per the article, they were fined 62 million for (years of?) fraud.
Their 2021 profit alone was 730 million (on 8 billion revenue).[1]
When the fine is less than 9 percent of one years profit, will they really stop doing what they're doing?
edit: a lot of people are saying the company actually lost money. But, and this is an honest question, is it really 'losing money' when the majority of that loss is "primarily driven by non-cash stock based compensation of $536 million"? Looking at previous compensation tables, it looks like the top four people in the company are earning 100+ million in stocks? Is that what's making the company be considered in the red? [2]
Yes, if they don't want to get an easy reaming by the federal government, because in addition to the cash portion of the settlement, the consent decree includes:
(1) a requirement that they stop making the specific claims that were at issue, and
(2) a requirement that they stop making any financial claims to consumers without “competent and reliable evidence to support” those claims.
That basically means that if they keep doing anything like what was claimed in this case, the FTC gets to treat them like a money piñata without proving a violation of the generally-applicable rules, because they’ve accepted, in a legally-binding way, stricter rules where violations are easier to prove and harder to refute.
The cash payment is almost never the most important part of a settlement with a regulatory agency in terms of preventing similar future abuse by the same company.
The FTC has two major enforcement mechanisms available to it: The normal administrative one where the agency initiates an administrative proceeding, makes a judgement, then more or less must restart the process with a court case to enforce that judgement. The second mechanism allows it to go directly to a court.
Exactly what the FTC is allowed to ask for is a bit convoluted because the law isn't very clearly written. One reading says they can do the common sense thing by demanding profit from illegal conduct be returned and impose punitive damages - especially on repeat offenders, along with imposing penalties for damage done to the overall market. The other reading says they can only ask for money to reimburse specific consumers for specific damages (so as a consumer your time, aggravation, etc are worth $0; damage to your competitors who were operating fairly don't count). And by the more restrictive reading the direct-to-court route only allows them to seek an injunction, no damages.
Unfortunately SCOTUS recently said the FTC is not allowed to seek anything except an injunction via the direct-to-court path and if that case is any indicator it is likely courts will also prohibit punitive damages and profit disgorgement via the administrative route as well. That severely restricts the ability of the FTC to punish companies.
For example a recent case involved DreamCloud mattresses that claimed they were made in the USA with 100% USA materials... when in fact some of their mattresses were pure imports and others were made in the USA of imported materials. Under the new court rulings the FTC has to show how this harmed the purchasers of the mattresses and can only seek money to compensate those consumers for those damages. The FTC can no longer impose penalties for the obviously flagrant conduct, for the harm they did to the overall marketplace, for the harm to competitors (both those who do and do not manufacture in the USA), etc. Anything that doesn't have a directly measurable monetary value is irrelevant. And if DreamCloud does the same thing again it hardly matters because the FTC is limited to the same remedies.
We need Congress to pass an act cleaning up the FTC's enforcement powers.
They lost $662MM last year. “Gross profit” is before all their operating expenses. It’s a confusing term if you’re not used to reading financial statements.
Or, it might imply that the size of their infraction was pretty small compared to the size of the business they were doing. It might also imply that the FTC wasn't too certain they could prevail if it went to court, and OpenDoor was willing to settle for a relatively small fine but if the FTC tried to get a large fine they were worried the court might find the disparity between market and what OpenDoor was quoting was within the margin of uncertainty.
I mean, there were several companies providing quick online estimates of house value. I don't see how OpenDoor could have been all that far off the market value, without most people noticing.
"Gross profit" was $730 million. Net loss was actually $662 million.
I think a better metric is to look at how many homes Opendoor bought (36908 in 2021), and if possible identify those transactions where some misleading marketing took place (not sure if that's possible), then divide the fine by that much.
To answer your edit, yes, it’s still considered losing money when it’s due to compensation. Stock is an asset of the company so it’s not free to give away, even though it’s not cash. Second, they still lost money when excluding that compensation. It’s so far from your original idea that they were fined for less than 10% of annual profits.
I understand your dismay but starting with good numbers is an important part of financial and trade regulation.
It depends on how much money they made on the fraud divided by the probability of getting caught. The company’s entire profit isn’t really relevant.
According to your link the company actually lost money. So if the fine should be proportional to the company’s profit, the government should be paying Opendoor?
I'm not really sure I'd call this fraud. In that Opendoor delivered the product the customer was promised and paid for. Lying about the quality of that product compared to the alternatives is dishonest for sure but I don't think anyone here was really cheated. It's understood that when companies tout their product compared to competitors it's not a fair comparison.
Check this out: the "Head of Brand Marketing" for Opendoor, Kyle Tibbitts[0], left a few years ago to be the Head of Marketing at Fast.co[1], another scam that imploded. Right before Fast collapsed, he left to join a new real estate startup, wander.com[2], which is now launching a real estate investment vehicle, "Wander Atlas"[3], to stay afloat. The marketing page says they are "Democratizing access to the private market behind Wander".
The guy is 2/3 on scams... with a good chance of landing 3/3 in due time.
That's not how it actually works in Japan. Single family houses aren't really built to last, and may depreciate to nothing over 30 years. But the land still has value, and may well be a good investment. People looking at the real estate market sometimes get confused and lump the land together with the improvements, but those are really two totally separate asset classes.
How much savings do you have? I bet you can afford something. Usually when people say this, in my experience, it means they have some set of arbitrary requirements that aren't being fulfilled. That's fair enough, but you can afford something.
I'm hopeful that Opendoor can make home buying/selling as quick and easy as Carvana has made buying and selling cars.
I think key to that is to ensure they minimize the amount of time they hold any property. Don't try to make money on the long term movements of the market. Just buy the house at a slight discount by saving on realtor and closing cost fees and do the same on the buy side - turn it around fast, low profit margin, but at national scale.
That could be a recipe for success, but yea they need to be honest that there's no guarantee their offer is better than the open market because you never know. It's up to the seller to make that judgement call. I have many friends who were able to sell quick with Opendoor, full well knowing they were potentially losing some money in exchange for convenience. That's ok if we're all honest about it.
Economics has long understood the strength pricing signals have to skew markets. I think a lot of the growth in real estate have been these phony buyer and pricing platforms (open door, zillow & redfin). Sellers are constantly being bombarded with pricing signals about their house, even when off market. And because they are "algorithmic", sellers trust them more than a listing agent.
A good example study followed pricing when a city set a cap on Payday loans that was higher than the average market rate. Once the cap went into effect, all of the lenders below the cap moved their rates up to the cap.
You see this with Cars & Kelly Blue book as well.
All of these pricing signals skew the market and should be banned.
Well, "pricing signals" skewing markets is what is supposed to happen, that's also how a healthy market works. As a counterexample, opacity in the labor market has long allowed employers to underpay, because most of their labor force don't realize what the pushy few who demand a raise are getting. I have also been able to get a better price on cars (not this year, but in normal car markets) by making it obvious to the dealer that I was looking at the Kelly Blue Book, so that they didn't think I would be willing to pay more than that. Removing price signals typically provides more power to the larger party, that does more transactions in that market, and thus has a large advantage in knowledge of price.
The issue here wasn't that Opendoor had pricing signals, but rather that they were lying about what those market prices were.
> All of these pricing signals skew the market and should be banned.
Aside from the obvious issues with prior restraint, where do you stop? In real estate, a list of comparable sales (comps in RE speak) is commonly used to set an asking price. That list is clearly a pricing signal, would you advocate hiding the sales price of houses?
Ok, now you’ve done that, how does the government assess property taxes? And when they do, are those assessments now secret as well?
You’re going down a really dark and weird road to try to fix a small part of a big problem…
I bought a house last year in a very active market and briefly looked at OpenDoor listings, but was not at all impressed with the company. I love the idea of being able to buy/view/sell a home without dealing with a realtor, but my experience with Opendoor was rough and something about the company was off-putting. I'm not surprised about the headline complaint here, but this detail shocked me:
> its costs have been higher than what consumers typically pay when using a traditional realtor
Really?! Beating the seller costs of a traditional realtor in the US is an incredibly low bar. Creating a tech solution that costs even more is absurd.
My brother bought a house recently, they placed a strong offer on an OpenDoor home and they heard back the next day saying they had a higher offer by almost 20%. So, they said no worries - we'll go with a different home then.
OpenDoor allegedly came back immediately with "wait wait wait! the other offer actually fell through, so you got the home!"
> So how is the FTC determining the counterfactual of what the homes would have sold for on the open market?
The complaint [0] which preceded the settlement laid out the detailed narrative of specific steps Opendoor took to reduce it's offers based on its own internal estimate of market prices, and Opendoor’s own internal analyses of it's offered prices (separately on accepted and customer rejected offers) being below market value.
> In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because [1]the company’s offers have been below market value on average and [2]its costs have been higher than what consumers typically pay when using a traditional realtor.
My understanding of Opendoor is that their product specifically targets homes in the low to mid range of the price distribution, making it easier for them to have a high-quality prediction on whether acquiring a home can be profitable to them.
for [1] this almost surely means they will be below market on average, since the upper-bound is unconstrained. Home prices follow a log-normal distribution.
[2] sounds worse. A typical agent-driven transaction is between 4.5% and 6% of the sale price. For Opendoor to be pocketing _more_ than this is a pretty bad value prop. However, even granting that this is the case -- there is some premium that certain home sellers may place on just washing their hands of the whole process, handing their keys to Opendoor and getting a check next week. That seems fine to me, but not if Opendoor are claiming otherwise.
> Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor.
If Opendoor is paying more than what you'd get in the open market, where are they going to make the money from? Aren't they going to lose money on every deal then?
There's the old adage: if it sounds too good to be true, it usually is.
I thought the trade off was largely understood by the seller eg you take a small discount in exchange for a very fast and reliable sales process where you can sell to Opendoor in days vs weeks/months in a traditional sales process?
If they cut out the real estate fees, yeah you can make (save?) More money by selling to them. And they can still turn a profit... A portion of the profit the real estate agents would have made.
Opendoor got $1.9B in funding for this business model. In ten rounds. Did none of those VCs do anything approximating due diligence? Or did they do it and just not care that it was basically an AI-washed version of a very old con? Seems like there was more than one act of malfeasance here.
Separate point what's with the tendency other than to try and impress and mislead in some way to use 'Labs' (ie Opendoor Labs) in your business name when what you are doing has nothing to do at all with the traditional definition of a laboratory. (I know others do this as well.)
I have always thought that the way west societies use real estate ties people into a societal contract which obliges them to work in less than ideal conditions.
If you don't come from a wealthy family you need to get at least a 30 year loan. The moment you get a 30 year loan you have enormous pressure to generate income every month and will accept non ideal conditions. Essentially, by getting debt you lose leverage.
Judging from the losses they are taking on short sales, Opendoor seems to have overpaid on the bulk of their home inventory. Ironic to get penalized for deceptive practices, but not actually profit from them.
They did profit from the deceptive practices (lying to customers about buying at market rates while systematically doing so significantly below market), it just was dwarfed by the losses from other things they did.
Opendoor technologies(OPEN) is currently trading at $4.79, way below their all time high of $35.88 back in Feb 2021. They went public via SPAC merger with IPOB on Dec 18, 2020.
“To settle the FTC’s charges that the company’s claims were deceptive, Opendoor has agreed to pay $62 million, which the FTC will use for refunds to people who were affected.”
[+] [-] slickdork|3 years ago|reply
Their 2021 profit alone was 730 million (on 8 billion revenue).[1]
When the fine is less than 9 percent of one years profit, will they really stop doing what they're doing?
edit: a lot of people are saying the company actually lost money. But, and this is an honest question, is it really 'losing money' when the majority of that loss is "primarily driven by non-cash stock based compensation of $536 million"? Looking at previous compensation tables, it looks like the top four people in the company are earning 100+ million in stocks? Is that what's making the company be considered in the red? [2]
[1]https://investor.opendoor.com/news-releases/news-release-det...
[2] https://investor.opendoor.com/node/8201/html#tEC
[+] [-] dragonwriter|3 years ago|reply
Yes, if they don't want to get an easy reaming by the federal government, because in addition to the cash portion of the settlement, the consent decree includes:
(1) a requirement that they stop making the specific claims that were at issue, and
(2) a requirement that they stop making any financial claims to consumers without “competent and reliable evidence to support” those claims.
That basically means that if they keep doing anything like what was claimed in this case, the FTC gets to treat them like a money piñata without proving a violation of the generally-applicable rules, because they’ve accepted, in a legally-binding way, stricter rules where violations are easier to prove and harder to refute.
The cash payment is almost never the most important part of a settlement with a regulatory agency in terms of preventing similar future abuse by the same company.
[+] [-] xenadu02|3 years ago|reply
Exactly what the FTC is allowed to ask for is a bit convoluted because the law isn't very clearly written. One reading says they can do the common sense thing by demanding profit from illegal conduct be returned and impose punitive damages - especially on repeat offenders, along with imposing penalties for damage done to the overall market. The other reading says they can only ask for money to reimburse specific consumers for specific damages (so as a consumer your time, aggravation, etc are worth $0; damage to your competitors who were operating fairly don't count). And by the more restrictive reading the direct-to-court route only allows them to seek an injunction, no damages.
Unfortunately SCOTUS recently said the FTC is not allowed to seek anything except an injunction via the direct-to-court path and if that case is any indicator it is likely courts will also prohibit punitive damages and profit disgorgement via the administrative route as well. That severely restricts the ability of the FTC to punish companies.
For example a recent case involved DreamCloud mattresses that claimed they were made in the USA with 100% USA materials... when in fact some of their mattresses were pure imports and others were made in the USA of imported materials. Under the new court rulings the FTC has to show how this harmed the purchasers of the mattresses and can only seek money to compensate those consumers for those damages. The FTC can no longer impose penalties for the obviously flagrant conduct, for the harm they did to the overall marketplace, for the harm to competitors (both those who do and do not manufacture in the USA), etc. Anything that doesn't have a directly measurable monetary value is irrelevant. And if DreamCloud does the same thing again it hardly matters because the FTC is limited to the same remedies.
We need Congress to pass an act cleaning up the FTC's enforcement powers.
[+] [-] 1123581321|3 years ago|reply
[+] [-] rossdavidh|3 years ago|reply
I mean, there were several companies providing quick online estimates of house value. I don't see how OpenDoor could have been all that far off the market value, without most people noticing.
[+] [-] hn_throwaway_99|3 years ago|reply
I think a better metric is to look at how many homes Opendoor bought (36908 in 2021), and if possible identify those transactions where some misleading marketing took place (not sure if that's possible), then divide the fine by that much.
[+] [-] 1123581321|3 years ago|reply
I understand your dismay but starting with good numbers is an important part of financial and trade regulation.
[+] [-] fshbbdssbbgdd|3 years ago|reply
According to your link the company actually lost money. So if the fine should be proportional to the company’s profit, the government should be paying Opendoor?
[+] [-] treis|3 years ago|reply
[+] [-] keyboardclicker|3 years ago|reply
The guy is 2/3 on scams... with a good chance of landing 3/3 in due time.
[0]: https://www.linkedin.com/in/kyletibbitts [1]: https://news.ycombinator.com/item?id=30922981 [2]: https://www.wander.com [3]: https://www.wander.com/atlas
[+] [-] newfonewhodis|3 years ago|reply
[+] [-] kadomony|3 years ago|reply
Why? It'd drive investment into other avenues, keep commodities cost low, and get more people into houses. The current housing market is stupid.
-A disgruntled millennial who despite great savings can't afford anything
[+] [-] nradov|3 years ago|reply
[+] [-] TedDoesntTalk|3 years ago|reply
I’m sorry for your experience. I’m Gen X and can’t imagine how frustrating this must be for you.
[+] [-] endisneigh|3 years ago|reply
[+] [-] foogazi|3 years ago|reply
anywhere ?
[+] [-] nabakin|3 years ago|reply
[+] [-] trixie_|3 years ago|reply
I think key to that is to ensure they minimize the amount of time they hold any property. Don't try to make money on the long term movements of the market. Just buy the house at a slight discount by saving on realtor and closing cost fees and do the same on the buy side - turn it around fast, low profit margin, but at national scale.
That could be a recipe for success, but yea they need to be honest that there's no guarantee their offer is better than the open market because you never know. It's up to the seller to make that judgement call. I have many friends who were able to sell quick with Opendoor, full well knowing they were potentially losing some money in exchange for convenience. That's ok if we're all honest about it.
[+] [-] dlandis|3 years ago|reply
[+] [-] tonymet|3 years ago|reply
A good example study followed pricing when a city set a cap on Payday loans that was higher than the average market rate. Once the cap went into effect, all of the lenders below the cap moved their rates up to the cap.
You see this with Cars & Kelly Blue book as well.
All of these pricing signals skew the market and should be banned.
[+] [-] rossdavidh|3 years ago|reply
The issue here wasn't that Opendoor had pricing signals, but rather that they were lying about what those market prices were.
[+] [-] happyopossum|3 years ago|reply
Aside from the obvious issues with prior restraint, where do you stop? In real estate, a list of comparable sales (comps in RE speak) is commonly used to set an asking price. That list is clearly a pricing signal, would you advocate hiding the sales price of houses?
Ok, now you’ve done that, how does the government assess property taxes? And when they do, are those assessments now secret as well?
You’re going down a really dark and weird road to try to fix a small part of a big problem…
[+] [-] rurp|3 years ago|reply
> its costs have been higher than what consumers typically pay when using a traditional realtor
Really?! Beating the seller costs of a traditional realtor in the US is an incredibly low bar. Creating a tech solution that costs even more is absurd.
[+] [-] slimsag|3 years ago|reply
OpenDoor allegedly came back immediately with "wait wait wait! the other offer actually fell through, so you got the home!"
Pretty sketchy stuff.
[+] [-] jmole|3 years ago|reply
What does the FTC actually do with the money in cases like these? Give it to harmed consumers?
[+] [-] mensetmanusman|3 years ago|reply
Statistics have shown they sell for lower prices to increase throughput and sales compared to when they sell their own properties…
[+] [-] Xcelerate|3 years ago|reply
[+] [-] dragonwriter|3 years ago|reply
The complaint [0] which preceded the settlement laid out the detailed narrative of specific steps Opendoor took to reduce it's offers based on its own internal estimate of market prices, and Opendoor’s own internal analyses of it's offered prices (separately on accepted and customer rejected offers) being below market value.
So Opendoor already did that work for the FTC.
[0] pdf: https://www.ftc.gov/system/files/ftc_gov/pdf/Complaint%20%28...
[+] [-] trts|3 years ago|reply
> In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because [1]the company’s offers have been below market value on average and [2]its costs have been higher than what consumers typically pay when using a traditional realtor.
My understanding of Opendoor is that their product specifically targets homes in the low to mid range of the price distribution, making it easier for them to have a high-quality prediction on whether acquiring a home can be profitable to them.
for [1] this almost surely means they will be below market on average, since the upper-bound is unconstrained. Home prices follow a log-normal distribution.
[2] sounds worse. A typical agent-driven transaction is between 4.5% and 6% of the sale price. For Opendoor to be pocketing _more_ than this is a pretty bad value prop. However, even granting that this is the case -- there is some premium that certain home sellers may place on just washing their hands of the whole process, handing their keys to Opendoor and getting a check next week. That seems fine to me, but not if Opendoor are claiming otherwise.
[+] [-] flerchin|3 years ago|reply
[+] [-] mperham|3 years ago|reply
[+] [-] 1024core|3 years ago|reply
If Opendoor is paying more than what you'd get in the open market, where are they going to make the money from? Aren't they going to lose money on every deal then?
There's the old adage: if it sounds too good to be true, it usually is.
[+] [-] tempsy|3 years ago|reply
[+] [-] chrismcb|3 years ago|reply
[+] [-] notacoward|3 years ago|reply
[+] [-] gist|3 years ago|reply
[+] [-] abriosi|3 years ago|reply
If you don't come from a wealthy family you need to get at least a 30 year loan. The moment you get a 30 year loan you have enormous pressure to generate income every month and will accept non ideal conditions. Essentially, by getting debt you lose leverage.
[+] [-] lewdev|3 years ago|reply
[+] [-] tamade|3 years ago|reply
[+] [-] dragonwriter|3 years ago|reply
[+] [-] scottydelta|3 years ago|reply
Some might say that they are not doing very good.
[+] [-] onlyrealcuzzo|3 years ago|reply
Obviously the other person on the opposite side of that trade is doing very good.
[+] [-] Apocryphon|3 years ago|reply
[+] [-] foogazi|3 years ago|reply
Isn’t that what every real estate agent claims ?
[+] [-] babycake|3 years ago|reply
[+] [-] rideontime|3 years ago|reply
[+] [-] dragonwriter|3 years ago|reply
“To settle the FTC’s charges that the company’s claims were deceptive, Opendoor has agreed to pay $62 million, which the FTC will use for refunds to people who were affected.”