Last Friday, the Federal Trade Commission (FTC) finalized a consent order against online home buying service Opendoor Labs Inc. over allegations that it robbed consumers of home sale profits because, though it advertised otherwise, its purchase offers were below market value and its costs significantly higher than what consumers typically pay. Per the final order, Opendoor must pay $62 million for alleged violations of the FTC Act which Opendoor neither admits nor denies.
The complaint explains that Tempe, Ariz.-based Opendoor operates an online real estate business that buys homes directly from consumers as an alternative to consumers selling their homes on the open market, among other things. The company advertises itself as an “iBuyer,” claiming to use premier technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the conventional home sales process.
The FTC alleges that Opendoor promised consumers more money from selling their homes to it than by selling on the market. “In fact, the vast majority of consumers who sold to Opendoor lost thousands compared to what they would have realized in net proceeds from selling on the market because Opendoor’s offers have been below market value on average and its costs have been significantly higher than what consumers typically pay,” the complaint says.
The FTC alleges that Opendoor took various steps to reduce offers below what their internal valuation system deemed to be a home’s market value. For example, the agency points to a policy instituted in August 2018 of lowering offers to cover anticipated repair costs without disclosing that they were less than market value. “If actual assessed repairs were lower than the amount withheld, Opendoor retained the difference as revenue,” the filing adds.
The agency also notes that Opendoor employees sometimes manually adjusted offers before presenting them to consumers and baked in resale risks to the offer price though it claimed to account for those risks with the custom fee associated with each offer.
The eight-figure settlement is expected to be returned to consumers who lost money using Opendoor. Further, the FTC’s order requires that the company not make further false or deceptive claims about money consumers can expect to receive or the costs they will have to pay to use its service.
