Federal regulators on Monday announced that they have slapped iBuying giant Opendoor with a $62 million fine for allegedly “cheating” and “tricking” potential homesellers.
The Federal Trade Commission (FTC) announced the case and a settlement with the iBuyer in a statement. The statement argues that Opendoor “pitched potential sellers using misleading and deceptive information” that suggested they would make more money by selling to the iBuyer than they would on the open market. However, the statement adds, “most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process.”
Samuel Levine, director of the FTC’s Bureau of Consumer Protection, added in the statement that “Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception.”
“There is nothing innovative about cheating consumers,” Levine added.
The statement goes on to cite Opendoor marketing materials about consumer proceeds and argues homesellers lost money thanks to below market offers on homes and higher costs compared to using a traditional agent. The FTC also believes Opendoor misrepresented other facts, including that the company makes money from fees when in fact it earns via “buying low and selling high.”
Opendoor has settled the case, agreeing to pay the $62 million. The FTC’s statement also indicates Opendoor agreed to “stop deceiving potential homesellers,” and to “stop making baseless claims.”
Opendoor responded to the case with its own statement Monday, saying it “strongly disagree with the FTC’s allegations.” However, the company agreed to settle because doing so “will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed.”
The company’s statement adds that the FTC’s allegations have to do with “activity that occurred between 2017 and 2019 and target marketing messages the company modified years ago.”
The growth of the iBuying sector has been one of the most significant trends in real estate over the last decade thanks to the rise of Opendoor, which launched in 2014. Initially, the iBuying pitch was that iBuyers offered more security and convenience to sellers who didn’t want to deal with the hassle of a traditional listing. Over time, however, tight inventory and skyrocketing demand during the coronavirus pandemic drove iBuyer offers higher and higher as they scrambled for market share.
The task of getting pricing right during the the last two boom years proved to be sufficiently challenging that Zillow, long the second largest iBuyer, bowed out of the sector beginning entirely last fall. Opendoor, however, continued and ultimately achieved profitability for the first time earlier this year.
Amid a shifting market this year, Opendoor’s buy-to-list premium — or profitability measured by the difference between the purchase price and current listing price of a home — has dropped significantly, according to analyst Mike DelPrete.
The settlement with the FTC now comes just days before the company reports its latest earnings — a report that along with others in the industry is hotly anticipated as the first reflecting a significantly slower market.