NEW YORK CITY—Facing off in what seems more and more like a battle for the future of real estate, Zillow and Compass kicked off a four-day evidentiary trial in the Southern District of New York this morning in their high-stakes dispute over restrictions around private listings, with Compass CEO Robert Reffkin taking the stand to answer—and not answer—questions as both companies laid out their vision for what is best for the industry.
The trial—officially an “evidentiary hearing”—is not to decide the merits of the case. Rather, it is for Judge Jeannette Vargas to decide whether she will block Zillow’s rules from going into effect while the rest of the lawsuit plays out, with Compass claiming it (as well as agents and consumers) will be “irreparably harmed” if the rules are allowed to remain in place.
Packing into a 14th-floor courtroom overlooking the cloudy Manhattan skyline, about 45 people—Compass brokers, Zillow executives, journalists and a whole herd of lawyers—gathered for testimony from Reffkin and to hear opening arguments from the two companies, who portrayed the lawsuit and underlying issues in starkly different terms.
“This case is about whether this court can compel Zillow to promote its rival on its own website,” said Bonnie Lau, a lawyer representing the portal giant.
Compass, on the other hand, claimed that Zillow’s rules are an “attack” on innovation, citing documents where Zillow internally described private listings as a “contagion” that could upend real estate practices—and Zillow’s business model.
“What company thinks it can issue standards in the industry it competes in?” asked Ken Dintzer, representing Compass. “That is monopolistic flexing.”
Even at this early stage, though, there was still plenty of drama. Reffkin was faced with tough questions—mostly around public statements he has made about how the Zillow rules affect Compass, as well as communications to agents about the rules. Reffkin also offered more sharp criticism of the National Association of Realtors® (NAR) and the MLS industry, attempting to portray portals and MLSs as “free riders” while brokerages like Compass support agents who do “actual work.”
MLSs are “a real monopoly,” Reffkin said, all interconnected with Zillow and NAR.
“There are those that do the work, and there are those that profit from the work of others,” he said.
In its opening statement, Compass sought to portray the Zillow rules as a coercive force to keep listings on its site, showing internal Zillow documents that discuss a “hardline plan” that “assumes we can be successful at using a hammer to keep sellers and agents on our site.”
Compass has also noted that Zillow’s rules explicitly require listings to be on Zillow’s platform, even if they are marketed publicly elsewhere. Other excerpts shown by Compass include discussions of isolating Compass or other “bad actors.”
Zillow, on the other hand, pointed out that Reffkin and Compass are essentially suing because their listings are being removed from Zillow’s platform—something the company says it has no obligation to accommodate.
In her opening statement, Lau pushed back on accusations that the new rules targeted Compass or sought to suppress competition, calling back to the company’s mission of “democratizing real estate listings” and alleging there was a “broad consensus” across the industry that listings should be available to everyone.
Lau described a real estate landscape where “dark pools” of inventory force buyers to work with multiple agents and create Fair Housing issues. Private listings allow Compass to double-end deals 72% more often, she claimed, and further, that Compass’s lawsuit “finds no support in the law, the evidence or sound economics.”
While a “monopolist” would try to hoard listings, Lau said Zillow wants to work with every brokerage—including Compass—to make listings broadly available.
“Compass is still a valued brokerage partner to Zillow,” Lau said.
Private details
But with three more days of testimony scheduled, the opening of the hearing foreshadowed the deeply technical aspects of the trial, along with how Compass in particular is seeking to make the dispute a personal one.
Reffkin brought both his mother—a Compass agent—and his wife with him to the courtroom, saying that he started Compass because of his mother, a longtime real estate agent.
Real estate “is the largest industry of entrepreneurs,” Reffkin said. “It’s an industry of families that work together.”
He also spent significant time focused on how homebuilders are able to pre-market their properties and are not bound either by NAR’s Clear Cooperation or the Zillow rules, saying explicitly that Compass’s private marketing strategy is designed to emulate how they market homes.
“Zillow knows who they can bully and who they can’t,” Reffkin said.
Zillow, however, argued that the lawsuit—and Compass’s private-listing business practices—really come back to profit for the company. Compass uses ads for private listings as “bait to lure buyers” and gets to double-end private exclusive listings 71% more often, Lau said.
Lau also said Zillow’s long-term goal and mission has been “democratizing” real estate, to the benefit of buyers, sellers and agents, and that it has long supported these principles—which underpin its policies—separate from Compass’s private listing business.
Zillow also sought to portray Reffkin and Compass as being less than transparent with its own agents, showing an email from Compass VP Ashton Alexander following an April meeting with Zillow execs in which she flagged that Zillow “takes issue” with Compass’s “black box” approach to advertise its private listing inventory.
Next, Lau showed an email from Reffkin to a Compass agent about a week later, in which Reffkin said “I met with Zillow and they are 100% okay” with private exclusives.
In a back and forth in which Lau interrupted Reffkin multiple times, Reffkin said he interpreted “takes issue” as meaning “trying to negotiate.”
Reffkin also ducked multiple questions from Lau regarding when the Zillow rules were implemented, how they were applied and who they were applied to.
“To me, it looks like you’re just targeting Compass,” he said during another back and forth regarding whether Zillow’s rules applied to other brokerages.
Lau also confronted Reffkin with a number of public and private attestations that Compass had, since Zillow announced the new rules, been thriving as it added agents and reported record earnings, undermining claims that the brokerage is suffering “irreparable harm.” She also showed internal documents from Compass which explicitly said the company was not competing for “search leads” with Zillow, interrupting Reffkin as he said that document was “incorrect.” Reffkin also previously described Compass as “an online search portal” as well as a brokerage.
Many of these disagreements center more on the legal underpinnings of the case, as Compass seeks to show Zillow’s conduct is anticompetitive from a legal standpoint. But the larger picture—what is best for agents, buyers and sellers—kept coming up again and again, as both companies sought to position themselves as looking out for what is best for the industry.
“Zillow was concerned about the contagion (of private listings),” Lau acknowledged.
