On August 1st, 2022, the Federal Trade Commission fined Opendoor $62 million for "cheating sellers with misleading claims".
We've all seen the ads: I'll buy your house as is. You can close on your schedule, and you’ll make a lot more money in the end. Sounds good, right? Well, the Federal Trade Commission found in their investigation of Opendoor, it is too good to be true, and that consumers were being plagued with "deceptive and misleading practices."
The FTC detailed why Opendoor's marketing materials were deceptive in a 14-page report that included screenshots of Facebook ads and website charts of costs shown to customers. The FTC said this evidence seemed to promise consumers they would make more money by selling to Opendoor because all fees were bundled together into one amount.
This has been an issue I've spoken about many times with my clients- the strategy many iBuyers use of making a very high "offer price" and then significantly reducing the net to seller with fees, repairs, commissions, etc. is misleading.
The practice put honest investors at a disadvantage if they make a fair offer and that is what they actually pay the home owner without adding fees, repairs, commissions, and other charges to the transaction.
The practice also implied the seller was getting "market value" for their home without ever exposing the property to the market in the way an experienced, licensed agent would do to achieve the highest price for the seller.
Let's look at the good, the bad, and the ugly of the iBuyer programs. Zillow, for example, promised to revolutionize the real estate industry — buying houses "as-is" then fixing them up and selling them. In fact, they were doing just that in a lot of major markets, including right here in the Twin Cities (Minneapolis, St Paul and surrounding cities).
Then Zillow became a licensed real estate broker, so they could attempt to eliminate commissions where possible and participate whenever they could, but they ran into just one major challenge. It’s hard work to sell a house, especially in such a way that maximizes the seller proceeds. 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. Zillow promised that, but found that they could not deliver consistently, so they exited the "instant offer" business in October of last year.
Opendoor, however, continued and ultimately achieved profitability for the first time earlier this year.
I think this is a step in the right direction to keeping real estate open and honest.
FTC Press Release: https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-takes-action-stop-online-home-buying-firm-opendoor-labs-inc-cheating-potential-sellers
You thoughts?
