The Federal Trade Commission ordered Opendoor to pay $62M and to stop deceiving consumers about its Service. Samuel Levine, Director of the FTC’s Bureau of Consumer Protection said:
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,… There is nothing innovative about cheating consumers.”
The FTC press release says “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.”
The FTC investigation found that Opendoor violated the law by misrepresenting that:
- Opendoor claimed to use projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values.
- Opendoor claimed to make money from disclosed fees, but in reality, it made money by buying low and selling high.
- Opendoor claimed that consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales.
- Opendoor claimed consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales.
Opendoor has agreed to a proposed order that requires the company to:
- Pay the FTC $62M which is expected to be used for consumer redress.
- Opendoor is prohibited from making 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.
- Opendoor is required 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 cost associated with traditional home sales.
Although these complaints have to do with Opendoor specifically, we at JLee Realty believe that they highlight some of the misleading claims made by too many high-tech real estate companies.
Tech has provided solid benefits to home buyers, home sellers, and real estate agents. It is much easier for home buyers to search for homes for sale. It is much easier for real estate agents to promote homes they have listed for sale. Our relatively small Juliana Lee Team at JLee Realty has built and uses over 1,100 websites to promote every home we list for sale. The days of relying on paper listing books or even newspaper advertisements are long gone.
Every potential buyer who views a home will have a different perceived value of the home. Home sellers will get the best sale by having their homes seen by more good potential buyers. Home buyers benefit by being able to quickly learn about every home that might be of interest to them.
Zillow lost hundreds of millions of dollars by in large part relying on computer valuations to buy homes directly from home sellers. Homeowners want their homes to be special. They don’t want it to be the same as hundreds of other nearby homes. Each homeowner makes their own choices about how significant any feature is.
Although only briefly touched upon in the FTC press release, home improvements are an area where home sellers can be led to make less than optimal choices. It appears that Opendoor had sellers pay more in repairs than they would typically when using a traditional home sale. Zillow lost money by buying houses, fixing them up, and not being able to sell them for what they thought they would be worth. Sellers are frequently concerned that if they don’t fix up their home, it will sell for a lot less than comparable homes. We provide local statistics from the remodeling industry showing how much money is returned on typical remodeling (it typically losses money). We also use our first-hand experience working with buyers to guide our sellers.