Opendoor Faces Fine for Misleading Customers

Written by Ashley Sutphin Posted On Wednesday, 10 August 2022 00:00

The Federal Trade Commission (FTC) just announced it was fining Opendoor $62 million amid claims it’s cheating home sellers. The settlement was announced at the start of August. The FTC claims Opendoor told customers they could make more money selling homes to their company than selling them traditionally.

The FTC’s findings are that most people who sold their homes to Opendoor made less money than they would have selling to buyers through a real estate agent.

Opendoor bought nearly 37,000 homes in 2021. The company is an instant buyer or iBuyer, meaning it buys directly from owners and resells the property. Sometimes, they’ll make small updates or renovations before they resell. The company can close on homes faster than buyers who buy through an agent.

Opendoor reported a net income of $28 million in the first quarter of 2022. The company makes money by charging a fee, which is meant to be instead of a traditional brokers’ fee.

The FTC issued a 14-page report highlighting why the marketing materials are deceptive. It included screenshots of social media ads and website charts of the costs that the company shows customers. The FTC said the evidence indicated the company is promising consumers they’d make more money selling to Opendoor because the fees are bundled into one amount. The reality was that they’d often end up paying more than if they’d used a real estate agent to sell their house.

The FTC is also challenging the claim from Opendoor that it’s purchasing homes at market prices, citing that the company’s offers are below market value on average.

According to the director of the FTC’s Bureau of Consumer Protection, Opendoor promised it would revolutionize the real estate market but used deception about how much customers could earn selling their homes on the platform. The statement said there is “nothing innovative about cheating consumers.”

The proposed order from the FTC includes a $62 million fine. The agency says it will use the proceeds of the fine to pay back customers of Opendoor who were misled.

The FTC also orders Opendoor to stop deceptive practices and making baseless claims.

Opendoor issued its statement saying it strongly disagrees with the allegations from the FTC but is going to settle with the commission anyway. It also said that the allegations from the FTC were specifically for home purchases between 2017 and 2019 and that it had already changed its marketing messages.

Opendoor was founded in 2014 by Eric Wu. The company raised $1.5 billion in 2020 and went public. In the 2020 SEC filing, the company disclosed the FTC was investigating it for its marketing practices.

In other Opendoor news, the company also, at the same time, debuted something called Exclusives, which is billed as an Amazon-style marketplace for home sales. The product was quietly launched in September 2021 but was officially announced this month. The homes being sold by Opendoor are available to anyone through the Exclusives platforms for 14 days before the home is listed on the MLS. The properties are listed on a first-come, first-serve basis to eliminate bidding wars and price negotiations. A prospective homebuyer can reserve and then fill out a home contract through the online platform.

Opendoor says buyers can back out any time and get a full refund on their earnest money. According to Opendoor, when a home is listed as an exclusive, it’s offered at a lower price than what it would be listed for on the MLS if it doesn’t sell in a 14-day window. The homes also come with an appraisal match guarantee, meaning Opendoor will pay the difference if the home appraises for less than what it’s listed for on Exclusive.

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