A recent Federal Trade Commission (FTC) lawsuit and settlement with Opendoor Labs Inc. (Opendoor) is a must-read even if you are not in the real estate business. But if you don’t want to actually read it, we’ve got you covered. The case raises a range of issues regarding how savings claims are made to consumers and provides some insights on when representations may cross the proverbial line into deception. For most consumers, selling a home is the most significant commercial transaction they’ll make, and the FTC action challenges a range of different representations being made during the process.
Opendoor is an online real estate business that buys homes from consumers with the promise that consumers will make more money through Opendoor than if they were to sell their homes through more traditional real estate processes (you know, broker, open house, fresh-baked cookies and strangers snooping in your medicine cabinet). After purchasing homes, the company resells the homes on the open market. The problem was that the data did not seem to support the various claims the company was making to consumers.
There are a number of things about this case that are interesting and worth flagging. First, Opendoor told consumers that it would provide “market value” offers for their property, at times using terms such as “competitive market price” and “fair market values.” As anyone who has been in the turbulent real estate market of the past few years knows, the market value for a home is generally not a specific number but can charitably be described as a range. The complaint skirts around that issue because it alleges that Opendoor was using an automated system to generate expected market values, but at times employees “manually adjusted these values [that] were several percentage points below Opendoor’s assessment of market value.” Given this manual adjustment to below market value, the FTC avoids the more challenging issue of what “market value” means to consumers. In fact, the precise phrasing of the complaint makes this clear, as it does not challenge the “market value” representation per se, but instead alleges as deceptive that the offers made to consumers “represent its projections of the market value price of consumers’ homes without any downward adjustments.” Without the manual adjustment, this would have been a far more challenging claim for the agency to pursue.
The complaint also challenges a few other representations and practices as deceptive, including the representation that Opendoor makes its money from fees and not from “buying low and selling high.” It is not particularly common for the FTC to challenge a claim that focuses on how the company makes money from a particular transaction. Although not stated in the complaint, presumably, in this context, such a claim would be material to consumers because it would buttress the company’s market value offer and justify the imposition of the company’s fee (which ranged from 6 percent to 14 percent of the offer price). The complaint explains, however, that “resale gain” in fact contributed significantly to the company’s revenues.
In addition, there are allegations about repair issues (not right to repair issues), and the agency says Opendoor was deceptive when it told consumers that they would likely pay the same for repairs whether they used Opendoor or went the traditional home sale route. The company often requires consumers to make or pay for repairs after a property assessment is conducted. Repairs that a homeowner would have to make would of course factor into how much money the homeowner would ultimately collect in the transaction. And the complaint cites to a number of internal documents and studies that seem to contradict the notion that the company’s required repairs were comparable to repairs expected in a more traditional sale.
The case also provides some good reminders about disclaimers and the fact that they aren’t a cure-all, especially when they are hard to find. The complaint notes that there were two small and inconspicuous disclaimers at the end of the seller flow. Importantly, the disclaimers did not cure any deceptions that may have been made, particularly the disclaimer that stated that the offer “does not necessarily represent the ‘market value’ of your home” because it is not a formal appraisal.
The order is most noteworthy for the $62 million payment that the company will make. As we have explained before, despite the Supreme Court’s AMG decision, there are still multiple ways that the FTC can obtain money, and in this case, they are doing so through administrative litigation and Section 19 of the FTC Act.
There is a lot about this case that can be distinguished, particularly given the inherent complexities and nuances of real estate sales. But it is a good reminder that the FTC can approach a transaction from multiple angles and that you should focus on aspects of your representations that at first blush might not seem particularly material to consumers.