A homebuyer represented by the law firm involved in the Moehrl commission lawsuit is targeting Zillow in a new class-action case that alleges the listing portal has used “deceptive and illegal” practices to inflate homebuyer costs.
A homebuyer represented by the law firm involved in the Moehrl commission lawsuit[1] is targeting Zillow in a new class-action suit that alleges the listing portal has used “deceptive and illegal” practices to inflate homebuyer costs.
In the complaint, attorneys from firm Hagens Berman allege that Zillow inflated costs to homebuyers through the Zillow Flex referral program, which imposes up to a 40 percent charge to agents[2] who successfully close a transaction after a lead generated through the platform.
“When potential buyers are on Zillow’s website, Zillow tricks them into signing up with a Zillow agent,” the complaint states. “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.”
The complaint also states that the bright blue button on Zillow listings that says “Contact Agent” deceptively directs buyers to a Flex agent, not the listing agent as consumers would expect.
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Zillow did not immediately responded to Inman’s request for comment Friday. Hagens Berman declined to comment further than what the firm published in a press release[4] on Friday. News of the suit was first reported by Real Estate News[5].
Defendants in the lawsuit — filed in U.S. District Court for the Western District of Washington — include Zillow Inc., Zillow Group Inc., Zillow Homes Inc. and Zillow Listing Services Inc.
The suit argues that the up to 40 percent fee Zillow places on agents who are enrolled in its Flex program is never disclosed to consumers, but that charge trickles down to them by way of inflated commissions.
“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,” the suit said.
The complaint further argues that this process allows Zillow’s Flex buyers agents to “insert themselves into the transaction between the buyer and the listing agent to extract a buyer agent commission,” the firm’s press release said.
Attorneys with Hagens Berman also argue that Zillow is fully aware of how those costs may impact consumers.
“Real estate is a unique marketplace where hundreds of thousands of dollars are routinely at play,” Steve Berman, Hagens Berman’s founder and managing partner, said in a statement[6] released by the firm. “We believe Zillow is well aware of the potential for ill-gotten gains in this space and has sought to play fast and loose when real people’s basic need of housing is on the table. A company with its footprint is not too big to be held accountable, and we intend to support homebuyers who have been harmed.”
The law firm also encouraged homebuyers who used a Zillow agent in the last four years to contact the firm to see how they might be eligible for compensation.
Zillow estimates that it possesses roughly 66 percent of the U.S. real estate audience share, Hagens Berman said, with 80 percent of consumers going directly to Zillow. Attorneys at the firm say that kind of market dominance constitutes monopoly power.
“Zillow didn’t get to its place of market dominance by presenting a better option or by winning over the hearts of the public, but through what we believe to be deceptive and illegal conduct carefully designed to stifle competition at the expense of its own customers,” Berman said in a statement.
The lawsuit also takes aim at Zillow’s new listing standards policy[7], which stipulates that listings that are marketed for sale to any group of potential buyers must be put on the portal within 24 hours or risk being banned from the portal entirely (after three warnings).
“This policy effectively requires sellers and their agents to forgo using other initial methods to advertise the home sale,” the complaint states. “The effect of this policy is to inflate the unjustly earned profits Zillow receives from its deceptive conduct, as it continues to increase its dominance of the market.”
Hagens Berman also said in its press statement that Zillow retains recordings of all introductory calls between homebuyers and Zillow-affiliated agents who contact them via Zillow. “The lawsuit states Zillow agents on these calls do not readily disclose that they are not the listing agent, and sales of referrals or ‘leads’ to real estate agents are Zillow’s primary source of revenues, which grew to over $2 billion last year.”
The lawsuit arrives at a moment of significant tumult for real estate generally, and for Zillow specifically. Over the past several years, a series of anti-trust lawsuits challenged — and changed — industry rules regarding agent pay. The Moehrl suit — in which Hagens Berman represented homeseller plaintiffs — was one of the most significant of those cases. The National Association of Realtors settled[8], and rolled out new rules[9] in response to, commission litigation last year.
More recently, Zillow has been locked in an intense rivalry with Compass over how and where listings can be marketed. The situation escalated in June when Compass sued Zillow[10]. And earlier this week, Compass CEO Robert Reffkin referred to Zillow as a monopoly[11], language that the new class action lawsuit also uses.
In the case of the new suit, the plaintiffs are ultimately demanding a jury trial.
Read the full complaint here:
Update: This story was updated after publication with additional information on the new lawsuit, and with additional background.
References
- ^ Moehrl commission lawsuit (www.inman.com)
- ^ up to a 40 percent charge to agents (www.inman.com)
- ^ TAKE THE INMAN INTEL SURVEY FOR SEPTEMBER (www.research.net)
- ^ a press release (www.hbsslaw.com)
- ^ Real Estate News (www.realestatenews.com)
- ^ a statement (www.hbsslaw.com)
- ^ Zillow’s new listing standards policy (www.inman.com)
- ^ settled (www.inman.com)
- ^ rolled out new rules (www.inman.com)
- ^ when Compass sued Zillow (www.inman.com)
- ^ referred to Zillow as a monopoly (www.inman.com)
- ^ Email Lillian Dickerson (www.inman.com)