FTC Blasts OpenDoor With $62M Settlement for Misleading Consumers
What Happened in the FTC Investigation on Opendoor?
The FTC, or Fair Trade Commission, has been on a roll lately, and their latest company to blast is none other than iBuyer OpenDoor, leading to a whopping $62 million fine. According to the claim, OpenDoor misled consumers with claims that they would earn more money by selling their house to OpenDoor instead of listing it on the market, which was deceptive.
OpenDoor has boasted for years that consumers can make thousands more if they sell their home to the iBuyer thanks to their advanced algorithm. However, according to the FTC, that was a deceptive claim.
The Fair Trade Commission stated that the offers from OpenDoor were not only lower than market value, but they often cost homeowners more in repairs because the company charged them higher prices than the repairs would normally cost.
“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,” FTC Bureau of Consumer Protection Director Samuel Levine said in the press release. “There is nothing innovative about cheating consumers.”
During an investigation, the FTC found that consumers in several states were losing thousands of dollars compared to what they would make selling their homes on the traditional market.
They also had a problem with the marketing materials OpenDoor used, which featured several charts showing how much consumers would save. According to the FTC, the charts were misleading and deceptive to consumers as many consumers actually lost money by working with the iBuyer instead of taking the traditional route.
After an investigation by the FTC, the commission found that there were quite a few misleading things the company did to deceive consumers:
What Did Opendoor Do That Was Misleading?
- Opendoor claimed to simply make money from fees that they disclosed to individuals selling their homes. They actually made a pretty penny from buying low and selling high.
- Opendoor claimed to use a projected market value to determine the price of a home. The FTC alleged that the price that was offered to homeowners that wanted to sell their homes had a downward adjustment to make it cheaper than the market value.
- Consumers may have wound up paying the same amount in repair costs, and working with OpenDoor did not save them money
These allegations resulted in OpenDoor agreeing to a $62 million settlement, but that’s not because OpenDoor is admitting the allegations are true. A statement released by the iBuyer stated:
“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.
The FTC’s Allegations Against Opendoor
Importantly, the allegations raised by the FTC are related to the 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.”
This agreement and the allegations against OpenDoor have shaken the foundation that iBuyers have built their businesses on. Reddit is often riddled with claims that these companies do exactly what they were accused of, and now consumer trust will be even lower.
This comes at a terrible time for iBuyers in the market. Compass and Redfin laid off 900 workers this past year alone. Shares for OpenDoor were in a 52-week slump until recently, when they raised slightly to around $5 a share, which was only up approximately .30. With the settlement making headlines everywhere, the price of shares has dipped again.
In 2021, the company was valued at almost $8 billion. Now, a year later, it’s valued at approximately $3 billion. After this huge blow, things are not looking as good for the company that once promised to revolutionize the real estate market.
The FTC Orders for Opendoor ($62M Settlement)
Not only is OpenDoor required to pay $62 million, which will go to consumers, but it is also required to complete two other actions.
First, the company has to stop making baseless claims. They will be required to have evidence regarding any claim that they make, including those involving consumers saving money. In order to prove that consumers would save money selling their home, they would have to provide the market price and prove that their asking price is lower and does, in fact, save consumers money.
OpenDoor will also no longer be allowed to deceive consumers. They have to be honest regarding how much homeowners will save when working with them, and the costs of using the service.