FTC fines Tempe-based Opendoor $62 million, alleging the iBuyer company built its business by ‘cheating consumers’ using ‘old-fashioned deception’ 

August 12, 2022 at 3:50 pm Leave a comment

The U.S. Federal Trade Commission on Aug. 1 announced in a news release that it has taken action against Tempe-based online home buying firm Opendoor “for cheating potential home sellers by tricking them into thinking that they could make more money selling their homes to Opendoor than on the open market using the traditional sales process” using a licensed Realtor.

A settlement agreed to by Opendoor resulted in the company being fined $62 million, the FTC announced. 

“The FTC alleged that Opendoor pitched potential sellers using misleading and deceptive information,” the FTC news release said. “In reality, most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process.”

On FTC.gov’s “Consumer Advice” webpage, FTC consumer education specialist Amy Hebert explained that “Opendoor promoted itself as a tech company that uses its pricing technology to offer more accurate offers and lower costs. Companies like Opendoor are what’s known as “iBuyers” — companies that use technology to make quick offers on homes.”

The FTC determined that while Opendoor said it would pay market value for people’s homes while saving consumers money on costs, purportedly earning the sellers more money than they’d get in a traditional sale, the actual results were that sellers “typically lost thousands of dollars compared to what they would have made if they’d sold their homes on the open market,” Hebert wrote. The FTC found the claims Opendoor made to consumers were untrue.

“The FTC says Opendoor’s offers were lower than a home’s market value, and the company asked sellers to pay for home repair costs that were higher than what people would typically spend on repairs in a market sale,” Hebert wrote.

“To settle the FTC’s charges that the company’s claims were deceptive, Opendoor has agreed to pay $62 million, which the FTC will use for refunds to people who were affected,” Hebert concluded

“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,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection in the Aug. 1 FTC announcement. “There is nothing innovative about cheating consumers,” Levine added.

The FTC noted that Opendoor “operates an online real estate business that, among other things, buys homes directly from consumers as an alternative to consumers selling their homes on the open market. 

“Advertised as an ‘iBuyer,’ Opendoor claimed to use cutting-edge technology to save consumers money by providing ‘market-value’ offers and reducing transaction costs compared with the traditional home sales process,” the federal commission stated.

The announcement explained the FTC found “the company’s offers have been below market value on average and its costs (assessed to home sellers) have been higher than what consumers typically pay when using a traditional Realtor.”

“Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market,” the FTC release said. “Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor.” 

In the agency’s complaint document, the FTC described the disadvantages Opendoor consumers were subject to, including: “Unlike traditional sales, Opendoor demanded that consumers make or pay for all demanded repairs, even though Opendoor’s own studies indicate that the parties to a market sale typically share these costs. The repair demands were not subject to negotiation. 

The FTC investigation found Opendoor violated the law by making the following misrepresentations:

  • Opendoor said it used projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values;
  • Opendoor told customers it made money from disclosed fees, when in reality it made money by buying low and selling high;
  • Opendoor told consumers they likely would have paid the same amount in repair costs whether they sold their home through Opendoor or via traditional sales; and
  • Opendoor told consumers they were likely to pay less in costs by selling to Opendoor than they would pay in traditional sales.

The FTC said Opendoor has agreed to a proposed order that requires the company to:

  • Pay $62 million: The order requires Opendoor to pay the Commission $62 million, which is expected to be used for consumer redress.
  • Stop deceiving potential home sellers: The order prohibits Opendoor from making the deceptive, false, and unsubstantiated claims it made to consumers about how much money they will receive or the costs they will have to pay to use its service.
  • Stop making baseless claims: The order requires Opendoor to have competent and reliable evidence to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.

A statement issued by Opendoor after the FTC announcement said in part, “While we strongly disagree with the FTC’s allegations, our decision to settle with the Commission will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed.”

Interestingly, three days after the FTC announced its findings, Opendoor and Zillow issued a joint news release announcing a new partnership that will “allow home sellers on the Zillow platform to seamlessly request an Opendoor offer to sell their home.” The new partnership between formerly-competing iBuyer rivals comes nine months after Zillow announced it would shut down its own iBuying division after reporting massive losses in that business.

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Entry filed under: Arizona Real Estate, Chandler Real Estate, Gilbert Real Estate, Maricopa County Real Estate, Phoenix Real Estate. Tags: , , , .

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