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Opendoor’s $62M Settlement: Exposing the Pitfalls of Real Estate Alternatives
Introduction:
In a recent development that has gone largely unnoticed, real estate company Opendoor has agreed to pay $62 million to settle a lawsuit alleging that it misled sellers into selling their homes for less than they could have gotten on the open market. This case highlights the potential risks associated with alternative real estate models and the importance of understanding how these companies operate.
The Business Model of Real Estate Alternatives:
Real estate agent alternatives, such as Opendoor, typically make money in two ways: through excessive fees and price fixing. Despite these practices, many of these companies still struggle to turn a profit on transactions. As sellers, it’s crucial to consider whether you’d prefer to work with a traditional realtor who charges a fee but works to get you the highest possible price for your home, or an alternative that may offer lowball prices and charge excessive fees.
Opendoor’s Misleading Claims:
Opendoor often presents sellers with data suggesting that they can make more money by selling through their platform. However, numerous sellers have reported receiving offensively low offers from the company. One seller shared their experience, stating that they ultimately sold their home on the open market for $59,000 more than Opendoor’s offer, making the slight inconvenience of an open house well worth it.
The House Flipping Connection:
Many fintech companies in the real estate space are essentially house flippers. On average, flips in the United States profit $66,000, down from over $70,000 in 2022. These companies have found a lucrative business model in flipping homes, and they are likely to fill the void left by agents if blood-sucking lawsuits continue to target traditional realtors.
Maximizing Your Home’s Value:
To ensure you’re getting top dollar for your home, the best approach is to put it on the market and let everyone know it’s available. As one seller pointed out, “Open Door/Ibuyers = Investment buyers, which aren’t known for paying market rate. Plus they charge 5% so no real savings on commission, though they call it a *service fee* Best way to squeeze the most ideal price & terms is to put it on the market and let EVERYONE know it’s available.”
The Changing Landscape of Real Estate Commissions:
The real estate market finds itself in a precarious position, with realtors accused of pushing values too high for buyers due to their commissions, while alternative ibuyers are found guilty of pushing values down through their tactics. In response to these issues, Freddie Mac and Fannie Mae have changed their rules on seller’s commissions, allowing them to be negotiated and exceed the previous 3/6 cap if the excess goes towards commissions, up to 9%. The Department of Housing and Urban Development (HUD), which oversees FHA and VA loans, is expected to follow suit.
The Influence of Lawsuits on Mortgage Guidelines:
Shockingly, a jury in Missouri with limited knowledge of mortgage guidelines and policies has been allowed to change long-held, researched, and thorough guidelines through the influence of ambulance-chasing lawyers. This has resulted in millions, if not billions, of dollars being taken from lenders and realtors and funneled into the pockets of lawyers.
Conclusion:
As the real estate industry navigates these tumultuous times, it’s essential for sellers to be aware of the potential pitfalls associated with alternative real estate models. While traditional realtors may have their own set of challenges, putting your home on the open market and letting the market decide its value remains the most effective way to ensure you receive the best possible price. As for the ongoing legal battles and their impact on the industry, only time will tell how the landscape will continue to evolve.
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