There’s a warning for iBuyer- type companies in this week’s finding by the Federal Trade Commission (FTC) this week that at the very least, they will need to stop claiming that their clients stand to make more money by selling to them than by choosing to sell their homes the traditional way, through a realtor.
The FTC finding was against Opendoor Labs Inc which, like most iBuyer-type organisations, claimed to use technology to calculate the “fair market value” of homes and to ensure that its clients would net more money from their home sales than those who chose to sell in the traditional way.
However, the FTC said, the truth is that most people who sold to Opendoor actually netted thousands of dollars less than they would have made if they had worked with a realtor, and suffered other misrepresentations too.
And in a shot across the bows for other iBuyer-type companies, FTC Consumer Protection Bureau director Samuel Levin noted: “Outdoor promised to revolutionise the real estate market but actually built its business using old-fashioned deception. There is nothing innovative about cheating consumers.”
After an investigation, the FTC found that Opendoor’s marketing materials were “deceptive and misleading” and that it had cheated sellers by:
- Basing its purchase offers on projected market values that were adjusted downwards;
- Claiming to make money by charging a service fee similar to a traditional sales commission, when in reality it made money by “buying low and selling high”; and
- Claiming that its clients would save on both repair costs and closing costs when this was not necessarily true.
The FTC has consequently issued an administrative order which will see Opendoor pay an amount of $62m to be used for consumer redress. The company has also had to agree to stop making false claims about how much money clients will receive or what it will cost them to use the service, and to produce competent and reliable evidence when making any claims about the comparative costs of iBuyer-type services and traditional homes sales.
The FTC has not stated whether it is currently investigating any other iBuyer-type companies, but it is safe to assume that it would take similar action against any found to be deceiving consumers in the same way as Outdoor, so this week’s finding is definitely a victory for traditional realtors whose processes and costs have been unfairly and falsely compared to those of the online home-buying companies.
