Real estate giant Zillow is the target of a new class-action lawsuit alleging the company engages in deceptive practices by misleading homebuyers about its agent referral system. Filed in the U.S. District Court for the Western District of Washington, the lawsuit claims Zillow's platform steers users to its partner agents without adequate disclosure, while also collecting substantial undisclosed fees from those agents' commissions.
The legal action, initiated by a homebuyer from Portland and represented by the law firm Hagens Berman, seeks to establish a class of affected consumers and is pursuing financial compensation for what it describes as fraudulent business practices that harm buyers.
Key Takeaways
- A class-action lawsuit has been filed against Zillow, claiming deceptive business practices related to its agent connection feature.
- The lawsuit alleges that Zillow's "Contact agent" button misleadingly routes buyers to its partner agents, not the property's listing agent.
- Zillow is accused of collecting up to 40% of an agent's commission through its "Flex" program, a fee the lawsuit claims is not disclosed to homebuyers.
- The plaintiff argues this commission structure reduces an agent's incentive to negotiate lower prices on behalf of their clients.
- The case seeks class-action status and potential financial damages of up to $25,000 per person for affected homebuyers.
Allegations of a Deceptive User Interface
The core of the lawsuit centers on the user experience on Zillow's popular real estate platform. According to the court filing, many homebuyers believe that clicking buttons like “Contact agent” or “Request a tour” on a property listing will connect them with the agent responsible for selling that specific home.
However, the lawsuit alleges this is not the case. Instead, the user's contact information is sent to a buyer's agent affiliated with Zillow's network. Attorneys Steve Berman and Jerrod Patterson from Hagens Berman argue that information for the actual listing agent is intentionally obscured.
“Zillow buries the listing agent in tiny print, barely visible to the average reader,” the attorneys stated in the court documents. This practice, they claim, is designed to capture user leads for its own network of agents rather than facilitating direct contact with the seller's representative.
Background on Real Estate Agents
In a typical real estate transaction, a listing agent represents the seller, while a buyer's agent represents the person purchasing the home. The lawsuit contends that consumers are led to believe they are contacting the former when they are actually being connected with the latter through Zillow's system.
Scrutiny Over Undisclosed Commission Splits
The legal challenge also takes aim at Zillow's financial arrangements with its partner agents, specifically those in its “Flex” program. The lawsuit claims that when a transaction closes, Zillow receives a significant portion of the buyer's agent's commission, sometimes as high as 40%.
A central allegation is that this commission split is not disclosed to the homebuyer. The filing asserts that these payments are made directly from the agent to Zillow, meaning they do not appear in escrow documents that buyers and sellers review. This lack of transparency, the plaintiffs argue, keeps consumers in the dark about the financial incentives at play.
“We believe Zillow is well aware of the potential for ill-gotten gains in this space and has sought to play fast and loose when real people’s basic need of housing is on the table,” said Steve Berman in a public statement.
The lawsuit further claims that Zillow agents, during initial recorded calls with potential buyers, often fail to disclose that they are not the listing agent for the property the buyer inquired about, compounding the initial confusion.
Impact on Homebuyer Negotiations
The financial structure of the Flex program has direct consequences for homebuyers, according to the lawsuit. Real estate agents sometimes offer to reduce their commission to help a deal close, especially in competitive negotiations. This can translate into savings for the buyer or seller.
However, the lawsuit argues that because Zillow's partner agents must give up a large percentage of their earnings, they have a diminished incentive to negotiate. With a smaller commission to work with, these agents are allegedly less likely to lower their fee or advocate aggressively for a lower purchase price on behalf of their client, the homebuyer.
Financial Implications
On a $500,000 home purchase with a standard 3% buyer's agent commission ($15,000), a 40% fee to Zillow would amount to $6,000. The lawsuit contends this significant cost reduces the agent's financial flexibility in negotiations.
This creates a potential conflict of interest where the agent's financial obligation to Zillow could take precedence over securing the best possible deal for the person they represent.
Zillow's Listing Policies Also Criticized
Beyond the agent referral system, the lawsuit also criticizes a new policy implemented by Zillow. The company now requires agents to upload their property listings to its platform within 24 hours of them becoming publicly available.
According to Zillow's updated standards, an agent's third failure to comply with this rule, and any subsequent failures, will result in their listings being blocked from the site. The attorneys for the plaintiff frame this as another method Zillow uses to exert control over the market and ensure a steady stream of content for its platform, which is central to its revenue model.
The lawsuit posits that the majority of Zillow's revenue is generated through these allegedly deceptive and controlling business practices.
Legal Path Forward
The plaintiff, represented by Hagens Berman and the firm Cohen Milstein, is seeking to have the lawsuit certified as a class action. This would allow other homebuyers who used Zillow's service under similar circumstances to join the case.
The legal team is pursuing financial compensation for members of the class, with potential damages of up to $25,000 per person. The case argues that Zillow's actions constitute a breach of consumer protection laws.
As of the time of filing, Zillow had not issued a public response to the allegations outlined in the lawsuit. The case will now proceed through the federal court system, where a judge will determine whether it can move forward as a class action.
