Opendoor has agreed to pay $62 million to settle charges by the Federal Trade Commission, which says the company’s claims that it helps people make more money by selling their house to the company rather than listing it on the open market were deceptive.
For years, the real estate technology company has touted itself as using its pricing technology to provide “more accurate offers and lower costs,” said the FTC. Such “iBuyers” use this method to make quick offers on homes, with enthusiastic claims that sellers would make thousands of dollars more than they would on the open market.
But according to the FTC, that wasn’t true.
The commission alleges that not only were Opendoor’s offers lower than a home’s market value, but also that the company actually asked sellers to fork out more for home repair costs “that were higher than what people would typically spend on repairs in a market sale.”
The FTC says it will use the $62 million settlement to provide refunds to people who were affected.
Opendoor addressed the situation in a written statement:
While we strongly disagree with the FTC’s allegations, 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 FTC are related to activity that occurred between 2017 and 2019 and target marketing messages the company modified years ago. We are pleased to put this matter behind us and look forward to continuing to provide consumers with a modern real estate experience.
The agreement is a blow not only to Opendoor, but to the whole iBuying industry, which for years has operated based on similar claims. There are a number of competitors to Opendoor, including not only incumbent channels that involve traditional agents, but others like Compass and Redfin (which combined laid off over 900 workers earlier this year) also trying to change up the old way of doing things. Startups all over the world often promote themselves as the “Opendoor for ___.”
Whether or not the full settlement amount will be paid depends on the matter being enforced by the Department of Justice, which is responsible for collecting on behalf of the FTC in these matters — as sometimes penalties go unpaid or are vastly reduced.
For its part, Opendoor went public in late December 2020 after completing its planned merger with the SPAC Social Capital Hedosophia Holdings II, headed by investor Chamath Palihapitiya. The eight-year-old company first offered its stock to the public at $31.47 per share. Today, shares were trading at $4.78 after hours, only slightly higher than the company’s 52-week-low of $4.30. This means that the company is valued at just under $3 billion, down from a valuation of $8 billion in 2021.
When it comes to venture capital, Opendoor last raised $300 million at a $3.5 billion pre-money valuation in March of 2019. Over time, it has raised about $1.3 billion in equity funding and nearly $3 billion in debt financing to finance its home purchases. Investors in the company include General Atlantic, the SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel and Fifth Wall Ventures, along with others.
Founders include Eric Wu and Founders Fund General Partner Keith Rabois.