(The Center Square) – Arizona joined four other states and the Federal Trade Commission in filing a lawsuit on Wednesday against Zillow and Redfin over their $100 million contract agreement.
The plaintiffs are asking the U.S. District Court for the Eastern District of Virginia to block the deal between the companies and have them divest from each other.
In February, the two companies announced an agreement that said Zillow will be the exclusive provider of multifamily rental listings of 25 or more units on Redfin, rent.com and apartmentguide.com.
The companies stated in a press release that this partnership will enable renters to view a broader selection of available apartments.
“This Zillow partnership will give Redfin visitors access to one of the largest and fastest-growing databases of rental listings,” said Redfin CEO Glenn Kelman. “We believe it will increase our overall traffic and the profits from our rental business, letting us focus on what we do best: dazzling online listing search, paired with dazzling brokerage, lending and title service.”
However, Arizona, Connecticut, New York, Virginia, Washington and the federal government view this agreement as being “anticompetitive.”
The lawsuit alleges the agreement “eliminates competition” and violates the Sherman Act, a federal law that prohibits anticompetitive practices in the marketplace, as well as the Clayton Act, which prohibits price discrimination.
Renters and landlords offering single-family homes or small multi-family buildings can usually use Zillow and other services for free, according to Attorney General Kris Mayes’ press release. Despite this, for bigger residential buildings, property management companies need to pay a fee to use or advertise on these internet listing service (ILS) providers, the press release noted.
The lawsuit said ILS are “one of the most important tools for renters to search for available rentals.” The plaintiffs noted the ILS market is “highly concentrated,” with Redfin and Zillow being “two of the three leading rental ILS networks.”
According to the lawsuit, the agreement between the two companies stipulated that Zillow would pay Redfin $100 million to cease competing in the ILS market. It added that Redfin needed to eliminate its advertising contracts with “managers of multifamily rental properties of 25 units or greater” and leave the market for nine years.
Redfin can only have rental listings on its website that are also displayed on Zillow’s website, the lawsuit noted.
In addition to all this, Redfin provided Zillow with sensitive information and fired almost its entire rental sales force, with Zillow subsequently rehiring certain employees, the lawsuit stated.
The plaintiffs said this agreement will “result in reduced choice, higher prices, and reduced quality for multifamily rental advertising customers and will provide no [re]cognizable procompetitive benefits.”
