Nearly 55,000 home sellers who sold their houses to Opendoor Technologies Inc. OPEN, -3.48% will receive checks after the real-estate company settled a lawsuit alleging that it misled people into selling their homes for less than what they could have gotten on the open market.
The Federal Trade Commission on Wednesday announced that it was sending nearly $ 62 million in refunds to some 55,000 sellers who were “deceived by advertising and marketing claims” made by Opendoor.
The median refund is expected to be $ 1,024, according to the FTC’s refund tracker.
Over the past decade, Opendoor had emerged as one of the most prominent instant-buyer companies, or iBuyers — real-estate companies that buy homes from homeowners directly, rather than serving as a broker on the open market between sellers and other buyers.
Opendoor had “claimed to use cutting-edge technology to save consumers money,” the FTC said, by submitting offers at market value and “reducing transaction costs compared with the traditional home sales process.”
But that turned out to be deceptive, the FTC said, because home sellers were misled into thinking that they could earn more money by selling with Opendoor than by selling on the open market.
“In reality, most people who sold to Opendoor made thousands of dollars less than they would have by selling their homes using the traditional process,” the agency said.
When reached with a request for comment, Opendoor pointed to a statement from August 2022 in which it said it disagreed with the FTC’s allegations but had decided to settle the lawsuit brought forward by the agency. Opendoor agreed to pay monetary relief and to pay a penalty for deceptive practices.
The FTC brought forward the lawsuit against the Tempe, Ariz.-based company in 2022, alleging that Opendoor cheated home sellers by tricking them into believing they could make more money by selling their house to the company than by selling it to a buyer on the open market.
In fact, the FTC said, “many paid more in costs than what sellers typically pay.”
Companies like Opendoor make their money by buying homes at a discount and selling them quickly, Tomasz Piskorski, a professor at Columbia Business School who has studied the business model, told MarketWatch.
“They have to buy homes at somewhat of a discount relative to the average market value. … You cannot break even with this business model if you cannot buy at a discount,” he explained.
On average, iBuyers like Opendoor buy homes at a 3.6% discount relative to the amount a homeowner could get by selling their home through the traditional process, he said, based on his analysis. So a homeowner selling a $ 400,000 home would sell their home for $ 14,000 less if they were to sell to an iBuyer instead of to a typical home buyer.
Why would homeowners be interested in such an offer? “In some ways, the companies provide an economic premium,” Piskorski explained. People are able to sell their homes more quickly, but “it comes at a price — that convenience comes at the cost of selling the home at a discount,” he added.
Some of the biggest real-estate companies have already exited the iBuyer business, including Redfin RDFN, +0.49% in 2022 and Zillow Z, +0.26% in 2021.
“It’s a hard business to break even, because the margins are tight,” Piskorski said. “The biggest worry of iBuyers is to buy a home that they’ve overpriced. So to protect themselves, they buy homes at a discount. And they need to sell the home quickly.”
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