Zillow is facing lawsuits. Here’s how it disrupted real estate
With approximately 250 million unique visitors monthly, Zillow It is the most widely used real estate portal in the United States. It’s just one of a handful of online real estate platforms changing the way Americans buy, sell and rent homes.
The company offers a free mobile and web app that provides important details about approximately 165 million homes. In the past, this listing data was only available to real estate agents in the industry’s Multiple Listing Services system.
Zillow also offers innovative products like “Zestimate,” a machine learning algorithm that approximates the value of a home. According to Zillow, the average error rate for this feature is 2% for active listings and 7.1% for off-market homes.
According to a 2023 paper by researchers at New York University, Zestimates can increase seller profits by 4.16% because the tool allows sellers to be more patient and set higher prices, then wait for buyers who truly value the property.
Zillow makes money by generating leads for real estate agents on the platform. If the agent converts that lead into a sale, Zillow receives a fee of up to 40% of the real estate commission.
“[The agent] “They’ll bid on a particular zip code to try to gain a certain number of potential customers, and then it’s up to them to convert those leads into successful transactions and customers,” said Nikhil Devnani, senior U.S. internet analyst at global equity and research firm Bernstein.
The average U.S. home sold for $410,800 in the second quarter, according to the data. U.S. Census Bureau and Department of Housing and Urban Development. In the U.S., a buyer’s agent’s commission traditionally makes up 3% of the home’s sales price, or about $12,324 based on that average price. In this scenario, Zillow’s fee would be approximately $4,930; if the lead was generated with Zillow’s tools.
“If we can help more of those transactions happen, we participate in the revenue of that transaction and make more money,” Zillow CEO Jeremy Wacksman said in an interview with CNBC.
Zillow reports annual revenue of $2.2 billion in 2024. Its residential real estate activity, including lead generation, accounted for 71% of its revenues. Zillow also has a mortgage financing business called “Zillow Home Loans” and a rental advertising business.
Other online real estate portals and brokerages have criticized Zillow’s strong position in the industry.
Rival real estate company Compass has filed a lawsuit against Zillow challenging listing standards that require sellers to list homes on Zillow within one business day from the date they appear on the industry’s MLS system or risk not listing at all. on Zillow.
“They ban all agents and their sellers who are not listed on Zillow within 24 hours. It’s like Amazon saying if you don’t give me your listing, I’m going to ban you so I can make money off of it and sell it for a 40% referral fee,” Compass CEO Robert Reffkin said on CNBC’s “Squawk on the Street” in July.
Zillow and Compass will meet in court this month to present evidence for a preliminary injunction. In a September memo to real estate professionals, Zillow reiterated that if a property is marketed to some buyers, it should be marketed to all buyers.
In September, the Federal Trade Commission filed an antitrust lawsuit against Zillow and one of its competitors, Redfin, over a partnership the companies formed earlier this year.
The companies agreed to run Zillow’s rental ads on: Redfin.com. Zillow paid Redfin $100 million as part of the settlement, and Redfin subsequently discontinued its multifamily advertising division and laid off sales employees in that division.
Five state attorneys general filed a similar lawsuit in October, claiming the deal would lead to “nearly complete consolidation” of the rental listing market, which could lead to higher prices for apartment owners.
“These apartment owners will then try to pass those costs on to the average renter,” Arizona Attorney General Kris Mayes said in an interview with CNBC.
In response to public complaints from the FTC and state attorneys general, Zillow said it was increasing fee transparency and investing in tools to streamline and consolidate rentals for both tenants and housing providers.
A spokesperson for Redfin said the company disagreed with the FTC’s allegations and that the current number of Redfin advertising customers could not justify the cost of maintaining its leased sales force.
watch video Above to find out how Zillow makes money.
