A prominent iBuyer’s marketing tactics opened the door to a big penalty from the Federal Trade Commission.
The FTC fined Opendoor $62 million, saying the iBuyer misled customers by saying they could make more money selling homes to the company than via the traditional route, Insider reported. The fine is part of a settlement with the agency.
According to the FTC, Opendoor’s marketing materials appeared to promise consumers would make more selling to the company because all fees were bundled together. The agency, however, found consumers often paid more. It also found Opendoor on average paid below market values for homes.
As part of the settlement, the company is required to stop making “deceptive” claims in its advertising, which Opendoor claims has already been modified. The fine, meanwhile, is expected to be used to pay back consumers duped by the company.
Opendoor released a statement saying its leaders “strongly disagree” with the FTC’s allegations, despite settling the case.
San Francisco-based Opendoor is one of the most prominent iBuyers, recently logging its first profitable quarter in its eight-year history. The company, founded by Eric Wu, reported record revenue of $5.2 billion for the first quarter.
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And then there were two: Opendoor, Offerpad sniff iBuying opportunities
One of the consumer appeals of iBuyers such as Opendoor is the ability to sell a home quickly and efficiently. There has also been a perception that iBuyers may pay more for homes, as the companies proceed to make quick renovations and put the homes back on the market, hoping to reap further profit.
But the model’s durability has been called into question after Zillow’s iBuying business fell apart in the fall. Share prices for iBuyers, which also include Offerpad and Redfin, started slipping and analysts started downgrading them ahead of the housing market turmoil.
To succeed, iBuyers need to be able to estimate home values across different markets, manage the renovation resources and handle the cost of carrying inventory. When prices are declining or buyers are being priced out of the market, the system can easily falter.
Wu founded Opendoor in 2014 and the company went public six years later. The company made $28 million in net income in the first quarter and was responsible for the purchase of nearly 37,000 homes last year.
— Holden Walter-Warner