The Federal Trade Commission is fining homebuying company Opendoor $62 million for "cheating" home sellers.
In a settlement announced on Monday, the FTC said Opendoor told customers that they could make more money selling their homes to the company than they by selling homes traditionally. The FTC found that, in fact, most people who sold their homes to Opendoor made less money than they would have selling to regular buyers via a real-estate agent.
Opendoor, which bought 36,908 homes in 2021, is an instant buyer, or iBuyer, which buys homes directly from owners and then resells them, sometimes making small renovations to homes. The company is able to close on homes much more quickly than traditional buyers purchasing via a real-estate agent. Opendoor, which reported $28 million in net income in the first quarter of 2022, makes money by charging its own fee in the place of a traditional brokers' fee.
The FTC detailed why Opendoor's marketing materials were deceptive in a 14-page report that included screenshots of Facebook ads and website charts of costs shown to customers. The FTC said this evidence seemed to promise consumers they would make more money by selling to Opendoor because all fees were bundled together into one amount. In reality, they often paid more than they would have selling their homes via a real-estate agent.
The agency also challenged the company's claim that it purchased homes at market prices and said that the company's offers are, on average, below market value.
"Opendoor promised to revolutionize the real-estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform," Samuel Levine, the director of the FTC's Bureau of Consumer Protection, said in a statement the commission provided. "There is nothing innovative about cheating consumers."
The proposed order includes the $62 million fine, which the agency expects to use to pay back Opendoor customers who the company bilked. The FTC also ordered the company to cease any "deceptive" practices against potential home sellers and to stop making any "baseless" claims.
Opendoor issued its own statement Monday, noting that the company's leaders "strongly disagree" with the allegations but are settling with the commission anyway. It also said that the FTC's allegations were specifically related to homes Opendoor purchased between 2017 and 2019, and that the company has since already modified its marketing messages.
Opendoor, which Eric Wu founded in 2014, went public at the end of 2020 after raising $1.5 billion from investors. In a 2020 SEC filing, the company disclosed that the FTC was investigating its marketing practices.
By: Alex Nicoll I Business Insider I August 1, 2022