Lawsuits allege Zillow, Redfin conspired to reduce competition for rental listing ads

Two of the country’s largest online real estate listing companies conspired to reduce competition in the advertising market for rental housing, according to separate lawsuits filed this week by the Federal Trade Commission and several states including New York.

The lawsuits allege a deal between Zillow and Redfin, which owns Rent.com and ApartmentGuide.com, could harm landlords and apartment hunters by potentially driving up advertising costs and reducing the variety of rental ads online.

In a February agreement, Zillow agreed to pay Redfin $100 million to show only apartment listings that also are listed on Zillow’s sites, according to the lawsuits.

Federal regulators allege that deal represented Redfin’s exit from the multifamily advertising market for buildings with 25 or more units for up to nine years. The agreement included an option to expand the pact eventually to all apartment buildings.

The alleged anticompetitive conduct has the potential to exacerbate rising housing costs in New York, said state Attorney General Letitia James. Long Islanders recently identified high housing costs as a key factor that diminishes the area’s quality of life, according to a Newsday/Siena survey.

"Millions of New Yorkers rely on online apartment listings to find an affordable and safe place to live," James said in a statement. "Zillow’s attempt to shut down its competition could drive up costs for advertisers and leave renters with fewer options when searching for a new apartment."

James described the rental advertising market as highly concentrated, noting that Zillow, Redfin and CoStar’s Apartments.com control 85% of the market.

A search on Wednesday showed about 5,900 Zillow rental listings for apartments and houses on Long Island.

James joined with attorneys general from Arizona, Connecticut, Virginia and Washington in the lawsuit, which followed another suit filed on Tuesday by the Federal Trade Commission against Zillow and Redfin. Both the federal government's and states' cases were filed in federal court in Alexandria, Virginia.

In a statement to Newsday, Zillow defended the partnership with Redfin as pro-competitive because posting listings on both websites gives property managers greater reach and offers more ways for renters to find housing options.

"Our listing syndication with Redfin benefits both renters and property managers and has expanded renters’ access to multifamily listings across multiple platforms," the company said in a statement.

Both lawsuits accuse the companies of violating federal antitrust laws by entering into an agreement that reduces competition, said Hofstra law professor Ronald J. Colombo.

"This is a very strong case against Zillow," he said.

In addition to eliminating an alternative website where renters might find different options online, property managers could decide to pass on higher advertising costs to consumers in the form of higher rents, Colombo said. However, that assumes landlords have negotiating power over renters to raise rents. If there were great enough supply of rental units to hold down rents, landlords would have to absorb the higher advertising costs.

"If advertising costs go up to fill vacant spots in these properties, generally speaking, what we see is that they just pass it on to the renter," Colombo said.

The lawsuit is the latest filed against Zillow related to its dominant position in online real estate listings. In July, CoStar sued Zillow in federal court in Manhattan, alleging copyright infringement through Zillow’s use of nearly 47,000 CoStar photos to advertise properties.

The previous month, real estate brokerage Compass filed a federal lawsuit over a new Zillow policy it said violated federal antitrust law. The policy required agents to publish listings on Zillow within one day of kicking off marketing a property.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.