Compass and Zillow take private-listing feud to New York courtroom

Two heavyweights in the US residential real estate market, Compass Inc. and Zillow Inc., will face off in a New York courtroom this week in a legal battle that could reshape the future of how homes are marketed and sold in the country.

Compass, the largest residential brokerage, sued Zillow in June claiming the real estate site acts anticompetitively by banning listings that were publicly marketed elsewhere first. A four-day hearing is set to start Tuesday before a federal judge who will decide whether to temporarily block Zillow's policy while the lawsuit proceeds.

The dispute is the latest in a long-running fight over who controls the most valuable asset in real estate: information. Compass has built a private listings network allowing sellers to quietly market homes with its own agents before posting on public multiple listing services [MLS]. It argues the strategy lets sellers test demand and pricing without leaving a record on the MLS that could hurt future sales. 

READ MORE: Zillow violated RESPA in agent, mortgage businesses: Lawsuit

But Seattle-based Zillow, which relies on MLS data to power its popular website, says the practice makes the housing market less transparent. The company responded with the Zillow Listings Access Standards — a rule blocking any listings that aren't made available to the MLS within a certain timeframe. 

The outcome of the legal fight could have wide implications for the industry because it may "result in some actual boundaries around acceptable practice as to exclusive real estate listings," said Justin Teresi, a Bloomberg Intelligence litigation analyst.

The hearing in Manhattan is set to last through Friday before US District Judge Jeannette Vargas. Among the witnesses expected is Compass Chief Executive Officer Robert Reffkin, along with industry experts for both sides. Depositions from other company officials also may be part of the evidence, including from Zillow co-founder Lloyd Frink.

READ MORE: Zillow's mortgage revenue up 36% on purchase volume growth

The Compass-Zillow dispute comes amid a broader industry feud over a 2019 National Association of Realtors policy that requires agents to formally list homes on local MLS networks within 24 hours of starting any public marketing. It limits so-called pocket or whisper listings, which critics say put some buyers at a disadvantage while also making it harder for sellers to maximize proceeds.

But Zillow has effectively stepped in as an enforcer of the rule. NAR has been weakened by recent legal battles and in March, updated its policy by allowing individual MLSs to formulate standards for when sellers want to delay wide marketing of a listing. The following month, Zillow instituted its ban. 

Market Power

Critics say Compass' push to build its private listings network is meant to dominate listings and commissions in a sluggish housing market. Those fears were amplified when the company announced in September plans to acquire Anywhere Real Estate Inc. for $1.5 billion, which would create a brokerage more than double the size of its closest competitor based on sales and expand its share in major cities. The US Justice Department is in the early stages of a review of the deal, according to a person familiar with the matter.

Compass' suit is one of several filed against Zillow this year. 

CoStar Group Inc. accused the firm in July of copyright infringement over photos posted on Zillow.com and its partner websites. In September, the Federal Trade Commission sued to block a $100 million deal that made Zillow the exclusive provider of information on apartment rentals offered by Rockets Cos.' Redfin. Five state attorney generals filed a separate complaint over the partnership in October.

Consumers have filed two separate class action lawsuits, including one last week accusing Zillow of pressuring buyers into using its mortgage lending services. The other claims the web platform routs consumers to Zillow agents who pass on higher commissions to buyers than if they were to use an outside agent.

While the hearing this week in New York will amplify the dispute over private listings, the case isn't likely to go before a jury, according to Teresi, the BI litigation analyst. 

Compass probably will "fall short of the high evidentiary bar" required for the judge to block Zillow from using its policy, at least at this stage of the litigation, which means the two sides are more likely to settle to avoid the risk of losing at trial, Teresi said.

The case is Compass v Zillow, 25-cv-05201, US District Court, Southern District of New York.