiency of our team members in home operations and market operations. Additionally, we anticipate a decrease in fixed operating expenses over time as we cut back on some of our direct spending. We are pursuing these initiatives throughout 2023. However, we do not expect to see the full impact until 2024, which is when we anticipate the 100 basis points will materialize.

Jay McCanless, Analyst

Okay. And then, I guess, the second question, you bought 3,400 homes this quarter. Is something more along that number or, call it, sub-5,000, is that a better run rate, I guess, for where the business is now? And especially if you are going to be taking down facility capacity in your credit facilities this year, is running at kind of that slower 3,000 to 5,000 pace what we should expect over the next four quarters?

Carrie Wheeler, CEO

Yeah. I will take the first part of the question, just comment a little bit about where we are pacing right now in terms of acquisitions and how it’s showing up. And then I will turn it over to Dod to talk through how we are thinking about capital structure and for things in light of where we are pacing the volume. The first part of your question is two components to volumes right now. One is what’s going on in the market and the second is what’s going on with our spread. And on the market side, sellers are on the sidelines. I mean I think we all know that. Transactions are down 40% year-on-year. If you look across our markets and our buy box, new listings are the lowest they have ever been since 2004, and that just means there are fewer sellers in the market for us to engage with right now. On our end, we are continuing to bid high spreads into our offers, and as you know, high spreads for us means lower offers, and lower offers lead to fewer contracts. We have had to decrease our spreads a fair bit since late last year with the record levels and I expect we will continue to do so just given seasonal tailwinds as we come into the new year and also the fact that the housing market is starting to firm up a little bit. But the reality is the housing market remains uncertain and we are going to continue to operate at a fairly cautious pace and we will continue to operate with high spreads for the foreseeable future. Regarding volumes, we don’t break out where we are pacing specifically on volumes. I can tell you, for us, suitable tends to be a jumping-off point for a lot of home sellers to get back in the market, and as we have been decreasing spreads since last year, there’s a lag in our business between offer to contract and we do expect to see a pickup in volume as we move through the second quarter. Seasonality goes on throughout the entire year; we are seeing tailwinds right now. Seasonality shows up in the form of a slower back half, where we increased spreads in the back half. But that’s not how you think about volumes for the pace of the year. Dod, do you want to talk a little bit about how we are thinking about sizing facilities?

Dod Fraser, President of Capital Markets and Enterprise Business

Sure. I want to emphasize that our inventory balances at the end of the year stood at $4.5 billion, while we have $12 billion in capacity. This is sufficient for our financing needs and our outlook moving forward. Additionally, it's important to note that lenders prefer to see their capacity utilized, and we have actively managed this capacity over the seven years I’ve been here. We are comfortable with reducing capacity, believing we will still have enough to accommodate any increases in inventory.

Jay McCanless, Analyst

Okay. Great. Thanks for taking my questions.

Operator, Operator

Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer. Your line is now open.

Chad Larkin, Analyst

Hey. Thanks. This is Chad on for Jason. So you talked about 30% of your 2023 transactions going through exclusives in markets where the marketplace is launched. Two questions on that. First, any sense what percent of your total markets you will be launched in kind of by the end of the year? And then do you believe that this is driving the return to positive unit economics in the back half or is that just kind of the improvement in the new home cohorts? Thank you.

Carrie Wheeler, CEO

Hey, Chad. Our focus right now for 3P or for marketplace is really to refine and test in the local market. We are excited about the signals we are seeing so far, and we are seeing sellers being very excited to opt into the program. We have about 3% share of the listings in the market that we are trialing right now. So off to an encouraging start. But we really want to focus on, first, perfecting the customer experience and then step two is to build density and liquidity so that we can own that market, and we will do that before we want to spread out further. I don’t know the number of markets will be at by the end of the year. We have given an actual target. It will be a relatively, I think, small number right now, but we are hoping to pace to acquire a number by the end of the year and into 2024. It’s unrelated to what Christy said as to how contribution margins are going to play out for the rest of the year. That entirely has to do with the mix between our old book as we sell that off and our new book becomes the vast majority to all of our margins in the second half.

Operator, Operator

Thank you. Our next question comes from the line of Ygal Arounian with Citi. Your line is now open.

Ygal Arounian, Analyst

Good afternoon, everyone. I want to revisit the macro situation for a moment. Recently, we've started to see interest rates rise slightly, which is beginning to affect mortgage demand again. I'd like to understand what you are incorporating into your spreads and your perspective on the macro environment as we move forward while you are reducing your spreads. I'm interested in your expectations for the housing market as we progress through the rest of the year.

Dod Fraser, President of Capital Markets and Enterprise Business

Yeah. Happy to answer. So, look, if you look at the where the market is right now. We are continuing to see very low supply in the market, really multi-decade lows continuing. New listings are the lowest since 2004. So that’s a good setup for more stable pricing in 2023. I think it’s also important to keep in mind how sort of the risk that we are taking from a housing price perspective; we typically own homes for, call it, four months. So that’s the duration of exposure we are taking. And if you look at home price appreciation, we have a fun chart in the back of our shareholder letter that shows month-over-month home price appreciation. If you look at the first half of the year, you almost all was going back into the 80s, you see very strong home price appreciation, and then that moderates in the back half of the year. So this is the point of the year where given the strong leading indicators we have seen in January, we have been able to reduce those spreads. We continue, though, to be very cautious in the back half of the year, to your point around interest rate volatility and how that could flow through to the impact on consumer demand. So our base case is that spread will actually need to increase in the back half of the year, especially if the Fed has to raise rates higher to combat inflation higher than people are expecting.

Ygal Arounian, Analyst

Got it. Regarding market expansion and the buy box, I understand we are currently in a risk-off mode and not purchasing as many homes as we did last year. Has your overall strategy changed, or is it just the pace that is different? Have you pulled back in any markets or adjusted your buy box, or is it more likely that these changes will hold off until we return to a more normalized market? Thanks.

Dod Fraser, President of Capital Markets and Enterprise Business

Yeah. I think the way that we have tackled this today and in the past is through spread dispersion. So we will account for changes or higher risk by market, or even by price point, by charging a different spread and so you can see that play out both in terms of specific markets, as well as within pockets within markets sort of zip code or otherwise. And so that’s really the lever by which we adjust pricing to account for that risk.

Ygal Arounian, Analyst

Okay.

Dod Fraser, President of Capital Markets and Enterprise Business

So it’s not coming back on buybacks to be specific for adjusting the spread at the starting customers based on the riskiness of those.

Ygal Arounian, Analyst

Got it. Thanks.

Operator, Operator

Thank you. Our next question comes from the line of Justin Patterson with KeyBanc Capital Markets. Your line is now open.

Justin Patterson, Analyst

Great. Thank you very much and good afternoon. Carrie, I wanted to go back to exclusives to start with. Can you talk about the steps to build the density in those markets and just really get the supply you need to succeed with that and perhaps just frame helps to the core business? And then just a secondary question on the Zillow relationship. I know it’s very, very early here, but could you just talk about how we think about the pace of that relationship expanding, moving into new markets, how do you think about the conversion quality from that funnel versus some of the other channels you lean on? Thank you.

Carrie Wheeler, CEO

Hey, Justin. Do you mind repeating the first part of your first question? You broke up there a little bit for me. We had a hard time hearing that?

Justin Patterson, Analyst

Sorry about that. The first question was just around Phase 2 of the exclusives product. Can you talk about just the steps needed to build density and market for that?

Carrie Wheeler, CEO

It’s really about aggregating supply and then from there, aggregating buyer demand, which we haven’t started on through our first-party business. But it’s really about bringing more buyers into the system over time. On the Zillow side, as you said, it’s early. We had a Valentine’s Day launch. So far, so good. We are optimistic and enthusiastic about the prospects for that partnership, where we will expect to launch it in more markets over the course of the year. But for us, we think it’s going to be a very interesting and accretive marketing channel for us and just allow us to put our brand and our offer in front of a lot more home sellers.

Operator, Operator

Thank you. Our next question comes from the line of Curtis Nagle with Bank of America. Your line is now open.

Curtis Nagle, Analyst

Great. Thanks for taking the questions. Carrie, I just wanted to focus for a sec on spreads. So the new cohorts, you took up spreads, led to some nice contribution margins so far, albeit at lower volumes. I am not sure if I heard this incorrectly, but it sounds like you might be pulling back spreads a little bit as we go further into the year, and if that’s the case, how does that impact potential contribution margins if that were the case?

Carrie Wheeler, CEO

We have been decreasing spreads since late last year when they were at record levels due to peak uncertainty. As we entered the new year, we continued to reduce them for two main reasons: seasonal benefits and signs that the housing market is stabilizing, as mentioned by Dod regarding housing price appreciation and the underlying factors like supply and new listings. We anticipate continuing this trend for a while. However, it is important to note that seasonal benefits typically shift to seasonal challenges in the latter half of the year. Therefore, there is a possibility that we may consider raising spreads again later in the year.

Curtis Nagle, Analyst

Okay.

Carrie Wheeler, CEO

We will see. I mean, the beauty of our business is that it’s dynamic and we are able to respond to what we are seeing in the market, and we will continue to do so as we get more signals.

Curtis Nagle, Analyst

Okay. Got it. And then just a follow-up on the Q1 guidance. For the $370 million, $390 million negative EBITDA. How should we think about the GAAP gross margins that would be incorporated into that?

Christy Schwartz, Interim CFO

We typically do not give guidance on GAAP gross margin. However, you can estimate contribution margin using adjusted EBITDA and adjusted OpEx. Additionally, you can refer to the table in our shareholder letter that details the new and old inventory books to get an understanding of the gross margins we are observing for those two categories. There is also a breakdown of inventory by new and old books in the shareholder letter that should provide useful information.

Curtis Nagle, Analyst

Okay. Got it. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Ryan Tomasello with KBW. Your line is now open.

Ryan Tomasello, Analyst

Hi, everyone. Thanks for taking the questions. Can you maybe provide a bit more detail for how you plan to get to adjusted net income profitability at $10 billion of revenue? What assumptions are you baking in there for contribution margins, mix of 1P, 3P, OpEx, etc.? I guess just running some back of the envelope math assuming 5% contribution margins, implies that you are assuming significant efficiencies on either the financing or OpEx side or maybe baking in higher unit economics altogether. So just trying to understand the moving pieces there? Thanks.

Carrie Wheeler, CEO

I’m glad to address that, Ryan. Firstly, it's important to highlight that we are very focused on achieving adjusted net income profitability as quickly as possible. We see $10 billion in annualized revenue as the key milestone to reach that goal, and we anticipate getting there by mid-2024, provided we operate in a more normalized home environment. If we look back to 2019, which provides a better comparison for a typical housing market, we can consider our market share then and compare it to our current position, which is four times larger due to expanded buy box options and entry into new markets. Even with a slight decline in market share, hitting $10 billion in 2024 seems feasible. Additionally, we have significantly improved brand awareness and developed deeper partnership channels since 2019. Regarding margins, we expect our first-party business to contribute between 4% to 6%. As I mentioned earlier, we are targeting at least a 100-basis point margin improvement across the entire system and anticipate returning to normalized turnover rates of around 3 to 3.5 turns a year. When you combine all these factors, we see a path to positive adjusted net income. Our estimates do not rely heavily on a mix of capital-light or asset-light businesses, such as third-party operations, and we have taken a conservative approach without incorporating many new product lines into our projections. Therefore, we are confident about achieving the $10 billion target.

Ryan Tomasello, Analyst

Okay. Great. And then a quick follow-up would be just trying to understand how you are thinking about the capital requirements for the business once you move past the Q2 cohort here and the business mix transitions to a balance of both the 1P and 3P transactions. Is there a minimum level of cash you are targeting that provides you with a large enough balance sheet to support what will still be a capital-intensive 1P business while also providing you with enough flexibility to invest in scaling the 3P business, which I assume you would look to consider some marketing spend there to drive adoption? Thanks.

Dod Fraser, President of Capital Markets and Enterprise Business

Yeah. Happy to answer that. So, look, I think we are very comfortable executing our business plan with the $2 billion in capital that we have today, $1.3 billion in unrestricted cash. We don’t guide beyond the first quarter. But to your point, we do have minimum cash requirements in our financing facilities, but those are substantially below where our current cash balance is. So I think the plan that we have articulated, the plan that we are going after, we are very comfortable with $2 billion in capital is more than enough to finance the plans we are marketing against.

Operator, Operator

Thank you. Our last question comes from the line of Ryan McKeveny with Zelman & Associates. Your line is now open.

Ryan McKeveny, Analyst

Hi. Thank you very much. Just to come back to exclusives. I have a three-part question, so I will throw it out all at once. So you mentioned in the letter that you began to offer exclusive as an option to sellers in Q4. So, firstly, just any thoughts you can share on the initial reception from home sellers. Second part of the question, more generally, can you just talk about the value proposition of to home sellers of exclusives? I think we all understand the value prop around the first-party model with convenience and certainty of the cash offer, etc. But maybe you can talk about how you frame that value prop of, ultimately, why would a seller go the 3P option compared to listing traditionally? And then the last piece, and I can come back to the, sorry, it’s a long question. Lastly, I think last quarter, you mentioned a 5% service fee for third-party transactions. Is that still the expectation and is that 5% service fee, is that specific to what a home seller would pay the list or is that possibly some combination of kind of a fee charged to the seller, but also fee charged to the home buyer?

Carrie Wheeler, CEO

I will do my best to remember all of that. Let me start with the top. We began with exclusive listings, which involved taking our Opendoor-owned inventory and offering it to buyers who are interested in purchasing homes as-is. This approach has been very successful, with sales achieving approximately 15% to 20% in the first two weeks for those exclusive listing homes. We plan to continue pursuing this model. Regarding the value proposition for sellers, when they list their home in the marketplace, they often face multiple showings and a limited time frame to receive multiple offers. We leverage our established relationships within our institutional network to help present offers that sellers could not access otherwise, along with additional offers from other buyers in our network. Sellers can then decide whether to accept any of these prices. Additionally, we provide the option for a guaranteed all-cash offer, should they choose that route. This process is significantly less burdensome and time-consuming, providing greater certainty compared to traditional selling methods. As for the economics, we will continue to work with sellers and explore options over time. Currently, we charge a 5% fee to the seller and share some of that with the buyer. I'm hesitant to provide specific projections about long-term unit economics at this point, as it does not include any cash offer services, and various factors will develop over time. However, this describes our current situation.

Ryan McKeveny, Analyst

That’s great. Thank you very much, Carrie. One additional question, the comment about list with certainty. I don’t believe I have heard you talk about that before, so maybe you can just expand on what that product is and how that kind of fits into the broader equation?

Carrie Wheeler, CEO

Yeah. I mean, in this high spread environment, the good news is that we can still create attractive unit economics and attractive cohorts even in this environment of high rates, high mortgage rates, rate volatility, and we expect to continue to do so. Mortgage rates have been pretty volatile in the last couple of weeks. We are reflecting that in how we adjust for spreads. So we will continue to do that through the course of the year. If volumes are continued to be suppressed for the industry, and they continue to be down and that persists for a long period of time. I think we know this imperative that we manage our cost structure, our capital; the good news is we have a lot of capital that we have provided here and so we compare that we mitigate losses and preserve book value, and we are going to manage the business with that in mind. So we are not managing it to the absolute point of the trough today, but if I look ahead to 2024, if that’s sort of the question in your comments and learn for a longer trough period in the housing cycle, we will take a harder look at our cost structure in light of that, we will have to.

Jay McCanless, Analyst

Okay. Great. Thanks for taking the follow-up.

Operator, Operator

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

Carrie Wheeler, CEO

I just want to thank everyone for joining and participating today. And hopefully you heard from us, we feel confident with the decisions we have made to date to navigate what has been a challenging housing environment are enabling us to achieve both our customer goals and our long-term financial objectives. So thank you, and we look forward to talking to you again soon.

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.