Discount brokerage REX Real Estate hit back at attempts by the National Association of Realtors and Zillow to have its antitrust suit tossed, alleging that the two real estate giants have formed a “group boycott” to enforce a controversial NAR commission rule.
REX sued Zillow and NAR in March, alleging antitrust violations for a NAR rule that prompted Zillow to segregate non-multiple listing service listings from MLS listings on its website, including listings from REX.
“Consumers are well aware that real estate lags far behind the rest of the service economy, where online search capabilities have unleashed major savings,” said REX’s General Counsel Michael Toth in a statement Tuesday. “NAR’s segregation rule has no place in the digital era. Today’s real estate consumers deserve to have all listings in one place.”
REX largely operates outside of MLSs because of the firm’s belief that they inflate real estate commissions due to a NAR rule that mandates that MLS members who list properties must offer a pre-set commission to agents that bring a buyer. The rule is the subject of multiple antitrust lawsuits against NAR and real estate franchise giants Realogy, Keller Williams, RE/MAX and HomeServices.
NAR and Zillow recently filed motions to dismiss REX’s suit and on Monday REX filed a brief in opposition, alleging that NAR and Zillow are using NAR’s segregation rule to hinder competitors like REX who do not want to comply with NAR’s commission rule. NAR has 1.48 million agent, broker and appraiser members and Zillow is the most highly-trafficked real estate listing site nationwide.
“REX is denied a key input to its business by joint action of a dominant group of industry competitors operating through and led by NAR,” attorneys for REX wrote. “REX refused to join NAR because it believes real estate commissions should be set through open competition, not through a rule that results in price-fixing. REX’s business and its customers have been harmed by the group boycott, as most customers can no longer find REX listings on Zillow’s search tools.”
REX isn’t challenging belonging to an MLS or Zillow’s choice of doing so, they said, rather, “REX challenges the unnecessary and anticompetitive segregation rule and the boycott of competitors who wish to compete outside the MLS.”
Asked for comment on REX’s opposition brief, Mantill Williams, NAR’s vice president of communications, told Inman in an emailed statement, “It’s not news. It’s just legal posturing.”
A spokesperson for Zillow told Inman that the company believes and continues to maintain that REX’s claims are without merit.
“We were pleased that the court has previously acknowledged our commitment to empowering consumers with the most complete, up-to-date housing and listing information possible and look forward to submitting our reply to the court later this week,” the spokesperson said in an emailed statement.
Attorneys for REX pointed out that neither Zillow nor NAR attempted to argue in their filings that either the segregation rule or the commission rule are “procompetitive or beneficial to consumers, or to show why Zillow or other NAR members need to follow these rules to provide the benefits of MLS listing services” and “do not assert the rules are necessary to maintain the MLSs or their data streams — because they are not. The segregation rule is optional, although it has been adopted by most NAR-controlled MLS.”
REX noted that Northwest MLS, a broker-owned MLS not affiliated with NAR, rescinded its mandatory commission rule in July 2019, allowing brokers to negotiate compensation. At the time, a NWMLS spokesperson told Inman that when deciding to eliminate the requirement that a seller offer compensation to the buyer’s broker, “[g]iving sellers more flexibility and options when listing their property for sale was the primary consideration.”
By enforcing the commission and segregation rules, NAR and Zillow’s “conduct lessens competition by both reducing information readily available to consumers about homes for sale and competition that would lower commissions paid on the sale of homes,” attorneys for REX wrote.
“REX’s allegations made clear that Zillow’s application of the segregation rule was ‘also harming the sellers of these homes,’ … and ‘reduc[ing] choice in transacting real estate’ for buyers and sellers,” they added. “REX has pled ‘a reduction of competition in the market in general and not mere injury to [its] own position as [a] competitor.’”
In response to an admonition by the federal court for REX to stop referring to Zillow and NAR as a “cartel,” REX said it “intended the word ‘cartel’ only as shorthand for the anticompetitive rules and practices of these organizations, including NAR’s mandatory commission rule which REX believes constitutes price-fixing.”
NAR has repeatedly said that real estate commissions are negotiable, but REX argued that they are not actually negotiable in practice.
“Once a seller’s agent receives an offer on a property, the rule prohibits the buyer, seller, or their agents from attempting to modify the commission,” REX’s attorneys wrote. “While in theory sellers can offer any amount to a buyer’s agent, member agents often instruct their clients to offer the highest commission or risk missing out on prospective buyers. The result is that commissions throughout the United States have remained high, and largely static at approximately 5–6 percent of the sale price of a home.”
Because REX has not agreed to abide by NAR’s rules, sellers who choose REX to list their homes are not required to offer buyer agents a set commission upfront, “allowing the fee to be negotiated,” the filing said. “Overall, REX’s clients spend, on average, only 3.3 percent on commissions, versus the national average of 5.5 percent.”
In its motion to dismiss, NAR argued that Zillow changed how it would display listings independently of the trade group, but REX countered that argument, saying, “NAR is responsible for the anticompetitive actions of its agents, including its MLSs and Zillow. Zillow became NAR’s agent when it was allowed to interpret and apply the segregation rule to exclude REX listings from its primary search results.”
Moreover, REX alleged that Zillow did not actually independently decide how to display the listings, but rather did so with the help of MLSs.
“It is plausible and highly logical to conclude that Zillow worked closely with NAR-controlled MLSs to implement the segregation rule,” the filing said. “Zillow’s technology platforms are complex, and on its face NAR’s rule does not say how it should be implemented. It is simply not plausible for Zillow to say it merely followed those basic rules and had no role in how they were implemented on its own technology platforms.”
While both Zillow and NAR expressed skepticism in their legal filings that REX has much of an effect on competition due to its small size and therefore lacked standing in the case, REX’s attorneys countered that “courts have found that even ‘nascent’ competitors who have yet to enter the market have standing.”
Lastly, REX argued that the way Zillow chose to segregate listings, by putting MLS listings under an “Agent Listings” tab on its website and putting non-MLS listings under an “Other Listings” tab, is a violation of The Lanham Act and the Washington Consumer Protection Act.
“[N]othing in the segregation rule required Zillow to use deceptive labels instead of truthful ones,” the filing said. “Indeed, Zillow’s ‘Agent listing’ tab is really an ‘MLS listing’ tab, but Zillow chose to use the misleading label over the truthful one in its two-tab display.”