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Opendoor Fined $62 Million for Misleading Home Sellers

Updated: Apr 24

In a significant development in the real estate industry, the Federal Trade Commission (FTC) recently announced that Opendoor Technologies, a prominent instant-buyer real estate company, will be compensating around 55,000 home sellers with rebates averaging $1,024 each. This decision comes after the FTC accused the company of misleading these sellers, resulting in them selling their homes at prices lower than what they might have received on the open market.


For over 36 years, I've been immersed in the mortgage and real estate sectors, and I've been vocal about my concerns regarding the business practices of iBuyers like Opendoor and OfferPad. When these companies first entered the market, their advertising suggested they could expedite the home selling process without the usual hassle, promising fair market value offers. However, as I've often pointed out, their approach frequently results in sellers receiving less than their home’s true market value.


The Settlement and Its Implications


The settlement of the lawsuit filed by the FTC against Opendoor is a telling moment for the industry. Opendoor, which has positioned itself as a disruptor in real estate by buying homes directly from owners and flipping them quickly, claimed to leverage "cutting-edge technology to save consumers money" by offering "market value" deals with reduced transaction costs. The FTC, however, found these claims to be deceptive. In reality, most homeowners ended up making thousands less than they would have through the traditional home selling process, often paying higher costs as well.


The FTC’s findings highlight a critical issue: while the convenience of selling to iBuyers is undeniable, it comes with a significant cost. The sellers not only lose out on potential profits from their homes but also incur substantial transaction fees. This model, as the FTC points out, tends to benefit the iBuyer at the expense of the seller.


Understanding the iBuyer Business Model


The business model of iBuyers involves purchasing homes at a discount and then quickly selling them for a profit. Tomasz Piskorski, a professor at Columbia Business School, notes that these companies generally buy homes at about a 3.6% discount from market value. For a homeowner considering selling a $400,000 property, this means potentially losing about $14,000 compared to a sale through traditional methods.


The allure of iBuyers lies in their promise of speed and simplicity. However, the economic trade-off is significant. Sellers gain the convenience of a quick sale but sacrifice a portion of their home’s value. As Professor Piskorski points out, while there is an "economic premium" in the speed of the transaction, the financial disadvantage of accepting a lower offer is a stark reality.


 

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A Better Alternative


For homeowners looking to sell their property swiftly without forfeiting its worth, there is a more advantageous route than turning to an iBuyer. Working with a local real estate agent who understands the market dynamics can help in pricing the property appropriately, ensuring a fast sale while maximizing the return. In my extensive experience in real estate, I've seen many sellers achieve better outcomes through this traditional route, often more cost-effectively than when dealing with tech-based real estate companies.


My Commitment to You


If you are considering selling your home, or if you need advice on any real estate or mortgage-related matter, feel free to reach out to me. With decades of experience and a deep understanding of market trends, I am here to guide you through the complexities of real estate transactions. Whether you need a trustworthy agent referral or simply wish to discuss your options, my commitment to providing honest, informed advice remains unwavering.


The recent FTC settlement serves as a cautionary tale for home sellers attracted by the seemingly convenient solutions offered by tech-based real estate firms. While these companies offer a quick and easy sale, the financial implications are significant. As always, it pays to be informed and to consider all your options carefully before deciding on the best path for selling your home.


 

About the Author


Frank Garay is a distinguished figure in the mortgage industry, with a career that began in 1987 and spans several decades of exceptional service. He co-founded the National Real Estate Post in 2009, a video blog that quickly amassed over 250,000 subscribers, becoming a staple for real estate professionals nationwide. In 2010, Frank was honored as one of the Inman 100, marking him as one of the most influential people in real estate.


Frank's expertise has also been showcased on national television, where he has been a featured guest on the Fox News show "After the Bell." His insights on real estate and mortgage trends during these appearances have solidified his reputation as a trusted industry expert.


Currently, Frank leads Mortgage Masters of California, where his deep market knowledge continues to drive success. He also hosts the Loan Officer Breakfast Club, a thriving platform for mortgage originators to connect and learn.


If you have any real estate or mortgage needs, do not hesitate to reach out to Frank Garay. His vast experience and proven leadership make him an invaluable resource for navigating the complexities of the housing market. Connect with Frank for expert guidance and superior mortgage solutions.


Reach out to Frank Garay at 707-695-6313, for your real estate and mortgage needs and experience the difference that expert advice can make.


  • To schedule a quick Zoom call with Frank CLICK HERE.

  • To schedule a private First Time Home Buyer Class with Frank CLICK HERE.

  • Real Estate Agent and you want to be featured on the Vibe? CLICK HERE.



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