REX’s Real Estate Antitrust Suit Heats Up After Court Denies Motion to Dismiss

Judge Thomas S. Zilly ruled largely in favor of REX – Real Estate Exchange Inc. in a lawsuit it filed against the National Association of Realtors (NAR) and Zillow Inc. and its affiliates for segregating the plaintiff’s real estate listings and denying them equal access to Zillow’s website.

On Wednesday, the court ruled that the plaintiff stated a claim for relief against both Zillow and NAR for violations of the Sherman Act and Washington’s analogue statute, keeping most of the plaintiffs’ claims, but dismissed REX’s claims for false advertising against NAR.

In March, REX sued the defendants for allegedly discriminating against competitors and foreclosing transparent access to the “home inventory.” In particular, REX pointed to NAR’s Buyer Agent Commission Rule, requiring a seller’s agent to include in any multiple listings services (MLS) listing a predetermined offer of commission to a buyer’s agent, thereby preventing any party from later modifying that commission.

In addition, REX alleged that “NAR’s members encourage their customers to offer high commissions for buyers’ agents, resulting in historically high, static commissions throughout the United States, with total commissions averaging about 5.5% of a home’s sale price.” According to the opinion, REX’s proprietary digital technology, by contrast, enables home sellers to negotiate the buyer agent fee. In turn, this has reduced the total average commission paid by REX clients to an average of 3.3% of a home’s sale price. 

REX alleged that in 2020 Zillow changed its website to conform with organization rules after joining NAR. One of the changes included relegating REX’s listings to an alternate, small-print tab users were allegedly unlikely to see labelled “Other Listings.” Thereafter, the plaintiff’s listings fell precipitously, causing a corresponding dive in sales and lost brokerage service revenues.

This week’s opinion first agreed with the plaintiff that it had constitutional standing to sue. Then, the court ruled that REX satisfied all four elements of its Sherman Act claims. The allegation that Zillow agreed to use the MLS rules to restrict competition in combination with the alleged fact that Zillow went a step further and “affirmatively redesign(ed) its websites to enforce an allegedly misleading labeling system,” reportedly satisfied the restraint of trade element.

Judge Zilly also recognized, as other courts reportedly have, that the Buyer Agent Commission Rule itself raises antitrust concerns in view of the fact that the buyer-broker offer is the same regardless of the buyer-broker’s experience or the value of the services they provided. The ruling also found that REX sufficiently alleged substantial anticompetitive effects. It pointed to the plaintiff’s allegation that Zillow and NAR are harming the sellers of homes listed on Zillow’s secondary, “other listings” tab because prospective buyers are likely to continue avoiding or missing it.

The court also permitted REX’s false advertising claims to proceed against Zillow based on their fraud-based allegations specifying “‘what is false or misleading’ about Zillow’s websites, ‘why it is false,’ and how Zillow knew it was false.” Judge Zilly granted NAR’s motion as to the same claims however, finding the allegations conclusory. “There are no other allegations explaining what NAR did to design or encourage this particular labeling system on Zillow’s websites, let alone when, where, and how NAR did it,” the opinion said.

The court permitted REX to replead those claims by September 30. The plaintiff is represented by Foster Garvey PC, McCarty Law PLLC, and Lehotsky Keller LLP. Zillow is represented by Orrick, Herrington & Sutcliffe LLP and NAR by Quinn Emanuel Urquhart & Sullivan LLP.