Zillow and Trulia hit with antitrust suit claiming they've made it harder to find some listings
A seemingly small change to Zillow and Trulia's websites in January has changed the way homebuyers see available homes for sale. And that has a smaller player in the industry suing the real estate giants, along with the National Association of Realtors, for antitrust practices.
In a federal complaint, Real Estate Exchange (REX), an Austin, Texas-based brokerage firm that offers low-fee listings, claims Zillow and NAR's practices are discriminating against its company, therefore hurting competition -- and consumers. Zillow Group owns both the Zillow and Trulia websites.
On typical listings, sellers pay broker fees of 5% to 6%, which are split among the agents on both sides of the deal. But REX uses a sales model that eliminates the buyer's agent commission and charges a fee that can be as low as 2% of the final sales price.
REX said it filed its suit after its clients complained that their property listings were being buried and were more difficult to find in search results on the real estate sites.
In addition to lodging the antitrust complaint in federal court, REX filed a preliminary injunction motion asking for immediate relief.
"We're suing Zillow and NAR because they are ganging up and trying to stop us from bringing lower fees to consumers," Jack Ryan, chief executive officer of REX, told CNN Business. "There is no reason it should cost 6% to sell a home in the 21st century. We can do well with prices that are half of that."
REX is not a member of NAR or a Multiple Listing Service, which is a private network of databases that agents use to share information about their listings and get them in front of the widest possible audience.
REX asserts that the MLS and NAR do not operate for consumer's interest because they seek to keep compensation high and employment strong for their members. Rather, REX says it operates licensed brokerages and employs salaried licensed agents, which allows it to keep costs low for its customers.
At issue in the complaint is the idea of "co-mingling" listings that are offered by different sources and with different amounts of commissions in one place, specifically on Zillow and Trulia.
REX cites an update to the Zillow and Trulia websites that took place in January, alleging the change caused listings from agents that are MLS members to appear under a default tab labeled "Agent listings." Those that don't belong to an MLS are relegated to a separate tab labeled "Other listings" that needs to be clicked on in order to be viewed. According to the complaint, the "Agent listings" label is inaccurate because it is not all agent listings, only MLS agent listings.
In addition to REX's listings and those from agents that are not members of an MLS, the "Other listings" tab includes pre-foreclosure listings and those that are for sale by owner or directly through a developer. Some non-MLS listings, like those from REX, offer a nontraditional commission structure.
A Zillow spokesperson said the company believes the claims are without merit and intends to defend itself.
Zillow and Trulia have long presented these kinds of listings in one big search result on their sites. But that had to change once Zillow became a member of NAR at the end of last year. As part of its membership, Zillow Group's chief industry development officer Errol Samuelson said in a video statement last September that the companies needed to change the way they presented properties for sale in order to comply with MLS rules.
"As a result, when using one of our platforms to search for homes, buyers may see two options to view their search results -- 'Agent listings', and 'Other listings' -- which include For Sale by Owner listings or Coming Soon listings not on the MLS or, for that matter, on most other real estate sites," said Viet Shelton, a Zillow spokesperson.
"Zillow is committed to giving consumers the most up-to-date housing information on the most amount of listings possible on a single platform," he said. "As part of our efforts to empower consumers, we have been actively working to update the industry rules, including those around 'co-mingling,' to allow a seamless search experience so we can continue to display all types of listings on our platform."
NAR's policies specify that listings coming via a broker reciprocity system called the Internet Data Exchange, or IDX, that provides rules for MLS participants, are not allowed to be shown together with listings that don't come through that system. Listings outside that NAR system include homes that are for sale by owner, auctions and listings from REX and some similar non-MLS member firms.
"Zillow began like so many other platforms: it served a great value to American consumers," said Ryan. "Unfortunately, we see Zillow backtracking on their original mission to serve consumers."
REX argues in its complaint that with the internet fundamentally changing how Americans shop for homes -- with much of the legwork of searching and finding listings done by homebuyers themselves on websites like Zillow -- agent's fees do not need to be as high as they once were.
NAR said the lawsuit has no legal basis and it intends to vigorously contest it.
"This is an example of a brokerage trying to get the benefits of the MLS system without participating in it," said Mantill Williams, NAR vice president of public relations communications strategy. "The choice to join local and independent MLSs across the country is a recognition of the value of the pro-consumer, pro-competitive MLS system."
NAR argues the MLS system levels the playing field for small businesses and allows innovation to flourish, all to the benefit of buyers and sellers.
REX's complaint comes only a few months after the Department of Justice's proposed settlement against NAR last November. As part of a settlement, NAR agreed to change several of its policies in order to increase competition among brokers and make agent fees clearer to home buyers. NAR also faces other consumer complaints and class action lawsuits regarding its fees and practices.
