Class Action Lawsuit Alleges Zillow Generates Most of Its Revenues Via ‘Deceptive Business Practices’

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A proposed class action lawsuit claims that Zillow has monopolized the housing market—and in the process artificially inflated the purchase price of homes—by, among other conduct, deceptively inserting its own agents and brokers into sale arrangements before hitting potential buyers with hidden fees.

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According to the 27-page lawsuit, Zillow, the largest online real estate platform, offers prospective homebuyers the ability to contact an agent— whom buyers logically believe to be the seller’s agent— regarding properties listed on its website.

However, the suit alleges that Zillow, rather than steer prospective buyers to a seller’s agent, instead directs them toward its own agents, who, the filing says, are usually unfamiliar with the property of interest. According to the case, Zillow agents’ contracts with the company tend to result in inflated home prices due to both nature of agent and broker commissions and Zillow’s cut of its agents’ commissions.

“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 suit summarizes. “It also incentivizes Zillow Flex agents to prioritize receiving his/her full commission at all costs, even if the buyer loses the bidding process.”

Per the complaint, real estate agents and brokers make the majority of their money via sale commissions, which are calculated as a percentage—typically around three percent—of the total, final sale price of a property. Sellers, the filing notes, will almost always have a broker, but buyers can contract one, too, in which case the buyer broker’s commission is a percentage of the seller broker’s commission.

The class action lawsuit states that Zillow contracts its agents and brokers via two programs: the Premier program and Flex program. With the Flex program, the lawsuit relays, Zillow requires agents to pay the company a 40 percent cut of their commission. It also requires, the complaint notes, that agents direct buyers toward Zillow Home Loans, and that they will be dropped from the program if they do not fulfill certain quotas for loan quotes.

With the Premier program, agents are required to pay an undisclosed amount to Zillow on a per-lead (prospective buyer) basis, even if the sale never goes through, the case states.

The suit says that when a prospective buyer goes to a Zillow property listing and clicks on the “Contact Agent” or “Request a Tour” button—expecting to speak with the listing agent before unwittingly being redirected to one of Zillow’s Flex agents—they are required to sign Zillow’s “Touring Agreement,” which tells the buyer that the Zillow touring service is free. This is not directly false, per the suit, but the complaint alleges that it misleads prospective buyers into thinking that the agent’s services as a whole are free when they are not.

Although the buyer does not pay up front for a Zillow agent’s services, the lawsuit claims that the cost of these services is added to the total sale price of the house. Per the complaint, because Zillow Flex agents have to pay 40 percent of their commission to Zillow, this arrangement drives up the cost of the commission in order to cover their own costs.

Subsequently, because an agent’s 40-percent commission is included in the total sale price of the property, the overall price that the buyer pays becomes inflated, the lawsuit charges.

Further, the filing alleges that Zillow intentionally does not disclose to buyers or sellers that its Flex agents must pay 40 percent of their commission to the company. The complaint also claims that Zillow agents do not readily disclose to potential buyers that they are not the listing agent, as buyers are allegedly misled to believe.

Finally, the lawsuit alleges that the negative effect of these fraudulent practices is amplified and exacerbated by Zillow’s overwhelming dominance in the current housing market.

Per the complaint, Zillow acquires almost all of the property listings on its platform from Multiple Listing Services (MLSs), online real estate databases accessible to only registered agents and brokers. The complaint states that Zillow maintains its own brokerage license for the sole purpose of obtaining listings from various MLSs and posting them to its own platform.

Under Zillow’s Listing Access Standards (LAS) program, the complaint says, Zillow requires that real estate agents must list any available properties on an MLS within 24 hours of any first effort to sell the property, including virtual tours, yard signs and social media posts. Should they fail to do so, Zillow will send them a warning of non-compliance for each sale effort that allegedly violates the 24-hour requirement, the filing reports. If a seller or agent has three properties in violation, the third and any subsequent properties will be blocked from Zillow and Trulia for the entire duration of that agent’s relationship with the seller, the complaint further claims.

The lawsuit alleges that Zillow applies this policy in an attempt to have all available U.S. houses on its website and maintain and grow its monopoly over the housing market.

“This policy effectively requires sellers and their agents to forgo using other initial methods to advertise the home sale,” the suit summarizes. “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.”

The Zillow class action lawsuit seeks to represent anyone in the United States who purchased a home on Zillow.com and was represented by a Zillow agent between September 19, 2021 and the present.

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