Regulator threatened “enforcement action” related to allegedly “inaccurate” or “inadequately substantiated” advertising claims if settlement talks fail.

Opendoor and the Federal Trade Commission are still at odds over the iBuyer’s advertising and Opendoor is warning its investors that a deal currently being negotiated with the regulator may negatively affect the company’s ability to operate its business.

Opendoor, a company that buys homes directly from sellers online, makes repairs and then re-sells the homes, first revealed that it was under FTC investigation in October 2020, when the company officially filed its S-4 form announcing its intention to become a public company following its merger with Social Capital Hedosophia Holdings Corp. II, a special purpose acquisition company (SPAC).

In that filing, Opendoor revealed that, in August 2019, the company received a civil investigative demand from the FTC “seeking documents and information relating primarily to statements in our advertising and website comparing Opendoor’s offers to purchase homes to selling in a traditional manner using an agent and statements pertaining to Opendoor’s offers reflecting or being based on market prices.” The company said it cooperated with that demand and with follow-up requests from the FTC.

In subsequent public filings, Opendoor disclosed that, on December 23, 2020, FTC staff notified the company “that they intend to recommend that the agency pursue an enforcement action against the Company and certain of its officers, if the Company is unable to reach a negotiated settlement acceptable to all parties.”

Opendoor said FTC staffers “believe certain of our advertising claims relating to the amount of our offers, the repair costs charged to home sellers, and the amount of net proceeds a seller may receive from selling to us versus selling in the traditional manner were inaccurate and/or inadequately substantiated.”

The company said it was engaged in settlement talks with the agency and could offer investors “no assurances that we will be successful in negotiating a favorable settlement.”

In the company’s most recent filings mentioning the civil investigative demand in mid-September, more than two years after receiving that CID, the company warned that any deal with the FTC could cost the company, prohibit certain advertising claims and negatively impact the company’s ability to operate or its earnings.

Opendoor’s most recent quarterly report showed that between April and June of this year, Opendoor raked in $1.2 billion, beating analysts’ expectations, while at the same time experiencing a net loss of $144 million.

“Any settlement could result in material monetary remedies and/or compliance requirements that impose significant and material cost and resource burdens on the Company and/or limit or eliminate the Company’s ability to make certain claims in its advertising materials or on its website,” Opendoor said in a Sept. 15 filing.

“Any of these remedies or compliance requirements could adversely affect the Company’s ability to operate its business and/or have a materially adverse impact on its financial results.”

As the biggest and best-known of the dedicated iBuyers, Opendoor’s successes or failures inevitably serve as a litmus test for the category generally, Inman reporter Jim Dalrymple II recently noted. That category has drawn attention in particular lately thanks to multiple reports suggesting iBuyers offers are becoming more competitive, to the point that they now on average pay above homes’ market value. However at the same time, iBuyers are also selling houses for more money than ever before, real estate analyst and Inman contributor Mike DelPrete recently found.

Meanwhile, the FTC and its fellow antitrust regulator, the U.S. Department of Justice, appear to be turning up the heat on the real estate industry generally. The DOJ is currently investigating the National Association of Realtors and the FTC is currently investigating a proposed acquisition of ShowingTime by Opendoor rival Zillow.

The FTC and Opendoor declined to comment for this story.

Email Andrea V. Brambila.

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iBuyers | Opendoor
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