(Bloomberg) — Zillow Group Inc. stifles competition in home listings online, leading to less choice and higher prices for consumers, a real estate brokerage startup claimed in an antitrust lawsuit.
The startup, Rex – Real Estate Exchange Inc., said in a complaint filed Tuesday that Zillow recently adopted changes to its website that amount to a boycott of independent brokers and prevents home buyers from seeing a full picture of homes available for sale.
The lawsuit marks the latest antitrust accusation against the residential brokerage business and its traditional commission structure. The National Association of Realtors last year settled a Justice Department complaint accusing the trade group of adopting a number of rules that reduced competition and harmed home buyers and sellers. The group is also a defendant in the Rex complaint.
“Zillow began like so many other platforms: it served a great value to American consumers,” Rex Chief Executive Office Jack Ryan said in a statement. “Unfortunately, we see Zillow as backtracking on their original mission to serve consumers, instead focusing on their own profits.”
Rex met last month with state attorneys general from around the country about Zillow’s change and what Rex says are anticompetitive industry rules that lead to inflated commissions paid to brokers.
Zillow didn’t immediately respond to a request for comment on the suit.
Zillow, whose core business is selling leads to real estate agents, announced plans last year to launch a brokerage business to aid its nascent home-flipping effort. The business, called Zillow Offers, buys homes, makes repairs, and puts the property back on the market, charging sellers a fee for the convenience of an easy sale. The company initially used outside agents to work on those transactions, but said it decided to employ licensed agents in-house to simplify the process and “help customers save time and reduce friction and uncertainty.”
Rex, co-founded by Ryan, a former Goldman Sachs Group Inc. partner, says it’s disrupting the traditional real estate commission structure, where home sellers agree upfront to pay commissions owed to the brokers on both sides of a deal.
The company, which uses machine learning to market homes, charges sellers between 2% and 2.5%, rather than the standard 2.5% to 3% charged by traditional sellers’ brokers. In a typical transaction, sellers pay an additional 2.5% to 3% to the buyer’s agent. Rather than agreeing to that standard fee, Rex instead negotiates the fee the seller will pay to the buyer’s agent. The result is that total commissions are on average 3.3% of the sales price, it says, well below the 5% to 6% in a traditional deal. Since its founding in 2015, Rex says it has saved consumers $30 million in commissions.
Rex uses real estate sites like Zillow to market homes alongside homes from competing brokers who are members of the National Association of Realtors. Until Zillow’s recent website change, when buyers searched Zillow, homes with selected criteria were displayed regardless of whether they were listed by Rex or a traditional broker.
In the fall of 2020, Zillow announced it was joining the National Association of Realtors and adopting its legacy model of inflated commissions, Rex says. In January, it redesigned its website so that listings from Rex were relegated to a separate search results page, according to the complaint.
Rex says the change is deceptive and amounts to an illegal restraint of trade in violation of antitrust laws. It prevents prospective buyers from seeing on a single screen every home for sale in an area. As a result, Rex has seen a sharp decline in the number of views of its homes.
“Consumers — buyers and sellers — now experience reduced choice in transacting real estate,” Rex said in the complaint. “Competition from Rex, which allows buyers and sellers to lower commissions to get more home for their money, is suppressed and it loses customers.”