Zillow 360 Rebate with a Kickback

A copy of the request filed with the DOJ, CFPB, and the FTC asking to review practices of Zillow Flex and Zillow 360 “shell” brokerage schemes.

A copy of the author’s official request that asks the United States Federal Trade Commission, the United States Department of Justice, and the United States Consumer Financial Protection Bureau to investigate Zillow, Inc. subsidiary “shell” real estate brokerages for Zillow Flex and Zillow 360, among other programs; Zillow Group Marketplace, Inc.; and Zillow Home Loans, LLC operating in open collusion with “Zillow Flex Partner Agents” and “Zillow 360 Partner Agents” on the grounds of an alleged violation of the Federal Trade Commission Act of 1914 (15 U.S.C. Section 45) an alleged violation of the Sherman Antitrust Act of 1890 (15 U.S.C. Section 1) an alleged violation of RESPA Section 8 (12 U.S.C. 2607) as well as any other possible violations of antitrust and consumer protection laws currently ratified and enforced in connection with alleged broker-to-broker market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices.

Attn: Citizen Complaint Center, Antitrust Division
Department of Justice
950 Pennsylvania Ave., NW Room 3322
Washington, DC 20530

Attn: Office of Policy and Coordination
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Ave. NW Room CC-5422
Washington, DC 20580

Attn: CFPB Regulatory Implementation
Consumer Financial Protection Bureau
1700 G St., NW
Washington, DC 20552

Please find the information below with regards to possible antitrust laws and RESPA violations.

What companies or organizations are engaging in conduct you believe violates the antitrust laws?

Zillow Flex (via “shell” brokerages operated by Zillow, Inc.)
Zillow 360 (via “shell” brokerages operated by Zillow, Inc.)
1301 2nd Avenue, Floor 31
Seattle, WA 98101
Phone: (206) 470–7000
Licensed broker in Alabama 000128023–0
Licensed broker in Alaska 157723
Licensed broker in Arizona CO580407000
Licensed broker in Arkansas PB00085034
Licensed broker in California 1522444
Licensed broker in Colorado EC.100080923
Licensed broker in Connecticut (Zillow CT, LLC) REB.0793077
Licensed broker in Delaware RB-0020865
Licensed broker in District of Columbia REO98365391
Licensed broker in Florida CQ1058944
Licensed broker in Georgia 76885
Licensed broker in Hawaii RB-23130
Licensed broker in Idaho CO50816
Licensed broker in Illinois 478.012434
Licensed broker in Indiana RC51900252
Licensed broker in Iowa F06155000
Licensed broker in Kansas CO00003080
Licensed broker in Kentucky 237601
Licensed broker in Louisiana BROK.77092-CORP
Licensed broker in Maine AC90603333
Licensed broker in Maryland 5001260
Licensed broker in Massachusetts 7508
Licensed broker in Michigan 6505427377
Licensed broker in Minnesota 40638657
Licensed broker in Mississippi 23127
Licensed broker in Missouri 2020010153
Licensed broker in Montana RRE-BRO-LIC-79688
Licensed broker in Nebraska 202000935
Licensed broker in Nevada B.1002277.CORP
Licensed broker in New Hampshire 75732
Licensed broker in New Jersey 2076842
Licensed broker in New Mexico 9769
Licensed broker in New York 10991231981
Licensed broker in North Carolina C30388
Licensed broker in North Dakota 2826
Licensed broker in Ohio REC.2020001732
Licensed broker in Oklahoma 183652
Licensed broker in Oregon 201235057
Licensed broker in Pennsylvania RBR003965
Licensed broker in Rhode Island REC.0015982
Licensed broker in South Carolina 23960
Licensed broker in South Dakota 15196
Licensed broker in Tennessee 264500
Licensed broker in Texas 549646
Licensed broker in Utah 11735955-CN00
Licensed broker in Vermont 083.0650389-MAIN
Licensed broker in Virginia 226031797
Licensed broker in Washington 21212
Licensed broker in West Virginia 005388
Licensed broker in Wisconsin 835987–91
Licensed broker in Wyoming 235500

Zillow Group Marketplace, Inc.
1301 Second Ave., 30th floor, Suite 3000-A
Seattle, WA 98101
Phone: (206) 470–7000
NMLS 1303160

Zillow Home Loans, LLC
10975 El Monte
Overland Park, KS 66211
Phone: (206) 470–7000
NMLS 10287

Further, a partner network of an unknown number of real estate brokers who choose to execute blanket broker-to-broker referral agreements in an alleged collusion scheme via Zillow Flex and Zillow 360 paper brokerage schemes.

Acting as the “spokes” within the “hub-and-spoke” broker-to-broker collusion scheme, “Zillow Flex Partner Agents” and “Zillow 360 Partner Agents” are independent Realtors firmly affiliated with various brokerages such as Berkshire Hathaway HomeServices, eXp Realty, Windermere Real Estate, Keller Williams Realty, Inc., RE/MAX, Coldwell Banker, NextHome, Inc., HomeSmart, Compass, John L. Scott Real Estate, CENTURY 21, Realty ONE Group, Vylla, ERA Real Estate, Weichert Realtors, Better Homes and Gardens Real Estate, Fathom Realty, Intero Real Estate Services, John R. Wood Properties, Worth Clark Realty, Sotheby’s International Realty, etc.

Why do you believe this conduct may have harmed competition in violation of the antitrust laws?

Zillow Group Annual Report for the Fiscal Year Ended December 31, 2020 reads:

“We participate in large addressable markets of buying, selling, renting and financing residential real estate in the U.S. As we continue to move towards a transactional model focused on helping customers move, we estimate our TAM has expanded from $19 billion in U.S. residential real estate related advertising in 2019 (according to a Borrell Association report) to nearly $300 billion. Our TAM includes Zillow’s estimate of over $100 billion in referral fees derived from participating in real estate transactions with our partners (based on the 2021 National Association of REALTORS®U.S. Economic Outlook published in November 2021). In addition, we provide important adjacent services, including mortgages through Zillow Home Loans and title and escrow closing services through Zillow Closing Services. U.S. mortgage origination revenue represents a $155 billion annual opportunity (according to a 2021 Mortgage Bankers Association Report), while title and escrow represents a combined $26 billion annual opportunity (according to an American Land and Title press release dated April 7, 2021 and a report by Doma Holdings, Inc. published in May 2021).”

Zillow’s estimate of over $100 billion in unlawful kickbacks derived from participating in real estate transactions with thousands of colluding Realtors.

“In October 2018, we began testing a new Flex pricing model for Premier Agent and Premier Broker advertising services in limited markets. We now offer this pricing model to select partners, and provide it alongside our legacy market-based pricing model. With the Flex model, Premier Agents and Premier Brokers are provided with validated leads at no upfront cost and pay a performance advertising fee only when a real estate transaction is closed with one of the leads” where Zillow receives a kickback “for validated leads when we receive payment for a real estate transaction closed with a Flex lead.”

This is a problem for several reasons. First of all real estate agent commissions are protected from being “taxed” with kickbacks by RESPA Section 8 and Regulation X federal regulations. 12 C.F.R. § 1024.14(g)(1)(v) (Regulation X) and RESPA Section 8 12 U.S.C. § 2607(c)(3) narrowly allow payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity. Zillow, as a licensed real estate shell entity, does not act in a brokerage capacity. This entity willfully chooses to disengage from offering real estate representation services to consumers. There is a big difference between a business arrangement where a party acts as a sham under the Real Estate Settlement Procedures Act (RESPA) or a bona fide provider of settlement services.

Zillow Flex shell real estate brokerage acts as a “bridge” for kickbacks to collect a “Thing of value” from random Realtors, disguised as “a performance advertising fee only when a real estate transaction is closed with one of the leads.” There is no such thing as “a performance advertising fee” between licensed brokers. Licensed brokers cannot legally advertise the services of competitors, to begin with.

Zillow Flex and Zillow 360 schemes violate 12 U.S.C. § 2607 and C.F.R. § 1024.14 because Zillow Group entity does not provide any legitimate real estate services as a licensed real estate agent — it operates as a shell entity to collect kickbacks from other agents under the perceived notion that such arrangement is sufficient to meet RESPA 12 U.S.C. § 2607(c)(3) allowance of payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers.

However, RESPA violation is not the “Elephant in the Room” problem here. The real problem here is the fact that Zillow Flex and Zillow 360 organize Realtors as a hub-and-spoke conspiracy that violates Sherman Antitrust Act, and subsequently, FTC Act: 15 U.S.C. § 1 and 15 U.S.C. § 45. Zillow Flex and Zillow 360 are broker-to-broker collusion schemes, where “Partner Agents” unlawfully agree to pay massive kickbacks to receive consumers’ information and engage in market allocation, consumer allocation, false advertising, unlawful kickbacks, wire fraud, and price-fixing practices. It takes two parties to agree to collude, and in this case, there are: (1) Zillow Group shell brokerage and (2) thousands of colluding Realtors tied into the hub with identical terms.

It is a per se violation of the Sherman Act for real estate brokers to agree on a “standard” referral fee that will be paid for producing a client. Real estate professionals are not allowed to enter into “standard” referral agreements because such agreements always restrict free trade. To comply in good faith with RESPA (12 U.S.C. 2607) Section 8 exception for cooperative brokerage and referral arrangements, legitimate real estate agents are only able to render referral agreements in a particular instance for a particular transaction.

Whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. They are all banned. Zillow 360 offers consumers a rebate that is price-fixed for services offered by a third-party broker, meaning one broker Zillow, now sets rebates amounts for other brokers outside of their firm. By law, all Realtors must compete for consumers and set prices individually. This means that each Realtor must define their rebates by competing for consumers with other Realtors.

If we go back to the beginning of this report, where Zillow Group claims that their “TAM has expanded from $19 billion in U.S. residential real estate related advertising to nearly $300 billion” the reason to maintain these hub-and-spoke schemes becomes self-evident: greed. The United States is undergoing a housing affordability crisis, and Zillow Group now aims to collect kickbacks from tens of thousands of Realtors to further increase the costs of buying and selling homes. Both Zillow 360 and Zillow Flex are products of collusion where prices and levels of services are set by the hub to rake commissions earned by the spokes — independent Realtors.

Thousands of uncompetitive Realtors would rather fork over 40% of their future commissions to Zillow than offer that same money to their clients. For example, on a purchase of a $4 million home, with collusion with Zillow Flex, a buyer agent commission easily amounts to $100K where a colluding Realtor keeps $60K and Zillow Flex takes $40K as a kickback. On the open market, that same Realtor can offer this $40K kickback to their client as a genuine rebate, making the entire home purchase more affordable. This is the difference between kickbacks and rebates — the same money, ending up in two very different bank accounts.

We, as consumers, are not the only victims of Zillow Flex and Zillow 360 schemes. Whenever Realtors begin to organize their operations into networks, whenever Realtors refuse to provide a tangible service, whenever Realtors allocate consumers for kickbacks, whenever Realtors set prices for one another — the open competition in the entire sector suffers.

Competitive Realtors who refuse to participate in wire fraud arrangements with Zillow receive less business. Genuine competitive online marketplaces where Realtors compete for consumers, such as HomeOpenly, receive less attention from Realtors and consumers, leading to lesser network effects. Genuine Realtors who offer genuine listing savings and buyer rebates promoted online receive fewer benefits for doing so — their savings no longer have the required “bang for the buck” incentive to attract a large number of customers.

Zillow Flex and Zillow 360 are not merely products of broker-to-broker collusion, these are products of wire fraud as defined by 18 U.S.C. § 1346 and 18 U.S.C. § 1343 because the network effects of the Internet and Zillow’s dominant position in the market work together to further the scheme across all 50 US states and Washington DC.

What is your role in the situation? For instance, are you a user, customer, competitor or supplier?

I currently maintain HomeOpenly marketplace. HomeOpenly is an Open Real Estate Marketplace™ designed and built to improve the homeownership experience in the United States.

HomeOpenly is a technology company that designs, builds, and maintains a series of online marketplace solutions with a focus on a home search, automated valuation modeling (AVM), home buyer’s and seller’s representation services, mortgage origination, refinance, home insurance, renovation, design, staging, home inspections, home security, moving, home maintenance, title, escrow, cash offer stand-in programs, home warranty, and other real estate products and services.

HomeOpenly operates subject to a 0% rake as our primary competitive advantage to establish a competitive fee schedule for service providers in the real estate industry with the use of network effects. HomeOpenly is not a paper broker and all service providers on our network compete for consumers individually. Our efforts are actively hampered by the anticompetitive practices of Zillow Flex and Zillow 360.

Successful implementation of an Open Marketplace™ platform in the real estate industry requires full enforcement of existing antitrust laws that are enacted to protect US consumers.

As long as paper brokers can allocate consumers as leads between independent service providers in exchange for blanket referral fees, Open Marketplace™ continues to operate at a competitive disadvantage. Consumer welfare is always improved by open markets, the same way it is always diminished with collusion.

If you have a question or comment about an antitrust issue, you may submit it to the Bureau of Competition at the United States Federal Trade Commission and/or to the Antitrust Division of the United States Department of Justice

If you have a question or comment about federal consumer protection financial laws, including RESPA, you may submit it to the Office of Enforcement of the United States Consumer Financial Protection Bureau

Author: Litesand

Antitrust, real estate, e-commerce, fintech, proptech, bigtech

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