Zillow and its affiliate Trulia are illegally favoring listings by brokers who belong to the National Association of Realtors, a real estate startup alleges.
By LEAH NYLEN
A real estate startup sued Zillow in federal court Tuesday over allegations that the popular real estate website violates antitrust law by deceptively steering customers to home listing from a subset of agents.
In the suit filed in U.S. federal court in Seattle, Rex alleges that Zillow and its affiliate Trulia are illegally favoring listings by brokers who belong to the National Association of Realtors, the most prominent U.S. real estate trade association. Home listings by non-NAR agents are now relegated to a “hidden tab” on the websites, the startup says.
The change by Zillow and Trulia forces all non-NAR listings to have “permanent low visibility,” Rex general counsel Mike Toth said in an interview. “This is the real estate web returning to this old vision of data segregation rather than data democratization for consumers.”
The suit could upend the way online real estate platforms — now one of the first stops for American homebuyers — operate and open the door for more buyers to negotiate down the hefty commissions real estate agents often charge.
Key context: Zillow, the No. 1 real estate listings website, has recently expanded beyond its roots in advertising to helping homebuyers and sellers more directly — and taking a bigger portion of potential commissions for real estate services — through “instant buying,” which it launched in 2018, and as of January, offering its own real estate agents in select cities.
About 52 percent of buyers said they found their homes through an internet search in 2019, according to NAR. The pandemic — which has led to a spike in homebuyer interest as white-collar employees transitioned to working from home and an all-time high number of adults moved back in with parents or grandparents — has further accelerated that trend. In December, Zillow predicted that 2021 is likely to see the highest home sales growth since the 1980s.
At issue in the suit: A change Zillow and Trulia made to their sites on Jan. 12. Before then, the sites — which control 75 percent of the online home search market, according to company securities filings — allowed users to easily view all homes for sale, regardless of whether a listing was posted by an agent.
But beginning this year, Zillow and Trulia started segregating listings, giving preferential treatment to the 1.3 million real estate agents who belong to NAR, Rex alleges. Other listings, including those posted by brokers not affiliated with NAR, foreclosures and homes listed for sale by owners without agents, are now relegated to a separate tab, the startup says. It is asking the court to block Zillow and Trulia from segregating listings.
NAR’s own real estate listings site, Realtor.com, is the second-most visited site and already only shows homes for sale by NAR agents. The change by Zillow and Trulia means that three out of the four most popular platforms for viewing real estate listings now funnel consumers to homes with NAR agents, Toth said.
Those listings can be more expensive since they require the seller to pay a commission, often 6 percent of a home’s sale price, which is split between agents for the seller and the buyer. Rex — which operates in Washington, D.C., and 25 other major cities — says it makes real estate agent fees more transparent by leaving them to the homebuyer to negotiate.
Rex has also raised antitrust concerns about Zillow’s changes with the Justice Department and 35 state attorneys general, Toth said. An earlier complaint by Rex led DOJ last year to sue and settle with NAR over some of its rules related to the display of listings.
Zillow’s side: Viet Shelton, a Zillow spokesperson, said the company made the change in January after it became a participant in the Multiple Listing Services Internet Data Exchange feeds, which are operated by NAR. The association’s rules for the IDX feeds require participants to segregate listings, he said.
“Zillow is committed to giving consumers the most up-to-date housing information on the most amount of listings possible on a single platform,” Shelton said. “We made changes to the way some listings appear on the site in order to be compliant with MLS rules.”
Shelton said Zillow has also been working to update the industry rules, and supports changing them so the company can display all types of listings.
NAR’s view: NAR spokesperson Mantill Williams said Rex’s suit has “no merit” and the group will vigorously contest it.
“This is an example of a brokerage trying to take benefits of the MLS system without contributing to it,” Williams said. He said MLS systems promote competition by increasing access to listings.