FTC seeks $62 million compensation from Opendoor for false advertising claims

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Opened door agreed to pay $62 million to settle charges from the Federal Trade Commission that the company’s claims that it was helping people make more money by selling their home to the company rather than listing it on the open market were misleading.

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For many years, a real estate technology company advertised himself as using its pricing technology to provide “more accurate offers and lower costs,” the FTC said in a statement. Such “iBuyers” use this method to make quick home offers, with enthusiastic claims that the sellers will make thousands of dollars more than the open market.

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But according to the FTC, this was not true.

The commission alleges that not only were Opendoor’s offers below market value for the home, but the company was actually asking sellers to fork up the costs of renovating the home “in order to were higher than what people usually spend on repairs at a market sale.”

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The FTC says it will use the $62 million settlement to make amends to those affected.

Opendoor addressed the situation in written statement:

While we strongly disagree with the FTC’s assertions, our decision to settle with the Commission will allow us to resolve this issue and focus on helping consumers buy, sell and move with ease, confidence and speed.

It is important to note that the charges brought by the FTC are related to actions that took place between 2017 and 2019 and targeted marketing messages that the company changed several years ago. We are happy to put this issue behind us and look forward to continuing to provide consumers with a state-of-the-art real estate experience.

This agreement is a blow not only to Opendoor, but to the entire iBuying industry, which has operated on similar claims for years. Opendoor has a number of competitors, including not only traditional channels featuring traditional agents, but others such as Compass and Redfin (which have combined over 900 workers laid off earlier this year) is also trying to change the old way of doing things. Startups around the world often advertise themselves as “Opendoor for ___”.

Whether the full amount of the settlement is paid depends on the matter being handled by the Department of Justice, which is responsible for collecting on behalf of the FTC in these matters, as sometimes fines remain unpaid or are significantly reduced.

In its turn, Opendoor went public at the end of December 2020 after completing its planned merger with SPAC Social Capital Hedosophia Holdings II, led by investor Chamat Palihapitiya. The eight-year-old company offered its shares to the public for the first time at $31.47 per share. Today, shares traded priced at $4.78 after hours, only slightly above the company’s 52-week low of $4.30. This means the company is valued at just under $3 billion, up from an $8 billion valuation in 2021.

In terms of venture capital, Opendoor last raised $300 million on preliminary estimate of $3.5 billion in March 2019. Over time, the company has raised about $1.3 billion in equity and almost $3 billion in debt financing to fund home purchases. The company’s investors include General Atlantic, SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel and Fifth Wall Ventures, among others.

Founders include Eric Wu and Founders Fund general partner Keith Rabois.

Credit: techcrunch.com /

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