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Does Zillow promote dual agency and anti-consumerism? Some say yes, others say no

When Morgan Stanley issued a new study on Zillow, they probably didn’t know they were hitting a nerve in the real estate industry regarding dual agency.

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Sometimes our best friends think they are doing us a favor when they should do their homework first. Case in point, the flap over Morgan Stanley’s recent report to investors on Zillow that implies the search giant has an anti-consumer slant in their advertising platform that is said to promote dual agency.

Before we dig into the study and responses it has drummed up, let’s get up to date on the sticky dual agency issue.

How dual agency works

Every newbie learns in real estate school that dual agency relationships can be toxic because 1) in some states they are outright illegal, and 2) in the remaining states, disclosure rules are complicated and vary significantly. For example, some require written disclosure forms be signed by all parties. Others require disclosure forms be attached to the sales contract. Further, some brokerages have policies on dual agency, others do not.

The lure of bringing home a double-ended commission is very real and there’s no doubt, especially in these times of rampant pocket listings, that some agents and brokers play with fire for the big pay day. The payoff, however, pales quickly when the slightest oversight in carrying out one’s fiduciary duty can lead to failure to disclose one party or the other, the result can be very nasty lawsuit or even loss of license.

Examples of dual agency lawsuits:

For example, two years ago, a top agent at Sotheby’s New York was sued after a seller alleged that he had breached their exclusive sale contract for his Manhattan apartment by clandestinely working with a prospective purchaser, effectively lowering the sale value of the home.

The case led to a New York State investigation last year that implicated the CEO of Sotheby’s.

Or, consider the Ohio agent last year who decided to go dual in violation of her own company’s policy and ended up being personally liable for failing to fully disclose all of a property’s defects to the buyer, even though the seller provided them to her in writing. It cost her $216,337 plus legal fees.

Then, there was there was the Mississippi case where a broker acting as a dual agent failed to tell the buyers that the house had suffered $35,000 worth of termite damage. The case resulted in suits and counter suits and went all the way to the state Court of Appeals, where the broker lost.

Does dual agency hurt home values?

Years ago, NAR estimated that nearly one-quarter of all lawsuits filed where real estate licensees are named as defendants involve “agency” disputes. Clearly, dual agency is as big an issue today as it was decades ago. Moreover, there’s evidence that dual agency is a bad deal for the seller.

A study published two years ago by the Journal for Real Estate Research found that dual-agency sales that occur in the first 30 days of the listing contract sell for roughly an 18% premium because agents may be able to more efficiently match the property with the right buyer if they search within their own network.

But sales during the last 30 days of the listing contract sell for roughly a 6% discount, or $9,300 less.

Overall, a dual-agency representation reduces sale prices by about 1.7%, according to the study.

Now, on to Zillow and dual agency

Enter Morgan Stanley’s research arm, Alphawise, with a September 10 report. “Our Alphawise study suggests that Zillow is enabling agents to increase their number of dual agency transactions… The key implication is that dual agency transactions offer lucrative economics, and by driving an increase in these transactions, Zillow is strongly reinforcing the return on investment (ROI) proposition for agents who successfully advertise with the platform.

“Our Alphawise study finds that for +60% of Zillow premier agents, advertising on Zillow enabled them to increase their number of dual agency transactions and specifically drove a ~30% increase in these transactions.”

Zillow’s advertisements are leading to a 60 percent increase in dual agency deals?

NAEBA implies a lack of loyalty to consumers

The report did not sit well with the National Association of Exclusive Buyer Agents, a sworn enemy of dual agency. “While that may be great news for the agents who get twice the pay for the same transaction, it’s not great news for consumers,” said NAEBA in a statement.

“Real estate buyers deserve to have someone on their side throughout the transaction,” says Chris Whitehead, NAEBA President. “Settling on a Zillow Premier Agent who is unlikely to be loyal only to them is not in the consumer’s best interest.”

Counter: Zillow isn’t forcing this

Countered Trey Garrison on Housing Wire:

“Keeping in mind dual agency isn’t even legal in a lot of markets — and let’s be frank, as long as there has been real estate there has been dual agency, so that’s nothing new — the Zillow approach to consumers is not to force any agent on consumers. So it’s not quite as black and white when the premiere agent, the agent and the buying agent are all three accessible on free listings.”

Garrison adds, “I’m not sticking up for Zillow or the study, but you can check that for yourself. And I’m not saying Morgan Stanley doesn’t have a point in some circumstances, but it’s just not as blanket as NAEBA makes it sound.”

Morgan Stanley pushed the big red button

Even though the Morgan Stanley Institutional Fund Inc. has owned a chunk of Zillow for years, since it just initiated coverage of Zillow on July 14, it’s understandable the folks at Morgan Stanley’s research shop probably didn’t have the faintest idea that they were pushing one of real estate’s hottest hot buttons.

#Zillow

Steve Cook is editor and co-publisher of Real Estate Economy Watch, which has been recognized as one of the two best real estate news sites in the nation by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, Cook was vice president of public affairs for the National Association of Realtors.

Real Estate Corporate

Zillow challenges federal antitrust allegations

(CORPORATE NEWS) Zillow says they’ll “vigorously defend” themselves against allegations that Zestimates are concealed on partner brokers’ listings.

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Earlier this week, New Jersey broker, EJ MGT LLC filed a lawsuit accusing Zillow of concealing Zestimates on specific listings, implying that paying partners are given an unfair advantage in the marketplace. The suit acknowledges that Zestimates appear somewhere on all listing pages, but alleges that only certain brokerage listings do not have the Zestimate listed prominently under the listing price.

Court documents offer screenshots of listing pages with and without Zestimates as well as documentation of communication with Zillow Group staff explaining that only “certain brokers” receive “certain treatment.”

But not so fast.

Zillow points out that Zestimates simply appear on different parts of the page for different listings.

Emily Heffter, Sr. Manager of Public Relations at Zillow Group tells The Real Daily, “despite the claim in the suit, no listings on Zillow are exempt from having a Zestimate. Some listings have the Zestimate in a different place on the page.”

The lawsuit criticizes the accuracy of Zestimates, a critique the company is quite used to and typically responds by reminding people that they are not appraisals, and not always accurate across the board (some states are non-disclosure states, for example, so home sales data flows differently depending on location).

Heffter reaffirms just that, noting that “the Zestimate is not an appraisal. It’s an estimate created by a sophisticated machine-learning process, and it’s meant to be used as a starting point in determining a home’s value. Zillow is very transparent about its accuracy, and we [sic] our median error rate is about 4.5 percent.”

Typically, in times of active litigation, Zillow and other companies refrain from commenting. Not this time.

Zillow Group’s official statement: “We believe the claims in this case are without merit. The Zestimate is intended to be a starting point for determining a home’s value, which is why we provide it, for free, on more than 100 million homes across the country. As a company, we always seek to create advertising products that add value for consumers and advertisers, and we intend to vigorously defend ourselves against this lawsuit.”

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Real Estate Corporate

Zillow sued for Zestimates violating federal Antitrust laws

(CORPORATE NEWS) Zillow being sued for Zestimates is nothing new, but they’re now being accused of concealing Zestimates on “Co-Conspirator Broker” listings, violating federal Antitrust laws.

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The latest Zillow legal troubles again surround their Zestimates; this time they are being sued for their Zestimates violating federal Antitrust laws. The company has allegedly violated and continues to violate Section 1 of the Sherman Act, 15 U.S.C. § 1 and the New Jersey Antitrust Act, N.J.S.A. 56:9-3.

Plaintiff, EJ MGT LLC, based in New Jersey, filed suit against Zillow Group Inc. and Zillow Inc. today. In a 21-point legal brief outlining their specific violations, two things become immediately clear (assuming of course there is truth in these allegations): Zillow is giving preferential treatment to preferred brokerages (labeled ‘co-conspirator Broker[s] in the lawsuit) and Zestimates are wildly inaccurate (as many have adamantly stated since Zestimates’ conception).

The first few points of the brief explain exactly what Zillow is being accused of doing: “this antitrust action arises from Zillow’s conspiracy with certain real-estate brokerage companies to selectively conceal ‘Zestimates.’ ”Zillow’s estimate of a residential property’s “fair market value” which the lawsuit states they know “to be inaccurate,” have allowed “only select brokers to conceal the display of Zestimates on their listings to the exclusion of the general public.”

The lawsuit goes on to state that “these agreements between Zillow and certain co-conspirator brokers of residential real estate restrain trade (read: the agents/brokers being allowed to conceal unwanted Zestimates, henceforth referred to as ‘Co-conspirator Brokers’) and deprive Plaintiff and the public in general of the benefits of open and robust competition in two markets: the residential real estate market and the residential real estate brokerage market.”

In essence, Zillow and the Co-conspirator Brokers have allegedly made an illegal agreement regarding the display of Zestimates on Zillow’s site.

Zillow has long touted their Zestimates as a “user-friendly format to promote transparent real-estate markets and allow people to make informed decisions;” except Zestimates are often believed to be inaccurate and now they’re allegedly being concealed for a select group of Co-conspirator Brokers – a far cry from making real estate more transparent.

If the lawsuit’s claims have any validity behind them, it seems as though Zillow may be in for a bumpy ride. Item 10 in the suit states, “Zillow has acknowledged that it conceals Zestimates as a result of agreements with only ‘certain brokers’ who receive ‘certain treatment’” and uses a message screenshot from Zillow’s Help Center as proof these words were in fact used to explain why some listings had prominent Zestimates while others did not:

You may be wondering what brought about this lawsuit; Plaintiff, EJ MGT LLC, is marketing a property located in Cresskill, New Jersey, through an agent unaffiliated with Zillow (not a “Co-Conspirator Broker”). Therefore, their listing contains a prominently displayed Zestimate, while a similar listing in nearby Alpine, New Jersey, which is listed through a “Co-conspirator Broker,” conceals the Zestimate:

The above example is not the only one outlined in the case, however. Item 12 of the lawsuit states that further evidence can be seen by comparing a residence page for a property while it was listed with a Co-conspirator Broker versus the same residence page once the property was off the market. One clearly conceals the Zestimate, while the latter displays it clearly underneath the listing price.

For reference, the Co-conspirator Broker listing was captured on December 26, 2017 and the screenshot after it was taken off the market with the Zestimate was taken on January 2, 2018. Merely a week in between images, and yet the difference of how the ad is displayed is quite apparent:

In essence, Zillow has violated the very transparency they claimed to create.

Zillow is allegedly promoting misleading and inaccurate information while using their marketing power to charge brokers to hide this information which could negatively impact a sale, and which Zillow itself has acknowledged is sometimes inaccurate.

Also, general members of the public have no way to prevent Zillow from obtaining and posting information in this way, and it cannot be altered without hiring an alleged Co-conspirator Broker, as Zillow has explicitly refused to offer the option to hide information to individual homeowners, further deepening the dependency on Co-conspirator Brokers.

Because of their alleged refusal to treat everyone equally and “empower homebuyers with information,” they have potentially restrained trade in connection with the exchange of information regarding home valuation, and offered anti-competitive benefits to only those brokers chosen to purchase that ‘special’ service package from Zillow that removes Zestimates from listings.

Therefore, brokers are not on even footing: when a seller attempts to price check; the brokers without it could be losing out to those who have the ‘special’ package and removal of Zestimates alongside listing prices.

So far, each individual Co-conspirator Broker has not been named; they have been named as a group: Sotheby’s International Realty, Inc., Coldwell Banker Real Estate LLC, Century 21 Real Estate LLC, The Corcoran Group ERA, and Weichert Realty, according to court documents. It is unlikely that any action would ever impact the brokerages, rather Zillow Group itself.

Zillow is being sued for five counts: two counts of conspiracy to restrain trade, one count of violating the New Jersey Consumer Fraud Act, one count of slander of title/product disparagement, and one count of interference with prospective economic advantage. A jury trial has been requested.

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Real Estate Corporate

How big box stores are stalling Whole Foods expansions using leasing contracts

(CORPORATE NEWS) As Amazon begins its Whole Foods expansions, other big box competitors are trying to put the wabash on them using their leasing contracts.

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Over the summer it was made known that Amazon was buying Whole Foods then a few months later we learned that the new owners were revamping store pricing and poaching competitor’s customers.

Despite only having 450 locations, Whole Foods is slowly turning the supermarket market in their favor. However, some of the older, bigger players aren’t having it and have figured out that they can use their own real estate contracts to level the field with Whole Foods.

Apparently it is common practice for bigger retailers in commercial real estate to sign leases with conditions that prevent their landlord from renting to other businesses that would create competition.

For instance if a Starbucks is renting in one location they might include a term that says no other coffee shop can be adjacent so if an Dunkin’ Donuts wanted in next door they couldn’t.

For Whole Foods that means because they are now selling Amazon electronics like Echos or AmazonFire TV, their usually docile neighbor Best Buy could go track down the fine print of their leasing contract and forbid Whole Foods from selling those products.

It’s like they always say — All is fair in love in retail. Well, you know what I mean.

If we’re being honest an Amazon + Whole Foods team is pretty enticing. It makes a whole lot of sense that other retailers that can only offer half of that package would resort to any means necessary to impede their progress.

Even Target is getting in on the defense reportedly not allowing Amazon Lockers to be installed. I get it, you want people there to shop at your store, not to pick up merch they bought elsewhere.

Granted with Target’s new collaborations with companies like Brit + Co, May Designs and Magnolia Market, I doubt they have too much to worry about.

At any rate, this sort of fine-print legalese defense seems like a pretty large indicator that other retailers are feeling the heat from this merger.

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