Compare Opendoor and HomeLight

HomeLight revenue comes from referral fees and sale of user data.

On paper, HomeLight seems to have a great idea – to provide its users with a list of the "most effective" real estate agents that are scrutinized across the board to systematically facilitate better offers for sellers and better terms for buyers.

HomeLight states that "our service is 100% free, with no catch. Agents don't pay us to be listed, so you get the best match." Digging deeper into Terms of Service the actual model turns out to be much less effective - HomeLight is a California licensed real estate broker that collects a 33% referral fee from all real estate agents that participate.

This fee makes it hardly a free service for anyone since referral fees are inevitably passed down to consumers.

More importantly, HomeLight applies this pay-to-play bias towards all matching results, meaning, only real estate agents that have agreed to pay a referral fee are displayed in match results for consumers.

HomeLight audits all transactions because it needs to find out how much money real estate agents receive in commissions, inevitably collecting private details of consumer's agreement for home purchase or sale.

HomeLight further claims to produce higher returns to consumers when selling, but there is absolutely no third-party evidence for this. HomeLight algorithm is self-proclaimed and is based on the data derived from MLS past transactions. There are any number of factors that affect the actual home value with no proven correlation to agent representation. In order to select a proper real estate agent, consumers need an open and a transparent information process that HomeLight is unable to provide.

HomeLight plays fees down to consumers - it states directly that the service is 100% free, but at the same time, it rigidly locks every participating real estate agent into 33% referral fee attached to the back-end of every contract. As a licensed real estate agent that doesn't perform any real estate services or takes any responsibility for the transaction, it is not entirely clear how this process works under the Business and Professions Code and RESPA.

Clearly, real estate agents only sign-up with HomeLight because the price of the referral fee can be easily incorporated into their client's agreement with excessive commissions.

HomeLight receives the second lowest score because this service is clearly biased and it claims to provide the complete opposite of what it actually does. HomeLight has presented the following facts prior to the review getting published, but did not respond with any comments. HomeLight must be well aware of this issue but continues to operate on pay-to-play methodology in order to collect fees that needlessly make home buying and selling more expensive.

HomeLight Simple Sale™ Product

HomeLight further offers consumers a connection to local real estate developers that buy and flip homes for profit. According to the company, the majority of Simple Sale developers are only interested in purchasing off-market homes. HomeLight itself admits that 91 percent of sellers choose a real estate agent to list their home on the open market, but that does not stop it from an attempt to offer your information to developers as well.

HomeLight states it will show the seller their best iBuyer offer against an estimation for what they can sell a home in an open market with the help of an agent. The reality is HomeLight doesn't care how your home is sold, as long as it receives a fee for directing you one way or another. It costs absolutely nothing to HomeLight to offer you a bad deal on selling your home to a real estate developer because this company is a referral fee network that is primarily interested in connecting consumers to anything that pays them a fee.

HomeLight does not state how much developers and iBuyers pay them for each successful lead, but according to third-party sources, HomeLight receives a 4% commission from the total value of your home. Remember, this fee comes from the real estate developer, so HomeLight for all practical reasons, works for that developer, not you. A developer will know that your home is off-market and it costs them absolutely nothing to give you a severely underpriced offer.

Typically, iBuyers cost consumers about 15%-20% of net equity from the home sale, when accounting for all fees and reduced cash offer against your home's true value. Most developers will not take anything less of a 30% margin below market. The reason is developers experience high risks and double transaction costs when making an offer on your home, and HomeLight's 4% commission on the sale is a very real closing fee to account for. The bank, on the other hand, does not care how you sell your home or for how much. Your mortgage company receives the same amount from the sale of your home, so these all excessive costs work directly against your net equity as a seller. If you are seriously considering Simple Sale offer made to you using HomeLight, the best way to approach it is with your own real estate agent who does not pay any referral fees to HomeLight.

Of course, matching you with a competitive agent to list your home on the open market is something HomeLight is not built for. Remember, HomeLight is a broker that is interested in receiving a referral fee for any match. If HomeLight does not receive payment of some sort from a broker, you will never see them on their platform. When you use a broker sent to you by HomeLight, you are paying for two brokers.

Consumer Steering

Some consumers who receive a recommendation for the three local HomeLight partner agents will often proclaim that the process of selecting a Realtor is very simple and that they have experienced excellent results.

The question stands, why doesn't the editor's review for HomeLight extend a similar recommendation? The difference is that the editor's review focuses directly on the quality of HomeLight brokerage as an information channel, while most consumers tend to combine HomeLight brokerage with an experience provided by HomeLight partner brokers into a single experience. From an editor's perspective, these are not the same.

The way consumers find a real estate professional must be unbiased and free from pay-to-play incentives in order to be considered as a quality channel.

HomeLight brokerage offers an excellent channel that proactively steers consumers toward a highly selected pool of partner brokers who have a blanket referral agreement with them, in an exchange for a significant share of their commission.

This is a very different experience than having to genuinely rate local agents and offer an unbiased recommendation. HomeLight has a direct financial incentive to steer consumers toward brokers who charge higher commissions.

Moreover, HomeLight brokerage operates by excluding itself from the competition with partner agents. In the United States, it is unlawful for real estate professionals to allocate consumers or organize into broker referral networks by means of blanket referral agreements.

HomeLight is a brokerage and it must compete with other brokers, instead, the company organizes brokers into a network in order to receive a cut of their commission. Real estate professionals working with HomeLight no longer compete for consumers, but rather compete for HomeLight to steer their business.

HomeLight consistently applies a logical fallacy called "Appeal to Authority" where it states that their partner agents are the best simply because the company has done some sort of "black box" research without actionable reasoning to support the claim. HomeLight algorithm is biased by default, simply because it will only match consumers with partner agents, and not all local agents.

HomeLight cannot actually rate all local agents and publically disclose this data, simply because agents who are rated badly will argue that the system of rating is flawed – not all transactions are recorded in the MLS, it is impossible to truly determine the quality of agents based on data provided in the MLS, some agents will underprice homes to sell them quicker, etc. Consumers are legally allowed to rate their experience with services in the United States. Unbiased channels such as Yelp! freely offer unbiased medium with good information where brokers cannot buy their recommendations with referral fees, or offer consumers gift cards to write reviews.

HomeLight only offers three best choices, simply because these agents will not argue with that determination, in fact, they are willing to provide a kickback of their commission for the privilege.

All of these reasons combined are why the editor's review rating is so much different from positive consumer reviews. The editor's rating focuses on the fairness of the process, rather than the individual outcome. In order to promote fair practices in the industry, we place a very different value on pay-to-play steering vs. unbiased match results.

Is HomeLight Free?

HomeLight often proclaims that its "service is 100% free." We find this statement to be false. HomeLight is not free, in fact, this "paper" brokerage adds unnecessary referral fees into transactions that make it more expensive to buy or sell any home.

Eventually, HomeLight is a brokerage and their fees are paid by consumers with higher commissions. HomeLight further claims that "agents don't pay us to be listed, so you get the best match." This is a use of a "Modal Logical Fallacy" because it specifically concludes that because something is true, it is necessarily true, and there is no other situation that would cause the statement to be false. Simply because agents don't pay HomeLight to be listed, doesn't mean that agents don't pay HomeLight at all. In fact, HomeLight actively steers consumers toward agents who pay them, just after the transaction.

As of 2019, HomeLight claims to have made a successful match for about 390,000 people with agents. The median home price of a home in the United States is about $230,000. Multiplying the two figures yields about $100 Billion in home sales. Assuming a 5-6% commission, this yields about $5 to $6 Billion in real estate commission business generated nationwide. In the recent Crunchbase article HomeLight claims to have "driven well over $17 billion of real estate business nationwide," which indicates that HomeLight works with homes above the median price. Simply stated, HomeLight has collected a "standard" 25% (presently, 33%) referral fee on commissions valued anywhere from $5 to $17 Billion since its inception in 2012.

This yields a mind-blowing estimate set at $1.25 to $4.25 Billion in commission kickbacks paid to HomeLight from participating brokers across the United States. Almost all of it is profit since HomeLight doesn't perform any services typically offered by real estate brokers.

HomeLight advertises a 100% free service, yet it subjects consumers to Billions in added fees in one of the most important transactions of their lives.

HomeLight referrals violate RESPA

The primary reason consumers and honest real estate agents should avoid HomeLight is the illegal kickbacks involved. Real Estate Settlement Procedures Act (RESPA) Section 8(a) and CFPB Regulation X maintain firm prohibitions against kickbacks and unearned fees. In the United States, the law firmly reads that no person shall give, and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. See 12 U.S.C. 2607(a).

HomeLight attempts to utilize 12 U.S.C. 2607(c)(3) and 12 C.F.R. 1024.14(g)(1)(v) exemptions (or carve-outs) from the RESPA’s kickbacks ban. These exemptions allow payments under cooperative brokerage and referral arrangements between real estate agents and brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties act in a real estate brokerage capacity. (A bona fide brokerage sometimes needs to refer a client to another broker, where cooperative fee arrangements between bona fide real estate brokers may help facilitate a home purchase transaction more efficiently for both the home seller and the homebuyer.)

However, the so-called no upfront costs agent-matching services (or referral platforms) are not genuine brokerages acting in a brokerage capacity. This legal question was recently decided in my civil lawsuit with HomeLight. In this lawsuit, the United States District Court for the Northern District of California had reasoned that HomeLight acts in a vertical servicer-customer relationship on a different level of the supply chain with +/-28,000 partner agents. The federal court had reasoned that HomeLight is an upstream supplier of paid referrals to downstream real estate brokers (as opposed to a real estate broker acting on the same distribution level.) Specifically, the court reasoned that … even though HomeLight is a licensed brokerage, in the context of this [referral] agreement HomeLight and agents are not acting as horizontal competitors … where … real estate agents [are] referral platform’s intermediate consumers … HomeLight, Inc. v. Shkipin, 22-cv-03119-PCP, 4 (N.D. Cal. Sep. 27, 2023).

This determination made by the federal court precludes 12 U.S.C. 2607(c)(3) exemption applicability for any of HomeLight’s referrals to partner agents. The publisher of this review does not have standing to raise a claim against HomeLight under RESPA in federal court, however, consumers who used HomeLight may have standing to sue, depending on when they were steered toward a partner agent who paid kickbacks to HomeLight. (The statute of limitations for a violation of RESPA is one year from the date of the violation. However, the statute of limitations can be extended under certain circumstances through the doctrine of equitable tolling.)

HomeLight is not even licensed as a brokerage in most states, so they could not even possibly be acting in brokerage capacity in those jurisdictions where they are not licensed, to begin with. Setting aside all other facts, where their Section 8(c)(3) defense (that HomeLight holds a real estate license in California, therefore it is eligible for 12 U.S.C. 2607(c)(3) exemption) immediately fails in jurisdictions where HomeLight holds no real estate licenses at all, yet they claim to operate in. Even in California, HomeLight holds a license with a single Salesperson listed, for all practical reasons, a shell entity.

There is a cardinal legal difference between a referral platform and a real estate brokerage. The Supreme Court, in Ohio v. Am. Express Co., 138 S. Ct. 2274, 201 L. Ed. 2d 678 (2018) recognized a two-sided platform to facilitate a single, simultaneous transaction that offers different products or services to two different groups who both depend on the platform to intermediate between them. In other words, all agreements between two-sided platforms and their customers are established between firms at different levels of distribution offering entirely different products or services. The term real estate broker is codified under 24 C.F.R. 3500.2(b) as a settlement service provider. A mere possession of a shell real estate license does not meet this designation. The 12 U.S.C. 2607(c)(3) exemption only allows real estate agents or real estate brokers where all parties deliver services provided in connection with a prospective or actual settlement … for which a settlement service provider requires a borrower or seller to pay to share cooperative broker commissions between one another. See 12 C.F.R. 1024.2(b)(29)(14). As a referral platform, HomeLight violates RESPA because it collects a 33% kickback from real estate brokers, a conduct that is outlawed by the United States Congress.

A referral platform may, of course, easily sell customer leads to real estate brokers. However, such sales must never be tied to the outcome of the successful transaction or based on a percentage of real estate commissions. The US-CFPB Advisory Opinion issued on February 7, 2023, further confirms that any operator of a settlement services digital comparison-shopping platform receives a prohibited referral fee in violation of RESPA Section 8 when the operator receives a thing of value for referral activity. In the United States, anyone violating the RESPA’s referral fee ban commits a crime 12 U.S.C. 2607(d)(1). HomeLight is orchestrating a wire-enabled nationwide scheme that constitutes 1,200,000+ separate counts of RESPA violations. When prosecuted by the government, Section 8 of RESPA violations are subject to fines of up to $10,000 and a potential prison sentence of one year, for each violation.

HomeLight false advertising violates Lanham Act and FTC Act

HomeLight utilizes false statements to promote itself (such as: Free and unbiased. Our service is 100% free, with no catch. Agents don't pay us to be listed, so you get the best match). This is integrally false advertising, as a matter of law. HomeLight even admits in its legal arguments that it is not free. The scheme steers consumers in a pay-to-play setting, and it cannot be unbiased by the mere definition.

The US-FTC Guide Concerning Use of the Word Free and Similar Representations 16 C.F.R. 251.1 explains meaning of free such that a purchaser has a right to believe that the merchant will not directly and immediately recover, in whole or in part, the cost of the free merchandise or service. HomeLight's false advertising cannot meet this definition because the scheme directly recovers the cost of steering consumers to partner agents via an unlawful referral fee paid upon a successful transaction. This fee is directly recovered from each referral and is paid by consumers with excessive real estate commissions. For certain transactions, HomeLight, Inc. also admits to taking their referral fees directly from consumers’ escrow. HomeLight is NOT free, and it is certainly NOT 100% free. The false advertising damages, as a result of HomeLight's false advertising, can be restituted to harmed consumers and lawful businesses.

Because consumers continually search for the best buy and regard special offers (such as, 100% free, no catch, and unbiased) to be a special bargain, all such offers must be made with extreme care so as to avoid any possibility that consumers will be misled or deceived. HomeLight's false advertising (Free and unbiased. Our service is 100% free, with no catch) do NOT display ALL of the terms, conditions and obligations in close conjunction at the outset of these offers, where disclosure of the terms of the offer is hidden within Terms of Service, is NEVER sufficient according to US-FTC.

In reality, ALL partner agents agree to pay HomeLight a referral fee on all closed transactions through their employing broker. Partner Agents must also sign a referral agreement with HomeLight before consumers' referrals become accessible. Even where HomeLight admits that it receives a portion of the agent's commission as a referral fee as an explanation on its referral fee model, this explanation is materially deceptive because it falsely and deliberately describes that (1) there is no cost to consumers to use HomeLight, (2) Agent Match service has no catch, and (3) 100% free service for everyone involved. HomeLight's referral fee is not only an unlawful kickback, but it is also never free to any consumers, very much meant to catch consumers with hidden kickbacks, and it makes home buying or selling more expensive by tens of thousands in junk fees.

HomeLight price-fixing violates Sherman Antitrust Act

HomeLight's model is also materially deceptive because it aims to stabilize real estate commission rates for ALL partner agents at 5%-6% of the sales price as the standard range. According to US-FTC Guide to Antitrust Laws, price fixing is an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels.

HomeLight falsely represents to consumers on its website that: (1) A commission rate of 5%-6% of the sales price is the standard range, (2) Homesellers can expect to pay 5% to 6% of their sale price as total commission, (3) Sellers typically pay a 6% commission, (4) The average total commission on a home sale is 5% to 6% of the total sale price, which is typically paid by the seller, (5) 1.5% [commission] savings may actually cost you more in profits than simply paying the higher commission, (6) When asking an agent to lower their pay, you limit the pool of agents willing to work with you, (7) The downsides to working with a low-commission agent can be steep, (8) Buyer agent commissions are most often covered by the seller, meaning this service is typically 100% free for buyers, (9) HomeLight would be happy to put your commission worries to rest by introducing you to several agents in your area who are well worth it., etc.

None of these statements about commissions are true. All real estate commissions must always be individually-negotiable, and, under law, there are no standard real estate commissions anywhere in the United States. Further, a cooperative buy-side offer of compensation made toward buyer brokers' fees cannot be mandated upon home sellers via MLS, or otherwise (although, real estate professionals may offer optional cooperative Buyer Agent Commissions in (40) state jurisdictions where buyer agent rebates are allowed by state law, as long there are no false claims made that buyer brokers services are free to homebuyers and home sellers are fully informed that all such offers are optional.)

While it is true that HomeLight does not explicitly mandate that all of +/-28,000 partner agents charge consumers 5% to 6% commissions as part of their referral agreement, it blatantly suggests that they do, where the series of horizontal price-fixing agreements to stabilize prices between spokes can be inferred from HomeLight's conduct. In other words, all partner agents (acting on the same distribution level) sign up into the referral network administered by HomeLight on the understanding that other partner agents using the referral platform will also likely be asking for 5% to 6% of the total sale price.

HomeLight maintains full control over selected partner agents who are being referred to consumers (typically, no more than three (3) partner agents are recommended as the best match to consumers), and because HomeLight knows what partner agents from past referrals charge historically, and because HomeLight makes it known to all partner agents that the standard commission is 5% to 6% - a series of horizontal agreements to stabilize prices between spokes is plausibly used as the vehicle to safeguard partner agents from fierce competition, thereby the hub creates collusive efficiency by reducing the need for horizontal coordination through communications from hubs to spokes regarding other spokes' intentions.

According to US-FTC, HomeLight is allowed to argue that it implements no price-fixing agreements between partner agents in their network, but if the government or a private party proves a plain price-fixing agreement, there is no defense to it. HomeLight may not justify its behavior by arguing that the prices were reasonable to consumers, were typical within the industry, or were necessary to avoid fierce competition or stimulated competition. No court has yet determined if a series of horizontal price-fixing agreements to stabilize standard commission at 5% to 6% across +/-28,000 HomeLight partner agents exists or not, but the statements made by HomeLight on their website can be sufficiently used to prove that HomeLight violates antitrust law by way of stabilizing commissions across a nationwide network of partner agents. In the author’s opinion, HomeLight blatantly fixes commissions for partner agents with a single goal in mind: higher price-fixed real estate commissions rates charged by partner agents simply yield higher kickbacks paid to HomeLight from each home sale or home purchase.