Compass, Zillow: Who gets to set the rules of online real estate? A judge may soon decide

Compass’s preliminary injunction hearing in its antitrust lawsuit against Zillow continued throughout this week, before finishing up on Friday. The hearing, which is being held in New York City under the auspices of U.S. District Court Judge Jeanette Vargas, will be used to decide Compass’s motion seeking to block the enforcement of Zillow’s listing access standards policy.

The policy, which went into effect on June 30, bans listings from its site that have been publicly marketed for more than one business day prior to the listing being available for display on Zillow. Compass filed its lawsuit against Zillow in mid-June, just prior to the enforcement deadline, claiming that the policy stifles competition and causes irreparable harm to Compass. 

Errol Samuelson back on the stand

After kicking off on Tuesday, the hearing continued on Wednesday, with testimony from Errol Samuelson, Zillow’s chief industry development officer; Jeremy Wacksman, the CEO of Zillow; Jeremy Hofmann, Zillow’s chief financial officer; and Elizabeth Ashton Alexander, Compass’s senior vice president of strategy and business operations.

Samuelson was the first witness on the stand on Wednesday. During his testimony, he explained why Zillow created its policy, as well as the impact of private listing networks. Samuelson says that the growing number of private listing networks would undermine listing accuracy, timeliness and consumer trust and that Zillow created its policy due to the need for consistent rules to avoid widespread missing listings and degradation of consumer trust.

While on the stand, Samuelson was asked about a piece of evidence showing that Compass had the highest number of alleged listing violations (700) among all brokers. In total, the document shows that 679 Compass agents violated the policy, in comparison to just 13 agents at Howard Hanna Real Estate Services, who had the second highest number of agents with violations. 

Conspiracy theories

Next to take the stand was Wacksman, the CEO of Zillow, and he testified about Zillow’s relationship with Redfin and denied all allegations of a conspiracy. 

Since filing the lawsuit, Compass has claimed to have found evidence that Zillow and Redfin have colluded in order for Zillow to preserve its alleged monopoly of the residential listing space. In his testimony, Wacksman denied these allegations.

Additionally, Wacksman answered questions about who Zillow discussed the policy with prior to announcing it in early April. According to Wacksman, Zillow “pre-briefed dozens of folks,” with himself personally speaking with leaders at Redfin, Realtor.com and Anywhere. He noted that prior to speaking with Redfin CEO Glenn Kelman, he had not discussed the idea for the policy with Redfin leaders, and that during his briefing call, Kelman did not mention anything about considering a similar policy or promise Zillow anything. 

Following Wacksman on the stand was Jeremy Hofmann, Zillow’s senior vice president of market and audience. During Hofmann’s testimony, he stated that Zillow introduced the policy to prevent proliferation of “anti-consumer private listing networks.” He also acknowledged that the standards were put in place to have a chilling effect on the proliferation of private listing networks, stating that they put the policy in place “as an alternative, so that brokerages that were not in favor of the [private listing] strategy, from a consumer perspective or from an industry perspective, had another route to operate real estate.” 

Let’s make a deal

Hofmann was also questioned about a $1.3 billion to $1.6 billion annual “revenue uplift” Zillow offered Compass in exchange for compliance with the policy. 

“We were looking to be friends,” Hofmann said.

Compass CEO Robert Reffkin ultimately rejected the deal.

“We had one meeting about it,” Hofmann said. “They weren’t particularly interested and we never really honed in on what the numbers could be.” 

Hofmann also acknowledged that as part of its negotiations with Compass, Zillow offered Compass the opportunity to double end more transactions at the brokerage level. 

“Harm” and “devastation”

The final witness called on Wednesday was Alexander. While on the stand, Alexander testified that even the initial enforcement of Zillow’s policy has been “devastating” to Compass’s programs. She claimed that the policy is “one of the reasons” why Compass has seen a “decline in both engagement and users” on its platform, and that the enforcement of the policy has resulted in a lower percentage of sellers who are willing to use Compass’s three-phased marketing plan. Alexander said she feels this has happened because “sellers are scared of the prospect of not being able to go on Zillow.” 

“Even if they are interested in the strategy and they think it would add value for them, they’re unwilling to do it,” she said. 

Alexander also confirmed some of the conversations Hoffman had discussed, characterizing the discussions as negotiations, and claiming that Compass was “trying to understand” what the policy meant as it was “very unclear” to them at the time, despite Zillow making a “very high-level announcement.” 

Alexander also discussed why Compass has the “black box” on its website indicating how many private exclusive listings it has in a buyer’s metro area. Zillow has deemed this the public marketing of private listings and bans those listings from its site. According to Alexander, Compass maintains this “black box” because the firm feels it is important “that any buyer has visibility and access to know that these listings exist and to be able to see those listings.” 

Alexander’s time on the stand was paused on Wednesday as Judge Vargas called for the end of the day. She resumed her testimony on Thursday, with the hearing continuing into Friday.