Zillow.com Flex Consumer Allocation and Antitrust

Zillow Flex Possible Antitrust Violations

A copy of the request filed with the DOJ, CFPB, and the FTC asking to review practices of Zillow Flex Program.

Copy of author’s official request that asks the United States Federal Trade Commission and the United States Department of Justice to investigate Zillow, Inc. (which operates Zillow.com and promotes Zillow Offers, Zillow Flex Program, among other programs); Zillow Group Marketplace, Inc.; and Zillow Home Loans, LLC on the grounds of an alleged violation of the Federal Trade Commission Act of 1914, an alleged violation of the Sherman Antitrust Act of 1890 (15 U.S.C. Chapter 1), alleged violation of RESPA (12 U.S.C. 2607) Section 8, as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with possible consumer allocation, unlawful kickbacks, and consumer allocation practices between licensed real estate brokers.

Attn: Citizen Complaint Center, Antitrust Division
Department of Justice
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530
Attn: Office of Policy and Coordination
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave. NW Room CC-5422
Washington, DC 20580
Attn: CFPB Regulatory Implementation
Consumer Financial Protection Bureau
1700 G St., NW
Washington, DC 20552

Please find the information below with regards to possible antitrust violations.

What companies or organizations are engaging in conduct you believe violates the antitrust laws?

Zillow Flex (brokerage operated by Zillow, Inc.)
1301 2nd Avenue, Floor 31
Seattle, WA 98101
Phone: (206) 470-7000

Licensed broker in Alabama 000128023 – 0
Licensed broker in Alaska 157723
Licensed broker in Arizona CO580407000
Licensed broker in Arkansas PB00085034
Licensed broker in California 1522444
Licensed broker in Colorado EC.100080923
Licensed broker in Connecticut (Zillow CT, LLC) REB.0793077
Licensed broker in Delaware RB-0020865
Licensed broker in District of Columbia REO98365391
Licensed broker in Florida CQ1058944
Licensed broker in Georgia 76885
Licensed broker in Hawaii RB-23130
Licensed broker in Idaho CO50816
Licensed broker in Illinois 478.012434
Licensed broker in Indiana RC51900252
Licensed broker in Iowa F06155000
Licensed broker in Kansas CO00003080
Licensed broker in Kentucky 237601
Licensed broker in Louisiana BROK.77092-CORP
Licensed broker in Maine AC90603333
Licensed broker in Maryland 5001260
Licensed broker in Massachusetts 7508
Licensed broker in Michigan 6505427377
Licensed broker in Minnesota 40638657
Licensed broker in Mississippi 23127
Licensed broker in Missouri 2020010153
Licensed broker in Montana RRE-BRO-LIC-79688
Licensed broker in Nebraska 202000935
Licensed broker in Nevada B.1002277.CORP
Licensed broker in New Hampshire 75732
Licensed broker in New Jersey 2076842
Licensed broker in New Mexico 9769
Licensed broker in New York 10991231981
Licensed broker in North Carolina C30388
Licensed broker in North Dakota 2826
Licensed broker in Ohio REC.2020001732
Licensed broker in Oklahoma 183652
Licensed broker in Oregon 201235057
Licensed broker in Pennsylvania RBR003965
Licensed broker in Rhode Island REC.0015982
Licensed broker in South Carolina 23960
Licensed broker in South Dakota 15196
Licensed broker in Tennessee 264500
Licensed broker in Texas 549646
Licensed broker in Utah 11735955-CN00
Licensed broker in Vermont 083.0650389-MAIN
Licensed broker in Virginia 226031797
Licensed broker in Washington 21212
Licensed broker in West Virginia 005388
Licensed broker in Wisconsin 835987-91
Licensed broker in Wyoming 235500
Zillow Group Marketplace, Inc.
1301 Second Ave., 30th floor, Suite 3000-A
Seattle, WA 98101
Phone: (206) 470-7000
NMLS 1303160
Zillow Home Loans, LLC
10975 El Monte
Overland Park, KS 66211
Phone: (206) 470-7000
NMLS 10287

Further, a partner network of an unknown number of real estate brokers who choose to execute blanket broker-to-broker referral agreements in an alleged collusion scheme with the Zillow Flex paper brokerage.

Why do you believe this conduct may have harmed competition in violation of the antitrust laws?

Zillow Flex operates as a licensed paper brokerage that does not produce any services that are typically offered by real estate agents and does not represent consumers when buying or selling real estate in any state. In exchange for matching consumers with a Partner Agent, Zillow Flex is compensated by the Partner Agent with an undisclosed percentage of their commission, agreed in advance via a blanket broker-to-broker referral agreement.

According to the Zillow Group Terms of Service statement to consumers, “As part of the Services, you may be connected with a real estate professional. You authorize us to make such a referral or lead sale and acknowledge that we may be paid valuable consideration for facilitating such a connection. As part of the Services, you may be connected to a party that provides mortgage loan origination services, title and escrow services, or other settlement services. In the event that any of these parties have an affiliated relationship with any of the Zillow Companies, then one or more of the Zillow Companies may receive financial or other benefits of the referral between such affiliates.”

For consumers, Zillow Flex promises real estate assistance, supposedly, helps match clients with highly rated agents. Flex gives agents connections and leads from Zillow Premier Agent at no upfront cost. According to Zillow, "Agents work with each client toward a closing, providing us with brief status updates along the way. Once an agent closes a home transaction with a client, they pay a success fee out of escrow to Zillow. Over time, agents who are strong converters will start to receive a larger share of the connections in their market."

According to the Zillow Flex web site statement to brokers, “Flex is a program from Zillow Premier Agent built with a singular vision - partnering with the best agents in the business to increase transactions. Flex does this by providing connections and leads at no upfront cost, and routing them to the agents best positioned to convert them to home sales. In Flex, we are aligning the success of our business with yours - we only win when you win.” This statement is entirely accurate, with a single omission of a material fact - consumers always lose when brokers choose to collude.

In reality, Zillow Flex is a broker-to-broker collusion scheme that utilizes its web site and a parent mortgage company as means to collect consumer’s information and pass it along to a colluding broker who is willing to pay for it with a cut of their commission. All Partner Agents agree to pay Zillow Flex a pre-arranged referral fee, on all closed transactions, through their employing broker. According to Zillow, “Payment of a success fee is required only when agents close a transaction with a connection they’ve received from the program. The established success fees are specific to each market in order to account for local pricing trends.”

A referral agreement between Zillow Flex and a Partner Agent for a random transaction that may or may not happen sometime in the future is executed in advance. Zillow does not disclose their blanket referral fees, but they are likely priced 25%-35% of the entire commission generated from each transaction. Zillow aims to apply this reverse completion mechanism across millions of homes sold in the United States as a way to collect billions USD in broker commission kickbacks from a colluding network of independent real estate brokers.

Zillow Flex engages in consumer and market allocation schemes with Partner Agents brokerages, because it is licensed as a real estate broker itself. Instead of representing consumers to help buy and sell homes, the Zillow Flex brokerage actively disengages from its licensed activities so that every Partner Agent knows that Zillow Flex brokerage will not compete with them, but will rather allocate consumers to them in exchange for kickbacks.

RESPA (12 U.S.C. 2607) Section 8 narrowly allows payments under cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity. This exemption was specifically allowed by RESPA in order to facilitate legitimate broker referral to out-of-the-area brokers. This exemption does not allow licensed brokers to maintain broker referral networks, nor does it allow brokers to enter into blanket referral agreements as a way to maintain consumer allocation schemes.

Zillow Flex does not act in a real estate brokerage capacity, instead, their set of real estate licenses is used to collect a blanket referral fee from the largest number of brokers possible in the United States. Sherman Act, effectively, requires all active real estate brokers to genuinely compete for consumers without entering into agreements between one another that restrain free trade. An agreement or an understanding between brokers to refrain from competition for a mutual benefit is a "per se" violation of antitrust regulations in the United States.

It is a per se violation of the Sherman Act for real estate brokers to agree on a “standard” referral fee that will be paid for producing a client. Real estate professionals are not allowed to enter into “standard” referral agreements because such agreements always restrict free trade. To comply in good faith with RESPA (12 U.S.C. 2607) Section 8 exception for cooperative brokerage and referral arrangements, legitimate real estate agents are only able to render referral agreements in a particular instance for a particular transaction.

Zillow Flex owes absolutely no duty of care to consumers and takes no responsibility for the transaction, despite receiving a direct financial benefit from the escrow when the purchase is completed by a referred brokerage.

The “standard” referral agreement for 25%-30% of the agent’s commission is only made possible with the use of excessive commissions structure, known as a “standard” 6% of the home’s listing price. Zillow Group systematically argues to consumers that the real estate brokers are paid “standard” commission.

According to Trulia Guides, a Zillow Group subsidiary: “Sellers are responsible for paying the real estate commissions for both their real estate agent and the buyer. This is typically between 5% and 6% of the home’s sale price, and it’s paid during closing.” This statement made on the Trulia web site is entirely false. All home sellers are free to offer any amount of buy-side commission they like and can freely negotiate any listing rate they like individually with any licensed real estate agent. Consumers must never be subjected to "typical" rates of any kind, especially by established “paper” brokers such as Zillow Flex Program. Homebuyers eventually pay all closing costs in real estate transactions, including the full cost of the broker commission.

While it freely promotes the false existence of “standard” commissions, Zillow Group is entirely silent on the existence of the buyer’s rebates as well as the consumers’ ability to negotiate buyers’ refunds with their real estate agents, that same way it is entirely silent on the amount of the referral fees it receives as kickbacks from Partner Agents.

These deliberate actions of Zillow Flex in their blatant attempt to illegally monopolize the real estate brokerage industry directly increase the costs of owning homes in the United States due to hidden kickbacks, consumer allocation practices, and reverse completion between brokers. Partner Agents in the Zillow Flex scheme have no incentive to compete for consumers with lower fees, instead, they have an incentive to compete for Zillow Flex’s attention, eager to pay “no upfront costs” for the privilege of being allocated to deliberately mislead consumers.

In this scheme, both colluding parties benefit from offering consumers higher commissions. Zillow Flex promotes Partner Agents as a way to limit competition with those agents outside of the network, thus limiting free-market competitive forces and steering consumers to a limited pool of brokers in self-interest.

Zillow Flex rakes in hidden junk fees while consumers are fighting their way through a housing affordability crisis.

As long as “paper” broker collusion schemes, such as Zillow Flex, are allowed to operate, brokers looking to represent consumers are naturally encouraged to participate in the scheme. “There are no upfront costs, only pay us once the transaction closes,” is an attractive proposition to a broker who acts on this proposition by simply increasing a quoted commission to any consumer who comes as a referral. Any broker who chooses not to participate in such schemes risks losing “free business.”

Such an environment is highly poisonous to a healthy real estate representation market. Legitimately competitive agents cannot promote lower fees effectively as long as a much more powerful financial incentive exists in a form of a non-competitive collusion scheme.

Zillow Flex's referral-only collusion scheme secretly harms real estate consumers and diminishes the efforts of competitive independent agents to provide a tangible service at an independently set competitive price.

As a matter of fair real estate transactions across the United States, there is no excuse to maintain these blanket broker-to-broker collusion schemes established by a handful of “paper” brokers, such as Zillow Flex.

The government must treat Zillow Flex as a broker because it is paid as a broker and is licensed as a broker. Zillow Flex is not a technology company, as it claims since technology companies do not cut into the fees associated with buying and selling real estate. Licensed brokers are not allowed to promote the services of competitors for profit. A broker must promote their individual services directly to consumers and exist to actually help consumers buy, rent, and sell real estate. Zillow Flex has no incentive to act as a legitimate real estate brokerage if it is able to successfully allocate consumers to random brokers across the United States for profit.

Further, Zillow Flex and Zillow Home Loans LLC establish a symbiotic relationship between random real estate brokers and Zillow’s mortgage company, as broker referrals are more likely to lead to a mortgage and real estate transaction, increasing profitability for each party. This relationship is built on the basis of high profitability associated with kickbacks.

The entire RESPA prohibition against kickbacks was enacted specifically to stop mortgage companies from entering into “symbiotic relationships” with real estate brokers. Zillow Flex may seem like a clever by-pass of RESPA’s prohibition against kickbacks, but this loophole is built entirely on “blanket” collusion agreements prohibited by the Sherman Antitrust Act.

All real estate brokers must compete with one another; there is no exception. In the event brokers organize their operations into referral programs, this basic rule of free competition fails – a broker who organizes the scheme, in one way or another, refuses to compete with participants of the scheme.

A set of blanket referral agreements between Partner Agents and Zillow Flex falls under the definition of 15 U.S.C. Section 1 as a contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.

What is your role in the situation? For instance, are you a user, customer, competitor or supplier?

I currently serve as a CEO HomeOpenly. HomeOpenly is an Open Real Estate Marketplace™ designed and built to improve the homeownership experience in the United States.

HomeOpenly is a technology company that designs, builds, and maintains a series of online marketplace solutions with a focus on a home search, automated valuation modeling (AVM), home buyer's and seller's representation services, mortgage origination, refinance, home insurance, renovation, design, staging, home inspections, home security, moving, home maintenance, title, escrow, cash offer stand-in programs, home warranty, and other real estate products and services.

HomeOpenly operates subject to a 0% rake as our primary competitive advantage to establish a competitive fee schedule for service providers in the real estate industry with the use of network effects. HomeOpenly is not a paper broker and all service providers on our network compete for consumers individually. Our efforts are actively hampered by anticompetitive practices of Zillow Flex.

Successful implementation of an Open Marketplace™ platform in the real estate industry requires full enforcement of existing antitrust laws that are enacted to protect US consumers.

As long as paper brokers can allocate consumers as leads between independent service providers in exchange for blanket referral fees, Open Marketplace™ continues to operate at a competitive disadvantage. Consumer welfare is always improved by open markets, the same way it is always diminished with collusion.

If you have a question or comment about an antitrust issue, you may submit it to the Bureau of Competition at the United States Federal Trade Commission and/or to the Antitrust Division of the United States Department of Justice

If you have a question or comment about federal consumer protection financial laws, including RESPA, you may submit it to the Office of Enforcement of the United States Consumer Financial Protection Bureau

Related to: antitrust, real estate, Zillow Flex, consumer brokering, consumer allocation, market allocation, referral fees, kickbacks, Sherman Act, RESPA, FTC Act

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Last updated: November 20, 2020
First published: November 20, 2020