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The FTC is investigating Opendoor over its advertising practices

iBuying company Opendoor is under investigation by the Federal Trade Commission over its advertising practices and the way it presents its real estate offerings to consumers.

HousingWire reported last week that the FTC’s investigation was revealed by Opendoor’s S-4 statement, which revealed how the firm intends to go public via a merger with a special purpose acquisition company (SPAC) called Social Capital Hedosophia Holdings Corp. II.

SPACs provide startups with a faster route to public markets, without the risks associated with an initial public offering, or IPO.

Opendoor’s filing also revealed a previously unknown 2019 civil investigative demand:

“In August 2019, the FTC sent a civil investigative demand to Opendoor seeking documents and information relating primarily to statements in the company’s advertising and website comparing Opendoor’s offers to purchase homes to selling in a traditional manner using an agent and statements pertaining to Opendoor’s offers reflecting or being based on market prices,” the filing reads.

The filing adds that this investigation is still ongoing. Opendoor couldn’t avoid revealing this investigation because it’s pertinent information that potential investors in the company must be made aware of. The filing adds that this investigation is still ongoing.

Opendoor is credited with establishing the iBuying model in real estate. It operates by making instant cash offers to home sellers that want to bypass the traditional route for selling in order to sell their homes more quickly. They usually have to pay a higher commission for the convenience, though.

Opendoor, along with other iBuyers, briefly suspended its operations when the COVID-19 outbreak hit the U.S. in March. The company also said it would layoff around 35% of its staff amid fears that the real estate sector would take a big hit from the pandemic. However, the market has since roared back to life, prompting Opendoor and other iBuyers to accelerate their business plans once again. One advantage of the iBuying model is that it allows the entire transaction to be completed digitally, thus it’s perfect in the age of social distancing.

Opendoor full business operations in all 21 of its markets by mid-August.

“We are just scratching the surface today,” Opendoor said in its filing, according to HousingWire. “We believe we have a massive opportunity to expand our reach to the top 100 markets in the United States.”

Opendoor sold more than 8,000 homes last year and generated $4.7 billion in revenue, according to the company. However, the company has yet to reach profitability. In the first six months of this year, Opendoor posted a net loss of $118 million.

Mike Wheatley

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

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