Opendoor has agreed to pay $62 million to settle the fees by the Federal Trade Commission, which says the company’s claims that it helps people make more money by selling their home to the company rather than listing it on the open market have been deceptive.
For years, the FTC said, the real estate tech company has been promoting itself as using its pricing technology to deliver “more accurate offers and lower costs.” These “iBuyers” use this method to place quick bids on homes, with enthusiastic claims that sellers will make thousands of dollars more than they do on the open market.
But according to the Federal Trade Commission, that wasn’t true.
The panel claims that not only did Opendoor’s bids fall below the home’s market value, but also that the company actually required sellers to pay more for home repair costs “which were higher than what people would normally spend on repairs on the market.”
The Federal Trade Commission says it will use the $62 million settlement to provide refunds to affected people.
Upendor addressed the situation in a written statement:
While we strongly disagree with the FTC’s claims, 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.
Importantly, the allegations raised by the Federal Trade Commission relate to activity that occurred between 2017 and 2019 and targeted marketing messages that the company modified years ago. We are pleased to leave this behind and look forward to continuing to provide consumers with a modern real estate experience.
The agreement is a blow not only to Opendoor, but also to the entire iBuying industry, which has operated for years on similar claims. There are a number of Opendoor competitors — including existing channels with traditional agents, as well as others like Compass and Redfin (which combined laying off more than 900 workers earlier this year) — who are also trying to change the old way of doing things. . Startups all over the world often promote themselves as “the open door to ___”.
Whether or not the settlement amount will be paid in full depends on which order is executed by the Department of Justice, which is responsible for collection on behalf of the Federal Trade Commission in these matters – fines are sometimes not paid or greatly reduced.
For its part, Opendoor went public in late December 2020 after completing its planned merger with SPAC Social Capital Hedosophia Holdings II, headed by investor Chamath Palihapitiya. The eight-year-old company offered its shares to the public for the first time at $31.47 per share. Today, the shares were trading at $4.78 after hours, slightly above the company’s 52-week low of $4.30. This means the company is valued at less than $3 billion, down from a valuation of $8 billion in 2021.
When it comes to venture capital, Opendoor raised another $300 million at a pre-cash valuation of $3.5 billion in March of 2019. Over time, it has raised about $1.3 billion in equity financing and about $3 billion in debt financing to fund its home purchases. Investors in the company include General Atlantic, SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel and Fifth Wall Ventures, among others.
Among the founders are Eric Wu and General Partner of the Founders Fund Keith Rabois.