Compass filed an antitrust lawsuit Friday against the Real Estate Board of New York (REBNY), accusing the organization of conspiring with two brokerages to carry out an “anticompetitive scheme” meant to “smother” the newer company.
The suit, filed in federal court, alleges that REBNY conspired with Douglas Elliman and the Corcoran Group, though the brokerages are not named as defendants in the case. However, the suit accuses the various “co-conspirators,” as they are repeatedly described in the complaint documents, of trying to “thwart competitors who challenge their methods and dominance.”
The suit goes on to say that consumers have been the ultimate loses in the situation.
“The result has been less competition, deprivation of consumer autonomy, lack of innovation in marketing and sales techniques and commission design, and a market that is unresponsive to the wants and needs of consumers,” the lawsuit adds.
News of the lawsuit was first reported by the Real Deal.
The complaint runs nearly 60 pages, and frames Compass as a tech-enabled upstart challenging entrenched interests that have been resistant to change. Among other things, Compass claims that REBNY and the brokerages were “shaken” by its rapid rise, and “decided to act together to slow and impede” its growth.
One of the ways REBNY and the brokerages did this, according to the suit, was by “passing, changing, and selectively enforcing” parts of the Universal Co-Brokerage Agreement Rules (UCBA). These rules govern what exactly agents can do with their listings, and how those listings can be shared.
The suit specifically mentions a 2016 incident in which Compass listed properties of four agents who had recently joined the company from Douglas Elliman.
Douglas Elliman filed a complaint about the incident, but according to the suit “REBNY had no choice but to find that Compass had not violated any” rules.
The suit goes on to argue that in response, Douglas Elliman and the Corcoran Group pushed for changes to the rules that prevent agents from bringing their clients with them when switching brokerages.
The suit argues that the rule changes discriminated against Compass.
Either way, though, other complaints against the brokerage followed. And in January of this year REBNY ultimately fined Compass $250,000 for pursuing listings that according to the rules belonged to competitors.
Among other things, Compass also argues in the suit that one way “REBNY and its co-conspirators ensure that they can maintain their market power is by having a disproportionate number of representatives from Corcoran and Douglas Elliman on REBNY boards.” This, according to the suit, lets REBNY and the brokerages “control any policy or rule changes in a manner that would benefit them.”
By contrast, Compass argues in the suit that its size and agent count meant that by 2018 was is entitled to a seat on REBNY’s Residential Board of Directors. Despite that right, and “multiple demands” that it get a seat, Compass was denied for more than a year.
Compass believes that this situation, and the dominance of the various “co-conspirators,” has led to competitive stagnation in the New York real estate market.
“Agents and brokerages continue to be captive to REBNY,” the suit argues. “Corcoran and Douglas Elliman continue to dominate other brokerages. Business models that have been in place for decades have remained largely unchanged, and brokerages have been slow to adopt new technologies and more consumer-responsive sales and marketing techniques.”
The parties named in the suit, however, strongly disagreed with Compass’ characterizations.
In a statement to Inman, REBNY President James Whelan said “Compass’ lawsuit is surprising, disappointing and misplaced.”
“Compass’ point of contention is with New York State law,” Whelan added. “Instead, Compass takes issue with REBNY co-brokering rules which are based on current state law and which Compass has helped shape and enforce. The lawsuit is meritless and we look forward to our day in court.”
A spokesperson for Corcoran, also in a statement to Inman, said, “we believe this complaint is more fiction by Compass.”
“In attempts to camouflage its unlawful behavior, Compass has fought a losing battle for the past year and a half in our NY litigation to force Corcoran to arbitrate its claims at REBNY,” the spokesperson continued. “They have lost multiple attempts to force Corcoran to arbitrate with Compass at REBNY and are now appealing their loss in a continued effort to force us to arbitrate at REBNY. Yet, Compass now claims Corcoran is supposedly conspiring with REBNY. We find this complaint utterly ridiculous.”
Douglas Elliman declined to comment for this story.
However, the news comes as scrutiny on Compass intensifies. The company took its first officials steps to going public in January. The impending initial public offering (IPO) means that investors such as Softbank, as well as rank-and-file agents who have stock, will soon be able to cash out. But it also means that outsiders are diving deeper than ever before into Compass’ business model.
Compass is also no stranger to litigation, with the brokerage currently locked in a legal battle with Realogy, which is also the parent of the Corcoran Group.
Read Compass’ new lawsuit against REBNY here:
Update: This post was updated after publication with comments from REBNY and the Corcoran Group.