If real estate is a game of chess, then Zillow’s most precious pieces are at risk.
The portal behemoth is currently batting off multiple pawns: Compass’s antitrust complaint against Zillow’s listing ban; CoStar Group’s copyright infringement claims that include nearly 50,000 listing images on Zillow’s site; and a class-action lawsuit that aims to upend Zillow’s Premier Agent Flex referral program — a key part of the portal’s $1.6B residential segment.
The Federal Trade Commission (FTC) added to the pile earlier this month, calling foul on Zillow and Redfin’s $100 million rental syndication deal.
The lawsuits — alongside news that rival Compass may acquire Anywhere — have stoked questions about Zillow’s next moves and whether they’ll end in checkmate.
Inman spoke with several experts who said the portal has some tough decisions ahead, such as paying a hefty FTC fine or modifying its Flex program. But, they added, none of those things necessarily spell disaster for the leading residential portal.
Russ Cofano
“When you’ve gone from non-existence to the number one real estate company, which they are today, you have a target on your back,” real estate strategist Russ Cofano told Inman. “And I think for Zillow, in one respect, it’s a badge of honor because you’ve been so successful. And from a financial standpoint, they’ve been more successful than any real estate company.”
“So I don’t think it’s the beginning of the end for Zillow,” he added. “They’ve weathered some storms and industry pushback over the years, but because of their business model and their ability to execute, they’ve been able to proceed, notwithstanding these kinds of inflection points. [These things] are not an existential threat to Zillow’s business model.”
Inman reached out to Zillow for comment, and a portal spokesperson directed us to previous statements about its listing ban, Zillow Flex program and Redfin rental syndication deal, which are included below. The spokesperson declined to comment on CoStar.
The Rook: Compass and the move toward PLNs
Two weeks ago, Compass shook the industry with its $1.6 billion all-stock acquisition of Anywhere, the holding company of seven legacy brands, including Coldwell Banker, Century 21 and Sotheby’s International Realty. If the FTC and the Department of Justice (DOJ) approve the merger (Learn more in our Compass-Anywhere FAQ), the combined companies would have a staggering 18 percent market share.
It’s unknown whether Compass plans to expand its exclusive listings strategy to Anywhere. However, the possibility raises questions about the companies’ ongoing battle about private listing networks (PLNs) and Zillow’s right to ban listings that aren’t added to the multiple listing service (MLS) within 24 hours of being publicly marketed.
Victor Lund
WAV Group co-founder Victor Lund said the industry needs to dial back its estimate of Compass’s power — if the merger closes.
Compass will have some power over the agents under Anywhere Advisors, the segment that accounts for 600 company-owned and operated brokerage offices with more than 53,000 independent sales associates. However, that power doesn’t necessarily translate in the same way to Anywhere Brands, the segment that accounts for 18,000 independently-owned and operated offices with 300,000 independent sales associates.
“Anywhere Brands has 300,000 independent sales associates. They can’t tell [them] how to use the logo. They can’t tell [them] how to sell real estate. So now you’re looking at a far smaller number of agents,” he said. “So when you look at the collective power, which I think is a bad term, of how they promote services to the homeseller, it’s more diluted than that.”
Although Compass’s directive power — or, the power to push the Compass vision on issues such as private listings — diminishes when excluding Anywhere Brands, Cofano said the market gain could still be enough to get Zillow to bend the line, although the company has said it “won’t waiver in its commitment” to consumer transparency.
“What we know is that, at least according to Compass, the properties that go exclusive actually make it to the MLS anyway,” he said. “Zillow has drawn the line with Compass, but if a lot of companies start jumping on a private exclusive, I’m wondering whether they can withstand that and still maintain that hardline approach.”
“They may back off and attempt to find a middle ground so those [banned] properties can be displayed on Zillow, and they can, again, try to capture that lead gen and mortgage revenue,” he said. “I don’t know what that [middle ground] would look like … It’s really a game of chicken at this point.”
Lund said the future of private listing networks (PLNs) won’t depend on Compass or Zillow’s ability to sway agents. What it will depend on, he said, is the market.
“Real estate ebbs and flows between a buyer’s market and a seller’s market,” he said. “The three-stage process for marketing a listing when it was really a seller’s market, that becomes very different in a buyer’s market.”
“As far as Compass’s antitrust lawsuit, I think Zillow’s out over their skis on this a little bit, but the judge will decide,” he added.
The Pawn: CoStar’s copyright infringement suit
Amid the shock of Compass’s acquisition news, CoStar Group intensified its July copyright infringement campaign against Zillow, which centers on thousands of rental listing images. The parent of Homes.com claimed that Zillow continues to use contested images — a move CoStar Founder and CEO Andy Florance called “morally questionable behavior.”
Cofano spent little time on the CoStar lawsuit, saying “it isn’t a huge issue” in the landscape of Zillow’s current slate of challenges. However, Lund said it puts Zillow in an odd position with its customers, with whom it could pursue legal remedies if it so chooses.
“Zillow isn’t the one who, you know, sort of stole somebody’s intellectual property and put it on their website. Someone gave them the property, and they gave it to them with the assurance that they could use it,” he said. “So the violator of CoStar’s copyright is probably not Zillow, but the person who gave Zillow the listing.”
CoStar, however, disputes this interpretation. In the company’s suit, it alleges that “Zillow itself — and not at the prompting of its users — copies and displays CoStar images.” In other words, CoStar believes that Zillow was the infringing party.
Lund — who testified in another photo-related copyright lawsuit involving Zillow — said CoStar has a solid argument and could win treble damages in the millions. And the opportunity to bleed Zillow’s coffers, he said, won’t be one that Florance passes up, especially as both portals embark on a head-to-head rental segment battle.
Real estate strategist Mike DelPrete’s latest analysis revealed the stakes for CoStar’s Apartments.com, whose revenue lead over Zillow Rentals has dropped from “nearly 5x to 2.6x over the past two years,” reflecting a “mild competitive impact.”
“I mean, the amount of litigation that CoStar has had against different companies is, you know, pretty notoriously significant,” Lund said. “When you look at who has the most money, Andy wins. Sometimes you can bleed a competitor with these types of claims, and, you know, it’s a strategy that he deploys.”
The Knight: The FTC’s challenge against the Redfin deal
The FTC has sued Zillow and Redfin over their $100 million rental syndication deal, which allows Zillow to host all of Redfin’s rental listings for buildings with more than 25 units. The deal also includes Zillow paying Redfin an unspecified amount for leads, and has an initial five-year term with up to four years of automatic renewals.
The FTC said the deal violates the Sherman and Clayton Acts, and severely restricts competition within the Internet Listing Services (ILS) advertising market, which was dominated by only three companies — Zillow, Redfin and Apartments.com.
The FTC argues that Zillow essentially paid Redfin to stop competing in rentals, and that move negatively impacts the property management companies (PMCs) that rely on these portals to advertise their listings.
Both portals have defended the agreement, saying that the sunsetting of Redfin’s rental sales team allowed Redfin to redirect those funds to improving the rental search experience for millions of consumers.
“It is pro-competitive and pro-consumer by connecting property managers to more high-intent renters so they can fill their vacancies and more renters can get home,” a Zillow spokesperson told Inman on Sept. 30. “We remain confident in this partnership and the enhanced value it has delivered and will continue to deliver to consumers.”
Like the CoStar lawsuit, Cofano said he doesn’t believe the FTC lawsuit, or the five attorneys general who’ve since joined the FTC in suing the portals, poses a significant threat.
“Yes, they have to deal with them,” he said. “It’ll probably involve money.”
Rob Hahn, better known in the industry by his blogging nom de plume Notorious R.O.B., shared a similar sentiment in his Oct. 6 blog about the lawsuit. Hahn said the FTC’s complaint is “strong,” but has a “significant weakness” in that there’s “no evidence that the Zillow-Redfin deal has in fact hurt PMCs, and in turn, renting consumers.”
Hahn also said the primary remedy would be Zillow and Redfin paying a hefty fine, as ordering the portals to undo the deal wouldn’t make a difference — Zillow’s already accessed Redfin’s data and strategies — and could be a nightmare experience for PMCs.
“Even if we presume total victory by the FTC, it really isn’t clear what the court can do here to make the FTC (and the five States piling on) happy,” he said. “A huge fine, maybe? But that doesn’t restore competitive balance; it just puts money into the government’s coffers.”
The Queen: The Zillow Flex class-action lawsuit
Zillow has faced years of backlash over its Premier Agent Flex program, which requires agents to pay a referral fee after closing a transaction with a homebuyer lead generated through the platform. The fee an agent pays is based on the market, transaction price, and the connection delivery date, and maxes out at 40 percent of the transaction price.
The program is at the center of a new class-action lawsuit that claims Zillow has been deceiving homebuyers and inflating their costs through the Flex program. The homebuyer who brought the suit, Alucard Taylor, said he found his future home on Zillow in July 2022 and clicked the “Contact Agent” tab, believing that he’d be routed to the listing agent. However, Taylor was connected with a Premier Agent member, whom he believed he had to use to purchase the home.
The firm representing Taylor, Hagens Berman, said Taylor represents millions of homebuyers who didn’t understand they were being put into a lead funnel. The firm’s attorneys also argued that the 40 percent referral fee trickles down to homebuyers in the form of inflated commissions.
“When potential buyers are on Zillow’s website, Zillow tricks them into signing up with a Zillow agent,” the suit read. “If the agent is part of Zillow’s ‘Flex’ program, Zillow gets 40 percent of the agent’s commission — a payment on the back end that is undisclosed to all parties involved. Zillow’s scheme has the intent and the effect of unlawfully maintaining high and inflexible commissions that drive up the prices that buyers must pay.”
Zillow said the lawsuit “fundamentally misrepresents how Zillow operates and the value we’ve delivered to buyers, sellers, and real estate professionals,” and will “vigorously defend [itself] against these claims.”
Among the challenges, experts told Inman that this one could most significantly challenge the portal’s business model.
David Cohen
Cohen Property Law Group owner-attorney David Cohen told Inman that the suit has “serious potential legal and business ramifications.” If the court decides in the plaintiff’s favor, Cohen said, Zillow could be required to not only pay damages, but return profits gained from the Flex program and change its business model to be more transparent with consumers about agent affiliations and commission structures.
“The implications for consumers, real estate agents and the overall housing market could be huge,” he said in an email interview. “For agents not affiliated with Zillow, the lawsuit could level the playing field by not allowing favorable treatment for platform-affiliated agents, particularly in competitive markets like Seattle, Portland and San Francisco, where Zillow has deep market penetration.”
“More generally, this suit is part of a consistent pattern of real estate litigation seeking accountability from the big digital platforms,” he added. “Zillow [and other portals] control huge portions of online real estate traffic, and regulators and courts are beginning to examine more carefully whether these companies are behaving fairly and transparently.”
Cofano said the most significant outcome of the lawsuit will likely be more transparency about referral fees and transactions, which he said isn’t a bad thing.
“Here’s the thing — there’s nothing illegal about what Zillow’s doing in terms of referral fees,” he said. “We’re probably going to start seeing more transparency around referral fees and transactions. It’ll be more paperwork for agents to work through. Will it have a major impact on Zillow’s lead gen business? I don’t see it today.”
Who delivers checkmate?
Although Zillow is facing intense pressure, Lund said the portal is resilient and possesses the thing its competitors desire — the loyalty and attention of consumers.
“Despite all of these challenges that they’ve faced since their inception, they’ve been an incredibly resilient company that’s well-managed, and they’ve been able to overcome these problems and usually come out ahead,” he said. “So I don’t think that these things are going to take down Zillow; they’re too great a company, they provide a valued service. Consumers love their product. As long as they keep delivering what consumers want, they’ll continue to succeed.”
Cofano said he believes agents can benefit from Zillow’s current challenges, as the tension over PLNs, listing data, syndication deals and referral programs will likely lead to more robust competition.
“I think it’s actually going to create even more robust competition at the agent level, which will give consumers more choice. You’re going to have more agents having access to different ways of doing business, competing at the kitchen table, where that competition generally is, for the hearts and minds of consumers. And at the end of the day, I think the consumer is going to win in some of these things.”
