Federal Trade Commission Hits Real Estate Company Opendoor with $62M Penalty

Federal Trade Commission Hits Real Estate Company Opendoor with $62M Penalty

The Federal Trade Commission Monday took action against online home buying firm Opendoor Labs Inc., for cheating potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process.

The FTC alleged that Opendoor pitched potential sellers using misleading and deceptive information, and 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. Under a proposed administrative order, Opendoor will have to pay $62 million and stop its deceptive tactics.

“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. “There is nothing innovative about cheating consumers.”

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The company claims in its marketing, "9 out of 10 customers who sell to Opendoor recommend us."

Opendoor, headquartered in Tempe, Arizona, 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 company now claims it is operating in more than 50 markets, including in New England, "In Boston, we’re now available in more than 240 ZIP Codes, including Plymouth, Worcester, Bristol, Middlesex, Norfolk, Suffolk, and Essex counties."

According to the FTC, Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market. Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor. In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because the company’s offers have been below market value on average and its costs have been higher than what consumers typically pay when using a traditional realtor.

Opendoor said in a statement to GoLocal:

"Since our founding in 2014, Opendoor set out to drastically simplify the real estate transaction, redefine the housing market, and make buying and selling a home as easy as a tap of a button – bringing transparency, competition and convenience to the antiquated and offline home transaction for consumers. And data shows that our customers value and adopt Opendoor; in fact, we maintain an NPS well over 80 and have maintained a real seller conversion of over 35 percent. 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. 

Importantly, the allegations raised by the FTC are related to activity that occurred between 2017 and 2019 and target marketing messages the company modified years ago. We are pleased to put this matter behind us and look forward to continuing to provide consumers with a modern real estate experience.”

 

The FTCs investigation found that Opendoor also violated the law by misrepresenting that:

- Opendoor used projected market value prices when making offers to buy homes, when in fact, those prices included downward adjustments to the market values;

- Opendoor made money from disclosed fees, when in reality it made money by buying low and selling high;

consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales; and

consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales.

 

Enforcement Action

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

- Pay $62 million: The order requires Opendoor to pay the FTC $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.

The Commission vote to accept the consent agreement was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Once processed, comments will be posted on Regulations.gov.

Updated: 12:15 AM 8/2/22