The commercial real estate industry is once again confronting questions of fair competition. A significant legal battle is unfolding between two major online listing services, CoStar and CREXi. This case highlights ongoing concerns about market dominance and potential antitrust violations in the digital age of property transactions.
The dispute centers on allegations that CoStar, a dominant player in commercial real estate data and listings, has engaged in practices that limit competition. This situation mirrors past antitrust discussions in the wider real estate sector, emphasizing the need for open access to information and a level playing field for all participants.
Key Takeaways
- CoStar faces antitrust claims from competitor CREXi.
- Allegations include exclusive agreements and technological barriers.
- The case underscores long-standing concerns about market dominance in real estate.
- Fair competition aims to benefit brokers, sellers, buyers, and tenants.
Antitrust Concerns Return to Real Estate
Antitrust issues are not new to the real estate world. Federal and state regulations, stemming from the Sherman Act, aim to ensure fair competition. These laws prevent any single entity from gaining too much power, which could lead to a monopoly and stifle smaller competitors. When one company controls access to vital information or users, it can harm the entire market.
Recently, the National Association of Realtors (NAR®) faced its own antitrust challenges regarding fee-fixing. This led to new buyer representation laws in California, signaling a broader effort to prevent price manipulation in real estate. Now, commercial real estate is under the microscope.
Did You Know?
The Sherman Act, a federal antitrust law, dates back to 1890. It prohibits trusts and monopolies, aiming to preserve competition in the marketplace.
The CoStar and CREXi Dispute
CoStar operates as a major online commercial real estate listing service, also providing data and analytics. It owns several prominent platforms, including Apartments.com, Homes.com, and LoopNet. Commercial Real Estate Exchange, Inc. (CREXi) offers similar services, publishing properties marketed by brokers for sale or lease.
The legal conflict began in 2023 when CoStar sued CREXi. CoStar claimed CREXi republished listing images from its website without permission. CREXi responded with its own claims, accusing CoStar of engaging in antitrust activities in violation of the Sherman Act.
"Monopoly power is the substantial ability to control prices or exclude competition," according to court definitions. CREXi alleges CoStar exhibits both.
Allegations of Market Influence
CREXi's antitrust claims against CoStar highlight several practices. These include allegations of CoStar entering into exclusive agreements with brokers. These agreements reportedly prevented competitors from accessing content, making it difficult for other platforms to compete effectively.
The claims describe technological barriers put in place by CoStar. These barriers allegedly prevented brokers from freely publishing properties on competing platforms. Additionally, contract language supposedly prohibited brokers from providing CoStar’s competitors with property listings.
Historical Context
The real estate industry has a history of gatekeepers controlling information. Decades ago, local Multiple Listing Services (MLS) held exclusive property data. The rise of online aggregators like Zillow and Redfin shifted this dynamic, making property information more widely accessible to the public.
Impact on Competition and Brokers
CREXi argued that CoStar’s actions forced it into a position where unlawfully publishing photographs from CoStar's website was its only way to compete. CoStar dismissed these antitrust claims as a "sideshow," insisting the core issue was copyright infringement.
However, the court viewed CREXi's antitrust claims as serious. The case has been sent back to the trial judge for further proceedings to determine the merit of these allegations. This decision indicates that the court believes there is a need to thoroughly investigate the competitive practices in question.
Competition is vital for a healthy free market economy. It drives innovation, promotes efficiency, and helps keep prices fair for consumers. In real estate, ensuring fair access to property information is a key aspect of preventing price fixing and promoting a competitive environment.
Brokerage Fees and Market Control
One specific example cited by CREXi involves CoStar allegedly hiking fees charged to brokers by 300% to 500% after acquiring a competitor. Such significant price increases can indicate a lack of competition in the market, where a dominant player feels little pressure to keep prices low.
For many real estate professionals, the value they bring is not just access to listings. Their expertise in areas like 1031 replacement properties, capitalization rates, comparative market analyses (CMAs), and mortgage advice remains crucial. However, fair access to listing information is foundational for all brokers, big and small.
Key Economic Principle
Economists widely agree that competition encourages innovation and efficiency, while keeping prices competitive for consumers. A lack of competition can lead to higher prices and reduced innovation.
What This Means for the Future
The ongoing legal proceedings will determine the future landscape of commercial real estate listings. A ruling in favor of CREXi could lead to significant changes in how dominant platforms operate. It could force greater transparency and open access to data, benefiting smaller players and potentially lowering costs for consumers.
Many agents and smaller brokerages will likely welcome a resolution that promotes a more competitive environment. Larger brokers and industry associations, particularly those with existing ties to dominant platforms, may view such changes with less enthusiasm. The outcome of this case could redefine fair play in the commercial real estate market for years to come.
