This article was first published on Real Estate News.
The legal firms that filed one of the original class-action lawsuits challenging real estate commissions nationwide have a new target: Zillow.
In a draft complaint shared exclusively with Real Estate News, attorneys from Hagens Berman and Cohen Milstein allege the home search giant inflated costs for homebuyers through its Zillow Flex referral program, which charges agents up to 40% for a successful transaction. The suit claims Zillow’s referrals to agents, which garnered more than $2 billion in revenue last year, illegally maintain “high and inflexible commissions.”
“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,” said Steve Berman, Hagens Berman’s founder and managing partner, in a statement.
“A company with its footprint is not too big to be held accountable, and we intend to support homebuyers who have been harmed.”
‘Tricks’ and a lack of disclosure: The Sept. 19 complaint, filed in the U.S. District Court for the Western District of Washington, alleges Zillow is a “monopoly” in the U.S. market for residential real estate online search services, stating that it claims 66% of the U.S. real estate audience share.
“Zillow’s ability to monetize this dominance is based on deceptive and illegal conduct,” the complaint says.
“When potential buyers are on Zillow’s website, Zillow tricks them into signing up with a Zillow agent. If the agent is part of Zillow’s ‘Flex’ program, Zillow gets 40% of the agent’s commission — a payment on the back end that is undisclosed to all parties involved” — including the buyer and seller who might want to know that information as they negotiate the sale and close of the listing.
Buyer claims he didn’t have ‘any other option’: The plaintiff, Alucard Taylor, is a resident of Portland, Ore., who bought a home using a Zillow Flex agent — identified in the suit as “R.H.” — in 2022.
“In [the plaintiff’s] dealings with R.H. prior to and during the purchase of his home, he did not believe he had any other option than to use R.H. to make the purchase,” the complaint says.
The complaint alleges that when buyers press the “Contact Agent” button on a Zillow listing, they believe they are contacting the listing agent, not a Zillow-affiliated buyer agent.
“If buyers were directed to sellers‘ agents, they would be better positioned to negotiate a lower purchase price, because the seller would not have to pay commissions to the seller’s agent and the buyer’s agent,” the complaint says.
The program “incentivizes Zillow Flex agents to prioritize receiving his/her full commission at all costs,” the complaint alleges, because those agents are netting a lower commission after paying referral fees.
“Sellers are stuck with paying 6% commission (or more) because the buyer Flex agent is receiving such a paltry sum in return, thereby increasing the purchase price of the home.”
Zillow’s listing rules ‘defraud buyers’: The suit also attacks Zillow’s new Listing Access Standards, which bar listings that have been publicly marketed for more than a day but are not widely available via the MLS or syndication.
The complaint alleges the policy is part of Zillow’s “scheme to defraud buyers by effectively forcing home sellers and their agents to post on Zillow.com immediately after advertising the home for sale,” thereby inflating “the unjustly earned profits Zillow receives from its deceptive conduct.”
Listing agents who don’t comply after three warnings will not be able to repost the listing, the filing notes, “effectively forcing the seller to fire her agent and find someone else who will acquiesce to Zillow’s coercive tactics.”
The potential for a major class action: The suit seeks class-action status on behalf of all U.S. buyers who bought a home listed on Zillow in the last four years using an agent they were referred to through Zillow.
The complaint, which also accuses Zillow of violating the Washington Consumer Protection Act and the federal Real Estate Settlement Procedures Act (RESPA), seeks a jury trial and treble damages, though no monetary amount was disclosed.
Real Estate News has reached out to Zillow for comment and will update this story if and when a response is received.
Hagens Berman and Cohen Milstein are two of the major law firms that filed the Moehrl antitrust lawsuit against the National Association of Realtors, Keller Williams, Anywhere, HomeServices of America and RE/MAX. Those entities and others ended up settling for more than $1 billion.
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