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.
On the other hand, this is a green light for other companies to pull shady tricks to reach market dominance, knowing they will only get a slap on the wrist if caught, while benefiting massively from the position their fraud afforded them.
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.
> We need Congress to pass an act cleaning up the FTC's enforcement powers.
Which is the constitutional design:
Article 1. Section 1. All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.
In West Virginia v. EPA SCOTUS delivered a brush-back pitch, constraining the above to "major questions". Where that line is drawn very much sets the limits of the administrative state. Taken with restraint versus expansively it can make the difference between a small government constrained in the detail of its rulemaking by the size of the legislature, and an authoritarian government with a consitutionally unlimited inventory of unelected rule makers.
How did we get from enforcement powers (GP) to legislative powers (you)? They're not the same thing. It might have seemed like a good excuse to fulminate - see guidelines about that BTW- about the "administrative state" but it's really kind of a big non sequitur.
> How did we get from enforcement powers (GP) to legislative powers (you)? They're not the same thing.
Right here:
GP: Exactly what the FTC is allowed to ask for is a bit convoluted because the law isn't very clearly written.
It would be nice if enforcement and legislative powers were clearly distinct, but particularly in ambiguous cases, they overlap. The scope of that ambiguity is large enough to make a large difference in the scope of the federal government, for good or not.
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?
Is the counter-proposal that if some part of any company commits fraud, the company should be shut down, everyone who works there should become unemployed, and anyone who depends on company’s product should go without?
To me it seems more reasonable to set the penalties at a level that’s high enough to deter violations. To make that calculation, the main inputs should be how much money they can make from the violation and how likely they are to get caught. Other profits the company made that weren’t from fraud are irrelevant. (or in this case, losses, since we are discussing an unprofitable company)
Send those who knowingly committed fraud to prison. Incentive those who might've known, or chose not to know, to be more careful in the future, perhaps through fines or minor jail time. I think even a few weeks in jail would be more of a deterrent for some than a minor tax on their fraud's profitability.
Congratulations. You now have to meet a burden of proof (beyond reasonable doubt) to convict a class of people who practically by definition are trained (either by experience, or by legal counsel/their social strata) to communicate in ways to make things happen which leave little or no paper trail leading back to them.
Be the first person in a group of founders to want someone to put something controversial down on paper. I guarantee you. You will get chilled out.
I don't understand why a corporate death penalty is seen as untenable. For some crimes, yes shut the business down and zero-out the folks who sought to profit from the unlawful activity. If some of those people were defrauded into believing the business was lawful, the should seek the same remedies other defrauded people do.
You ask if the folks who depend on the company's product should go without. No, they should move their business to a competitor. If there is no competitor, maybe that's evidence that the business plan is not viable while acting lawfully.
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.
It's not even clear to me that they lied. If someone claims the "true market value" of an asset is $X, and the owner accepts an offer of $X, then the market value of the asset is indeed $X, no?
A market cannot just be two people. If I sell you a brand new Rolex for $1, I would say I’m selling it to you at a discount from the market rate, because if I posted it on an open auction like eBay, I’d receive higher bids than $1.
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.
As a millennial, I think it’s a dirty/open secret that a large majority of our generation who are able to afford buying are getting help from their boomer parents.
It worries me that this is just further driving inequality and creating an even greater separation between haves and have-nots
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.
> Usually when people say this, in my experience, it means they have some set of arbitrary requirements that aren't being fulfilled.
The requirement is $/mo is affordable.
Technically, yes, savings is irrelevant; as long as I can reach the required down-payment it doesn't much matter. It matters a bit in that, if I make a >traditional down payment, I can in theory, start cutting into the $/mo¹. The in practice problem is that my ROI has been outpaced by the housing market's lunacy, and more recently, there's the problem of inflation.
(There's also the other direction, where savings is irrelevant in that you can just ignore the traditional down payment, and like, take PMI or something, but that raises the $/mo problem.)
(Part of me is starting to go "well, but what if we just didn't count some of the cost as a cost per-se, I mean, housing is an investment, amirite? and the prices clearly only go up. (Heavy /s on that.))
Now, look at the current economy: inflation is +9% over the last 12 mo, YTD my investments are something like -18% (though of course, probably… things will get back to normal … any day now… — but that means that your time horizon for home purchasing has to be further out than things returning to normal), and IME eng salaries go down¹ until you inevitably change jobs, and tech companies are laying people off right now (so, it means gauging who you think is in deeper trouble: your current employer or your next employer, and boy do employees not get the kind of data or insight to tell that sort of thing — although after 2 years at a place I think one will know, for that company).
¹more or less. Adjustments for promotions might happen, but in my circle of people, we're not seeing meaningful adjustments for inflation or intra-level bumps.
Affordable is actually an interesting metric to take literally.
Can it be done vs do I like the price.
I spent 5 years struggling to figure out the difference when it came to purchasing a house.
Eventually I came to the realization that yes, I can literally afford it. no, I don't like the price. Unfortunately, chances were low I would ever see a price I did like.
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.
When you scale up you expose the inefficiencies of existing systems, like title transfers across states. Even if not statistically different from normal dealerships, the numbers are greater because Carvana sells so many more cars.
Anyways, looks like they're allowed to sell cars again as it gets figured out. Not shady at all when you actually understand what is going on. Just like this relatively small FTC fine for Opendoor.
https://www.fox32chicago.com/news/carvana-can-do-business-in...
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.
> “pricing signals" skewing markets is what is supposed to happen
Only if the signals are accurate. Zillow calculates value based on comps in the same zip code since the range of properties in a zip code can vary tremendously. This is ridiculous in many zip codes. Ask any realtor what they think of “Zestimates”. You’ll get an earful.
Oh, I'm sure it's flawed. However, their AI-generated prices did tell them to get out of the market, and despite their stated reasons at the time it looks like they decided to leave the home-buying business suspiciously close to the top.
> 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!"
FWIW, as much hate as realtors get for their high fees, in theory shenanigans like this are harder to pull off when using them because usually the selling and buying agents share a network and are incentivized to deal with each other somewhat honestly.
Also, because each agent only get a 2.5-3% of the sale, they are not as sensitive to the final selling price as the owner. For example if the house in question was originally offered at $1M, 20% over asking would be $200k. The selling agent would only pocket $5-6k more. Nice to have, but not necessarily enough to risk their reputation.
On the other hand, because OpenDoor is the owner of the property. Negotiating a 20% increase means they pocket the full 20%. So they have a strong incentive to be dishonest here. At the very least, I would expect them to push the law to its limits when trying to negotiate the selling price upwards.
I believe the parent is asking whether that money actually makes it to the victims. Many government agencies fail to execute on their commitments, it would be unsurprising if the FTC simply held on to the money, and never returned it.
By "sell properties they don't own" he was referring to the case where a non-realtor property owner wishes to sell but doesn't want to deal with conducting the sale themselves, and so hires a realtor to sell the property for them for a commission.
> 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.
The reason they have to bid below market is because they face adverse selection bias - if they bid low, nothing happens but every time they bid high they will lose money.
There are plenty of markets that averaged monthly price increases in that order of magnitude. My city, as an example, is up 71% over 5 years. So a 300k house became a 510k one over 60 months. An average of 3.5k per month. Couple of those years saw 20% growth.
It's been well known that this was the only thing keeping the iBuyers alive. They weren't great at pricing but it didn't really matter much. If they were off 5%, well wait 3 months and now you're right.
It also matches the anecdotal data. Plenty of people reported getting offers from Opendoor for more than what agents were telling them they could sell for. Obviously these people sold to Opendoor while those that got lowballed declined. If you only count the latter and ignore the overpayments then yes obviously it looks like Opendoor was consistently low balling people.
It may sound ridiculous to you, but those numbers aren’t codified by law, and anyone who wants to change that is more than able to try. There have been tons of efforts to do so - some very heavily capitalized, but none of those companies have ever really taken off.
They are ridiculous when the value of the home is large. A $2m home has $100,000 realtor fees but a $500,000 home has a $25,000 fee. Do you think the realtor for the $2m home really does anywhere near $100,000 worth of work?
Fees should instead be a fixed amount relative to the cost of marketing the home, holding open houses, and all the other legwork to sell a home.
No other job has this kind of royalty payment except publishing (books, music, etc).
> 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.
Not sure what the "very old con" is, but the notion of AI-washing bad behaviors (e.g. predatory practices) is a fascinatingly succinct way to describe a lot of vaporware or similar issues "AI" promises.
I work in the space -- I'll be using this. Thanks for the encapsulation!
> 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?
“Brazenly breaking the law in a way that probably won't get cracked down on until after we’ve made a profitable exit” doesn't seem to business model VCs are at all loathe to fund.
It's basically Pressure Tactics 101. Claim (without a shred of proof) that you have a magic key to lower costs. Create a false sense of urgency to close the deal right now or miss out. (That one should be familiar to anyone who has shopped online in the last decade BTW, and I'll bet more than a few of you have implemented it.) You can do it with any kind of asset, really, but houses are big assets and the process is more complex/opaque than most so they're a perennial favorite. If somebody could truly make buying or selling a home that much better, you wouldn't hear about it by them coming to you.
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.
Theoretically, you're picking off improperly priced homes and quoting a tighter buy/sell spread, so you aren't buying higher than the "market" price. The seller/buyer is the one crossing the spread.
In practice it seems like something isn't properly hedged so Opendoor and a lot of other iBuyers are exposed to the underlying asset rather than just capturing the spread and picking off incorrectly priced homes. That's why you see their margins go up when housing does well and down when housing does poorly. A proper market maker should have no exposure to the underlying (e.g. market makers made record profits in 2020 despite equities tanking). I bet if a Wall Street quant firm came in they'd roll over Opendoor and the like.
I bet Wall Street quant firms don't operate on individual houses for a reason, because it's too illiquid and non-fungible for someone to be a proper market maker.
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.”
It might better to link to directly to the FTC press release (https://www.ftc.gov/news-events/news/press-releases/2022/08/...) instead of the FTC "Consumer Alert" that is currently linked at the time I post this comment. The "Consumer Alert" is written at a bit of a simplified level, and I think this audience might benefit from the more precise statement of the alleged issue that is in the press release.
Update: Sorry, I can't change the URL since it has been over an hour long since I made the original post. Changing the headline alone would be confusing/misleading.
> The Federal Trade Commission today took action against online home buying firm Opendoor Labs Inc., for cheating potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process.
Serious question: why are businesses like this allowed to continue after getting caught lying to prospective customers? These founders should be dragged into court and ruined over this. No excuse for this kind of behavior.
There are a few stated benefits of Opendoor in their ads that would probably be completely fine if sold to customers in that manner.
1. They claim that their ability to make an all-cash offer on your current house allows you to turn around quicker to make an offer on another home without struggling through a ton of financing issues.
2. They claim that once they've purchased the home, they will assume all responsibility for repairs and cleaning.
3. They claim that in the event that the company sells the home for greater than the estimated value, they will give you the difference.
None of these are bad. But if someone came to you and told you that they'd sell you the home for cash and take a little bit more off the top for inspection / repairs, I think that mortgages are so long that some people would rather do that than deal with all the headaches otherwise.
There are many good reasons for real estate to be an investment vehicle. You won't convince someone to build a new apartment building if they can't make money. In fact, we really really want people to build more, better housing.
The current real estate "market" is certainly far from a "free market". If we live restrictions on supply, by removing things like:
- Minimum parking requirements
- Maximum height requirements
- Aesthetic requirements
There are also demand-side subsidies for home ownership that make it more expensive, such as the mortgage tax credit.
I agree we can't have real estate be both a great investment (increase faster than inflation) and affordable (decrease on inflation adjusted basis). I think adopting more of a free market here would really improve things for everyone.
Note: I also think congestion pricing + eliminating free parking would solve many of the related problems to this issue, and are important parts of a solution.
>You won't convince someone to build a new apartment building if they can't make money
You don't really need to. Do what Singapore (or Vienna) did. Create a Housing and Development board, build the housing that you need... and that's about it.
These bizarre contortions that people go through of schemes and tax credits and mechanisms, it's the same as the healthcare sector, one single bloated mess.
> You don't really need to. Do what Singapore (or Vienna) did. Create a Housing and Development board, build the housing that you need... and that's about it.
Unless you can explain how that's different from what the Warsaw Pact did, or show that the Warsaw Pact housing, while horrible, was still better than what the free market would produce, then I'm not going to sign up for your solution.
it isn't really. Eastern bloc housing looks butt ugly but it was cheap and equitable. Singapore's just richer and probably hired an interior designer. The problems start when you try to centrally manage every box of cornflakes you make, not national infrastructure.
I'll go one further and tell you there is no such thing as free market housing and never has been, just like there's no free market submarine or free market interstate highway. These are big governmental and corporate projects and at best the market shuffles the occupants around after the fact. Every project like that is communist even in the good old US of A, just don't run the entire country that way and you're golden.
So your argument is, not that Eastern bloc housing was good, but that it was good enough to be far better than homelessness? That's... probably true. Given the choice, I'd probably take a Warsaw Pact apartment over a cardboard box.
[Edit: There are submarines that are free market, and are for sale to (wealthy) private individuals. There are also free market interstate highways; they are toll roads. Still official interstate highways, but privately owned and operated.]
It's pretty clear that no evidence would convince you to abandon your zealotry, because otherwise you'd make the trivial effort required to discover that Vienna or Singapore do not look like the Warsaw Pact.
> It's pretty clear that no evidence would convince you to abandon your zealotry...
Personal attacks are not cool here.
> ... because otherwise you'd make the trivial effort required to discover that Vienna or Singapore do not look like the Warsaw Pact.
I know they don't look like the Warsaw Pact. But the policy that Barrin92 is proposing sounds like Vienna, but also sounds like the Warsaw Pact. In one place it works; in one place it produced monstrosities.
My question is: If we adopt this policy, why do we think we're going to get Vienna's outcome instead of the Warsaw Pact's?
tl;dr: "The Projects" were primarily concentrated outside of major economic centers, were left out of public transportation (and other) infrastructure projects. Mix in the government sanctioned racism and segregation of economic groups, "The Projects" in the US were doomed before they even started.
> You won't convince someone to build a new apartment building if they can't make money.
Demonstrably false. The city of Venna Austria builds housing for people because people need housing, not because it expects to make money. This kind of thinking demonstrates a depressingly narrow view of human possibilities.
“Vienna’s city government owns and manages 220,000 housing units, which represent about 25 percent of the city’s housing stock.1 These city-owned housing units, called social housing, are meant primarily for lower-income residents. The city also indirectly controls 200,000 units that are built and owned by limited-profit private developers but developed through a city-regulated process.”
So according to this data the government controls about 50% of the housing in the city. Seems pretty good to me! As someone else said the article and data are a bit old, but it sounds like they’ve been keeping up with demand if they had 50% when this article was written. (They’ve been doing this for 100 years)
> There are many good reasons for real estate to be an investment vehicle. You won't convince someone to build a new apartment building if they can't make money.
Why is real estate being an investment vehicle required for builders to make money?
Companies make cars, people buy them, everyone knows that a car is a depreciating asset (except for current used car shortages, and certain collectible classics) but people still buy them.
This is because they are very useful.
A house or an apartment is also quite useful without being an asset that appreciates in value. The whole rental market is based on this concept.
I don't see why housing needs to increase in value to incentives people to build it.
And in Japan this is exactly the case, it's not typical for housing to increase in value in Japan.
This seems to miss the point. Within this metaphor, the companies that make the cars are the construction and real estate developers - both of which are driven by the profit motive.
You can have a profit motive driving behavior without something being an investment vehicle.
Cars are an example of that. Even when scarcity has driven the cost of cars up (such as during the recent pandemic), everyone recognized that more could, and would, be produced, and so no one viewed them as an investment vehicle, that adding time in somehow increased the value over the initial purchase price.
Housing is viewed that way. Part of that is due to location; there is innately a level of scarcity (not everyone can live in (insert city)), but there is also massive artifical scarcity. Even where there's room, there is NIMPYism and zoning regulations and etc that keeps enough housing from being built in areas people are able to live (i.e., close enough to civilization to be able to buy groceries without an hour long drive each way, for instance), forcing pricing up, in a positive reinforcement loop (scarcity = pricing goes up = people buying for the 'investment' rather than a place to live = more scarcity)
In America, this is basically the ONLY way "normal people" can make money (or at least used to be - those of us who didn't "get on the bus" in time have missed out).
Unless you create valuable intellectual property (ie. inventor, etc), or unless you're a doctor or lawyer, you're mostly just barely getting by. Those of us who were able to invest in housing, and take that ride, might actually have enough economic security to retire on.
So why does it have to be that way?
Because the politician who tries to change this system, will get voted out of office.
I don't want to say bad things about democracy. I love democracy, and I think it's one of the most important human innovations of the past 2000 years.
But the way we practice it in the USA; we're basically voting for our own extinction.
Yeah, I understand the politics of it, and you're right that it's incredibly politically challenging thing to change.
But it's not a fundamental property of how markets for housing have to work. Housing doesn't need to be an appreciating asset for building housing to be a viable business to be in.
It costs a ton to build a house in the US. If I gave you free land likely it would cost you more to build a new home there than it would to buy an equivalent which would include the land.
It does cost a lot, but in most cases you're going to get more bang for your buck. (and you can also forgo features you don't like or need: like a homeowner's association; or pre-existing utility connections you don't want).
The other thing about building a home - particularly if you're in a high-demand area, the appreciation in the first 2 years is pretty insane.
> Because you need them to outlay capital now in return for likely future profits? That's literally what investing is.
A builder is paid to build. They profit if their revenue is greater than their costs. That is certainly possible even if housing isn’t an investment vehicle.
The makers of candy bars manage to profit yet I doubt many people buy them as investments.
> Builder != Developer. The builder is a service provider and definitely doesn't finance construction.
What in my post doesn’t apply for developers exactly? They finance construction if they expect to profit. They can profit even if the final product later doesn’t increase in value. In fact, why would they see that profit anyway? Any increase in value would end up in the final owner’s pocket not the developer.
That doesn't address the point. Think if food was an investment item, rather than just a thing farmers make to sell at a price greater than what it cost them to make it.
Similarly, why aren't houses just a thing that costs a bit more than the bricks and labor required to make them?
>Similarly, why aren't houses just a thing that costs a bit more than the bricks and labor required to make them?
Because words like "housing" and "houses" in conversational speech hides the fact that it has 2 major components: (1) land and (2) the building structure
The big part of rising housing prices or "scarce housing" or "demand exceeding supply" is really about desirable geographic locations.
Sure, raw materials prices like lumber and copper pipes go up in price too but it's also the rising land value that's contributing to the "return on investment". That's the component price that doesn't work like food commodities. My home is decades old and has outdated technology that today's brand new homes have upgraded but nevertheless, my so-called "house" has tripled in value because a new hospital down the street was built 10 years ago and all the doctors want to live in my neighborhood to have a short 10-minute commute. If someone actually bought my so-called "house", they may bulldoze it and rebuild a new more modern home on it.
>> The big part of rising housing prices or "scarce housing" or "demand exceeding supply" is really about desirable geographic locations.
Only to a point. Many desirable geographic locations have a lot of local factors that prevent additional housing from being built with the intent of housing more people (think homeowners defending their "property values", zoning laws, etc). Similarly, homes being "investments" means there's a self-perpetuating cycle; builders build luxury homes instead of multi-tenant buildings, because they know that's what companies want to buy (being flipped the easiest with the highest rate of return), so even when there is new land being developed, market forces push it to being an "investment" rather than housing people. Income inequality furthers this; why use the land and sell a modest home to a worker, when you could use the home and sell a luxury home at a much larger markup to the rich?
Right, that's a major point. So why is it that we're ok with land prices rocketing? After all the immutable properties of land are not going to change from us pouring more money into it. You don't get more central London land from raising its price.
There are 2 aspects to this. Development should absoulutely be a thing this is investment in the same way investing in a manufacturing company is investment.
Buying/building property to rent should absolutely be a thing as well. There's a service there. But the idea that i buy a house now and in 5 years it's worth more than i paid for it (relative to income) needs to die
In more civilized countries, plenty of housing stock is built by the government, which is why it is not treated as an investment commodity for speculation.
The problem is people hate new housing. Until you change public perception of this relegating this to the government is going to make the situation worse.
Right now, private builders can bribe people to allow construction if the market price is high enough. If the government had to do it, there would be basically no new construction. It's politically unpopular and very expensive, so it's an easy project to axe.
People hate new housing because it’s 95% luxury condos and McMansions in the US, precisely because we rely too much on the private sector to build housing. Of course they will only focus on units with the fattest margins.
The land is the investment here, not the building. Buildings generally go down in value over time, just like most other things. It’s the land that’s gets more expensive as demand increases but supply doesn’t change.
> You won't convince someone to build a new apartment building if they can't make money.
This is orthogonal to the investment value of the apartment building as an asset. Surely you generally build rental properties to make a profit via rent, not to make a profit on the land & building - thought you'll factor that into your models.
> We won't be able to do that anymore when all of the habitable land is owned by the 0.1% of plutocrats.
The homeownership rate in the US has actually stayed surprisingly constant over time, it's fluctuated between about 62% and 69% since the mid 1960's and is now around 65% [0]. We've got quite a long way to go to 0.1%.
the problem is that the majority of active voters are using real estate as an investment vehicle. convincing an investor in X to ban investment in X is pretty tricky ...
That can be a very different scenario though - a family using one (or even multiple) properties as investment vehicles that they are themselves residing in (even if its just part of the year) does not seem unethical at all to me. Foreign investors who are not planning to even live on the property nor rent it out at all? Definitely a crapshoot. It is a small overall percentage of the pie but every bit counts. And giant corporations scooping up tons of single family homes and small apartment complexes is maybe even scarier.
Lets face it though - there's a separate problem and it is pretty simple - we just need more housing in places where the demand is high. Personally I think it would be especially helpful in the short term if there were big incentives for individuals to ADU's or inlaw units and things like duplexes, triplexes, or "bungalows" on one property. Easy sell for the public and would open up all of the single family home zones to much more housing and maybe even incentivize families across generations to live together again.
As someone who lives in Vancouver, its quite a different story, and most of those I know, really don't understand where these stats come from. There is not a week that goes by I have someone knocking on the door of our family home asking to buy it. There are four owners left on our street that are the original owners, the rest are vacation homes for Chinese, and completely vacant. This is far from exaggerated.
We sold my daughter's condo 2 years ago, and we're still getting email solititations to buy it. Apparently there's a company sitting behind about a half-dozen shell companies, and they're trying to buy up enough units that they can sit on the association board, and convert the whole complex to rentals; forcing the remaining owners to sell.
I'm glad I got her out of there 2 years ago. The rising crime problem there was the motivating factor.
You're right, but I assume there would be an exemption for the home you live in. That would be a great exemption too since it might be incentive for people to subdivide their home to create more dwellings.
Oh, we'll still live in the same places, it's just the rents will float to as high as they have to be to deplete our disposable income and put us into debt.
His job is to act as a scout and local broker for corporations that buy up residential properties, then turn them into rentals.
He makes great money. Most of his work is in "distressed" areas. Many NIMBY neighborhoods don't like rentals, but poorer sections of the county don't fight it, and may even welcome it.
I'm of two minds about his work. On one hand, John Oliver did a big segment, roasting corporate rentals[0], but I have also seen local slumlords treat renters like garbage (I actually rented from one, at the start of my career, and can attest to that).
Shelter should be a human right. Everyone who needs housing should be able to get an apartment, for free, and landlords should have to compete against free by offering better places with nicer amenities.
Correct. We do not all share this planet. You’re lucky the plutocrats haven’t put you against the wall and shot you but they simply don’t think you’re worth the effort to dispose of. The moment that effort is decreased enough such that your presence and being is more burden than worthwhile, you will be put out of your misery.
If you truly believe that you should have a right, you’ll have to fight for it. Posting on HN calling for a ban isn’t going to cut it. You’ll have to put an end to it and enforce it. Just like they do when they want something.
Open door is trying to replace realtors, providing a “better”service as a real estate broker. They aren’t competing with buyers or sellers, they aren’t going to own homes long term
They literally are, by acting as both a buyer and a seller.
Their publicly claimed business model was that that is incidental, and that they are really a fee-based facilitator, but... that also apparently was knowing fraud, so, maybe it shouldn't be given much weight.
I'm not sure where the argument is going with this one, but Zillow did poorly for a variety of reasons. They bought at low prices hoping to sell high and tanked their business (Owned By Zillow, not the site). Homes owned by Zillow stayed on the market _significantly_ longer than their traditionally held counterparts.
As a homebuyer in the past year I can personally attest that of the 4 realtors I dealt with, not a single one felt inclined to show a "Owned by Zillow" home. In all showings they were poorly maintained and prepped. It *felt* like an abandoned home.
I don't think that's possible, but there are things we can do:
- Tax empty houses a REALLY high amount after a month of occupancy loss. This puts extremely high pressure to get the house sold after the month. Living in your house while you sell it? No penalties.
- Make renting a house extremely painful for landlords. Renting can be replaced with new forms of community ownership - communities that own X properties in many cities and people can swap (for job relocation and other things). The Landlord business IS the oldest rent-seeking business. Buy a property, rent it out, pay nothing on it for 30 years and at the end of that - it's yours. In my opinion that should be illegal. People that disagree are landlords and people that think renting is the only way. Invent new ways to do short term house ownership. This is the startup capital of the world (HN).
- Require unused office space to become homeless shelters if unused after 6 months. Government will pay for the lease at a fixed maximum price. Get your shit leased or house the homeless.
The jist of this is that if we did things like this, we would probably have no homeless, the price of homes would come down, and everyone would have a home. In fact we would have such a huge surplus of homes, most people would be able to easily upgrade.
> In fact we would have such a huge surplus of homes, most people would be able to easily upgrade.
given that more than 95% of homes are currently occupied we would not have a surplus. while some of your suggestions could have a place there is no replacement for building more homes
On taxing empty houses - I once had an opportunity which required me to move across the country and my old house sat vacant for months despite pricing it pretty low (when you are 2k miles away it is hard to sell something), and a tax combined with the state laws preventing me from giving it to the bank would have been a perfect storm of misery despite my desire to let someone else live there.
Making a bad deal is perfectly legal. Lying about the product you're offering is not.
OpenDoor was reportedly making several false claims, including "we make money from fees (and not by immediately reselling your house for a profit because we bought it below market value)" or "we charge about the same in repair costs as you'd pay on the open market" or "we buy your house at market value (and not intentionally below what we think is market value)."
OpenDoors crime wasn't making those claims... the crime was making those claims without keeping sufficient evidence that they were true.
I'm sure they could have proven all those claims. They could have said "Last year we made $XX Million from fees". Sounds like a big number, but might still have only been tiny compared to market movements.
They could have said "we charge about the same in repair costs as you'd pay on the open market" by just finding one quote from a builder to back it up.
They could have said "we buy your house at market value" by just having a model of market value which tended to lowball valuations - rather than having an accurate model and then putting a " * 0.9" on the output of the model. One way to do that for example would be to build the model on historic data, and ignore the fact that house prices are at all time highs right now. And house prices have been the 'highest ever' for nearly every year in the past 200 years.
No, the crime was making claims, in commercial advertising, in a materially deceptive manner, which would probably harm someone, in a way that involves interstate commerce.
"Keeping sufficient evidence that they were true" implies that the claims were true, which they presumably were not if OpenDoor agreed to a settlement.
It goes beyond lack of data and well into fraud (knowing deception).
See, for example, point 34 of the report:
>Opendoor has used an automated system to generate expected market values for homes. In many instances, Opendoor’s employees have manually adjusted these values before presenting them to consumers as offers. Opendoor’s internal analyses showed that these manually adjusted offers were several percentage points below Opendoor’s assessment of market value. Beginning
later than 2019, Opendoor instituted a policy to reduce its manually adjusted offers to [REDACTED] below what Opendoor assessed as market value.
In other words, they’re promising above-market value while actually quoting below even their OWN estimation of market value (which is undoubtedly revised down)
> According to the FTC, Opendoor said it would pay market value for people’s homes while saving them money on costs. That way, people selling their homes would make thousands of dollars more than they would on the open market. But, the FTC says, it wasn’t true.
And most importantly (according to the complaint), Opendoor knew it wasn't true. They were deliberately adjusting offer prices downward from their own estimated market value, and they had lots of internal data showing that the result was that customers made less money by selling to Opendoor, but they continued to say the opposite in their marketing materials.
>> Instead, the FTC says Opendoor’s offers were lower than a home’s market value, and the company asked sellers to pay for home repair costs that were higher than what people would typically spend on repairs in a market sale. As a result, most people who sold their homes to Opendoor typically lost thousands of dollars compared to what they would have made if they’d sold their homes on the open market.
I'm sympathetic to Opendoor on this. Are they counting ALL the costs when they say Opendoor customers "lost thousands"?
- Are they counting the carry of keeping [a potentially empty house] on the market for months? (e.g., real estate taxes, maintenance fees)
- Are they counting the 4-6% real estate real estate commission the agent would take that Opendoor customers arent paying? If I sell the house at a 20k discount to Opendoor, but save a $40k real estate commission, that sounds like a good deal.
So you're saying the FTC wasn't understanding the basics of home buying, and OpenDoor wasn't able to convince them either since they ended up paying 62 million dollars to balance things for the sellers affected? It kind of sounds like the people actually involved here may very well know about, you know, their business, and you might be in the position of someone who's just armchair speculating?
>> So you're saying the FTC wasn't understanding the basics of home buying
I'm saying the FTC letter, which i quoted, is very vague and offers no clear argument nor addresses the tradeoffs.
Its like complaining about stock brokerage MARKET orders that hit the ASK PRICE and then saying you could have gotten a better price with a LIMIT order (though then you may not get an executed order at all...)
IIRC, you'd still pay some 'commission' fee, but it was to opendoor itself. It was listed in their offer breakdowns, just downplayed a bit. Yeah, perhaps it's 'only' 3%, but then buffering in another 4% for maintenance updates on the house brings it to 7% (for example). Some of that you might get in traditional sales anyway - sale contingent on seller fixing floors/windows/etc.
I got 3 offers from opendoor over about an 18 period. We were on the fence about moving, and explored opendoor and Zillow house buying, to save us some hassle. The offers were easy to see that they were lower than 'market'. Part of what you're paying for is convenience and timing. Is it worth it to me to 'lose' $10k off what I might make in the 'open market' if it means I know for sure the house will be sold on a certain date? IIRC, also, one of those companies offered some discount on their fees if you were buying another one of their houses in their portfolio.
What I did see in our area (slightly rural area) was a year or so of buyers like opendoor coming in with offers fairly low, then flipping and reselling, and making that spread, but fairly quickly. A $300k house they might have picked up for $270k then flipped 2-3 months later for $340k.
>> A $300k house they might have picked up for $270k then flipped 2-3 months later for $340k.
Even this may or may not be fair. If the flipper did tens of thousands in repairs, perhaps the extra price is now justified? Any idea of the homes were flipped as-is or after value-add updates?
>>promising "you’d make more money selling it to them than you would on the open market".
If they were literally "promising" more money, that would be a big issue. When I saw Opendoor, it seemed to essentially be a Market Order for home selling. The promise was immediacy and the trade-off was lower-price. However, the immediacy also carried savings w/r/t not having to carry the property costs. So it could actually end up being a better deal to sell immediately depending on carry costs. I was just sad to see such a thin letter lacking details.
Agreed. iBuying is a business and your paying for the convenience of them taking your home as-is. Even though their offering price is lower than what you'd receive from selling with a realtor, you still end up spending 10-15% of your home value when selling the traditional way.
> iBuying is a business and your paying for the convenience of them taking your home as-is
If that was the case then OpenDoor wouldn't have "asked sellers to pay for home repair costs that were higher than what people would typically spend on repairs in a market sale".
Well no, but I'm curious what the FTC's studies of that were. There are plenty of reviews of OpenDoor (check Reddit) where reviewers stated they just needed to clean out their house. I'm guessing OpenDoor has a certain standard for agreeing to buy a home, and some homes they ask to do repairs would otherwise have been turned away.
>> I'm guessing OpenDoor has a certain standard for agreeing to buy a home, and some homes they ask to do repairs would otherwise have been turned away.
This seems fair to me, there is no guarantee that when selling a home on the market, buyers wont similarly ask for repairs or dollar concessions for repairs.
>> You really think that Opendoor did not make sophisticated claims to the FTC before settling? Like they somehow forgot the broker commission cost?
The letter, which I quoted on my comment, was pretty clear on the trade-offs or iBuy vs traditional. You're trading dollars for upfront pricing, immediacy, and certainty. The letters doesn't mention anything about that. The letter acts as if "price" is the only cost, but in real life there are many costs include hidden costs like carry.
I'm also saying that the US regulatory apparatus right now is very strange and openly antagonistic to tech firms while turning a blind eye to traditional businesses are often may be far more extractive.
Example 1: We're told WhatsApp is "bad" because supposedly competition. Except as a consumer, it costs me nothing, has no 2-yr plans, no mystery fees, no $90/mo bill. On the other hand, the same regulators wont say anything to a mobile phone company.
> Instead, the FTC says Opendoor’s offers were lower than a home’s market value, and the company asked sellers to pay for home repair costs that were higher than what people would typically spend on repairs in a market sale.
FTC Website:
> Consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or traditional sales
Let's say my home would sell on the open market for... $260k. Got an offer from opendoor indicating they'd offer me $240k, but then I also had to factor in another $13k for their estimated repairs, so my final 'in my pocket' amount was $227k. That's a non-trivial diff, because I could likely have gotten closer to $260k on open market, then negotiated $10k or so with buyer (to get needed repairs in place by sale date).
You're paying for convenience, and while I didn't find the opendoor written offers completely confusing, it did seem a little... misdirection-y.
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