FTC slams Opendoor with $62 million settlement over false advertising claims – TechCrunch

Opendoor has agreed to pay $62 million to settle charges from the Federal Trade Commission, which says the company’s claims that it helps people make more money by selling their homes to the company rather than putting it on the open market were misleading.

For years, the real estate technology company has bragged about using its pricing technology to provide “more accurate offers and lower costs,” the FTC said. These “iBuyers” use this method to make quick offers on homes, with enthusiastic claims that sellers will make thousands of dollars more than they would on the open market.

But according to the FTC, that was not true.

The commission alleges that not only were Opendoor’s offers lower than the market value of a home, but also that the company actually asked sellers to pay more for home repair costs “which were higher than what people would typically spend on repairs when selling on the market”.

The FTC said it would use the $62 million settlement to reimburse those 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 issue and focus on helping consumers buy, sell and move with ease, certainty and speed. .

Importantly, the allegations raised by the FTC relate to activities that occurred between 2017 and 2019 and to targeted marketing messages that the company changed years ago. We are happy to put this issue behind us and look forward to continuing to provide consumers with a modern real estate experience.

The deal is a blow not just to Opendoor, but to the entire iBuying industry, which for years has operated on similar claims. There are a number of competitors to Opendoor – including legacy channels that involve traditional agents, as well as others like Compass and Redfin (which combined laid off more than 900 workers earlier this year) – who are trying also to change the old method. to do things. Startups around the world often advertise themselves as the “open door for ___”.

Whether or not the full settlement amount is paid depends on the matter implemented by the Department of Justice, which is responsible for collecting on behalf of the FTC in these cases – as sometimes penalties are not paid or are considerably reduced.

For its part, Opendoor went public at the end of December 2020 after finalizing its proposed merger with SPAC Social Capital Hedosophia Holdings II, led by investor Chamath Palihapitiya. The eight-year-old company first offered its shares to the public at $31.47 per share. Shares were trading at $4.78 after hours today, only slightly higher than the company’s 52-week low of $4.30. That means the company is valued at just under $3 billion, down from a 2021 valuation of $8 billion.

As for venture capital, Opendoor last raised $300 million at a pre-money valuation of $3.5 billion in March 2019. Over time, it has raised around $1.3 billion. in equity and nearly $3 billion in debt financing to finance its real estate purchases. The company’s investors include General Atlantic, the 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 Keith Rabois, general partner of the Founders Fund.