Compass sues Zillow as fight over privately marketed listings heats up
Compass has officially brought a long-simmering real estate dispute into the courtroom.
On Monday, the real estate brokerage sued home-search website Zillow, accusing it of engaging in an anticompetitive conspiracy to maintain its dominance over digital home listings.
Compass' lawsuit marks a new phase in the battle between real estate's largest brokerages and home search engines over control of home listings. If Compass' lawsuit succeeds, it could transform how and where real estate listings are shared online.
Zillow says it's working in the interests of consumer transparency and that Compass is trying to hoard listings. Compass says that Zillow adds costs to the home-buying process.
In the internet age, most home shoppers turn to home search engines to begin their search, and Zillow is the powerhouse player in that space: 80% of home searchers go directly to Zillow's website when looking for a new home, according to a February investor presentation from the company.
The source of Compass' complaint, which was filed on Monday in a New York federal court, is a new rule from Zillow stating that any home listing publicly marketed to consumers anywhere must be published on Zillow within one day or it won't be allowed to be published on Zillow at all.
Compass referred to the rule as the 'Zillow ban' in its lawsuit. Compass claimed the rule, which took effect on May 28 and will be enforced starting June 30, is designed to crush competition in the home search space.
'The Zillow Ban is designed to make it hard, indeed nearly impossible, for home sellers to sell their home outside of Zillow, in an effort to force all listings to be on Zillow where Zillow makes money selling leads off the homeowners' listings,' the lawsuit said.
Zillow has disputed Compass' characterization, stating that the lawsuit is unfounded and the new rule was enacted in the spirit of fairness. Zillow has said its new policy is in response to sales tactics that have gained popularity over the past year, which limit the visibility of home listings.
'At the heart of this issue is a simple principle: when a listing is publicly marketed, it should be accessible to all buyers—across all platforms, including Zillow,' a Zillow spokesperson said in a statement. 'Hiding listings creates a fragmented market, limits consumer choice and creates barriers to homeownership, which is bad for buyers, sellers, and the industry at large, especially in this inventory and affordability-constrained environment.'
Compass' lawsuit comes at a time when the company has faced growing pushback from some of its peers in the real estate industry for its '3-phased marketing strategy' for home sellers.
The strategy begins with a private listing to 'test' a home's sales price. Then, during the 'coming soon' phase, listings are showcased on Compass' website to generate buyer interest before they 'officially' hit the market. The final phase is to 'go live on all platforms,' meaning the home listing is publicly available for real estate agents and home shoppers to view across all home search engines.
As of mid-February, approximately 35% of all Compass listings were listed as 'Compass Private Exclusive' or 'Compass Coming Soon,' the company's CEO, Robert Reffkin, said on an earnings call.
Critics have argued that Compass' private listing strategy unfairly pushes home sellers to make deals with buyers represented by other Compass agents, resulting in the brokerage collecting a commission from both sides of a home's sale.
Compass denies that it encourages sellers to enter private transactions. In Monday's lawsuit, the company said many sellers choose its 3-phase marketing route because homes listed on Zillow are displayed with 'negative insights,' including a 'Zestimate' that estimates the property's value and a 'Climate Risks' section that shows whether a home is susceptible to certain hazards, such as wildfires or floods.
'This lawsuit is about protecting consumer choice,' Reffkin told CNN.
Zillow has said such features are included to provide transparency to home shoppers.
Compass says the 'Zillow ban' complicates its marketing strategy. Although the rule doesn't directly prohibit private listings, homes listed on Compass' website as 'coming soon' must be published on Zillow within 24 hours.
The 'Zillow ban' piggybacks on a 2019 policy, called Clear Cooperation, that was established by the National Association of Realtors, the trade association that often sets the rules for real estate professionals. That policy says that if a real estate agent publicly markets a property (such as by putting it on a website, sending it in an email or posting on social media), they must submit that listing to their local Multiple Listing Service (MLS) within one business day. The MLS is a cooperative database used by real estate agents to share property listings in a streamlined manner.
Compass also accused Zillow of conspiring with other players in the real estate industry, its home search competitor Redfin and brokerage eXp Realty, to maintain its market dominance. Both Redfin and eXp Realty agreed to adopt and adhere to Zillow's new rule after it was announced. While Compass accused Redfin and eXp Realty of being co-conspirators, they were not named as defendants in the suit.
In a statement, eXp Realty said 'any implication of co-conspiracy is categorically false' and that its business strategies are developed independently.
'It's ironic that Compass, a company that's never turned a profit, is choosing to burn cash and credibility on a lawsuit. And suing Zillow for giving consumers access? That's not strategy, that's desperation,' said Leo Pareja, the CEO of eXp Realty.
Redfin did not immediately respond to a request for comment.
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