Opendoor in the News

$62 M Fine from the FTC

This week the Federal Trade Commission fined Opendoor $62 million, saying the iBuyer misled customers by saying they could make more money selling homes to the company than they would selling the traditional route. The consumer was supposed to save based on lower fees and higher offers. But the FTC found that open market sales were often higher and Opendoor charged more fees than Realtors. At issue was false advertising, not their business model.

Partnership with Zillow

PRNewswire shared that Zillow & Opendoor have announced a multi-year partnership that will allow home sellers on the Zillow platform to seamlessly request an Opendoor offer to sell their home. This will make it easy for customers to compare it to an open-market sale using a Realtor. At the same time, they also announced their new Opendoor Exclusives where they offer homes at a discount to subscribers 14 days before listing in the MLS>

Slashing Prices

Inman is reporting that Opendoor is cutting prices in a bid to get surplus inventory off the books. They dramatically boosed home sales in the 2nd quarter of 2022, generating $4.2B in revenue, but they were sill showing $54 M in losses.

False Advertising

Buyers and real estate investors do have a lot of things in common when it comes to buying and selling houses. Opendoor, like most real estate investors that market to buy houses, said that they made market value offers. Sometimes making claims that they were "Fair Market Value" and at others "Competitive Market Value."

What is Market Value?

The price I thought it would sell for in 120 days or less if it was all renovated, listed with a Realtor, and sold in a traditional manner. The price it would sell for again in 120 days or less, again with a Realtor, but now selling As-Is with no repairs or updates. The price it would sell for in 30 days or less, as-is, to a cash buyer if it were listed by a Realtor.

Those three values can vary quite a bit and we need to make sure we know the difference and why there is a difference.

The biggest difference between the 3 values is the time value of money. A homeowner can spend a lot of time and money getting a home ready to sell, skipping all that time, effort and money has value. And hiring a Realtor to market

at a cost, although that is often offset by a higher sales price generated. But when a home is sold "as is", in 30 days or less, the fair market value is going to be considerably less than it would be all renovated, listed by a realtor, with a traditional sale to a homeowner getting a mortgage and taking more than 30 days.

So in saying they offered fair market value, I don't think Opendoor was misleading. Saying they would pay more than what the home would sell for with a traditional sale through a Realtor and time frame, however, would be misleading.

What are Closing Fees

Next, they said they charged less in fees than would be charged by a Realtor. There I think most investors are safe as they don't charge a commission, however, if they might also be agents that would be happy to list, we need to be very clear that there is no commission charged when we buy the house. There might be one if we list it.

Another area that Opendoor got in trouble for was their claim of fewer fees. Most investor marketing claims that they cover all fees, as in closing costs. But what I have found is often a home seller does not know what a closing cost is. The investors and Realtors see fees paid to a title company, or the county to record as a closing cost. But what about tax prorations or liens, we don't consider those closing costs. Based n looking at reviews of a lot of real estate investor wholesalers, I am guessing that the average seller we work with might think otherwise.

Do they Buy the House?

One area that Opendoor did not get in trouble for that I think many investors might is the claim that they are actually going to buy the house. Opendoor did have a lot of CYA clauses that allowed them to back out, but if they closed they did buy it. A lot of real estate investors don't, and that is a huge problem when you say you will.

Why We Should Care

Individually, I don't think the FTC is going to come after any one real estate investor. But I do see local laws changing to curb what we can and can't do as real estate investors.

Several states have created new laws that require a wholesaler to have a real estate agent license, partly because we don't do what we say we are going to do and we are seen as taking advantage of the consumer. Kansas was discussing such a law just this past winter.

We as an industry really need to take a good look at this case because it will affect the regulation of our industry. Maybe not directly but as our legislators read about this case and get complaints from their constituents, laws will be proposed. When their constituents get scammed by a few bad apples and complain and rather than going after the few bad apples individually, they are going to tackle the industry as a whole, and not just investors, Realtors will be affected as well.

Just something for you to think about as you read your newsfeed each day.