With Compass and Zillow locked into a high-stakes fight over listing restrictions and market power, company executives testified in federal court for the third day yesterday as Compass leadership addressed the specifics of its private listing-focused strategy, from alleged harm to its business from the Zillow rules, to how it communicated with agents.
The trial—officially an “evidentiary hearing,” taking place in Manhattan—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.
Yesterday, Compass SVP of Strategy and Business Operations Ashton Alexander and President of Brokerage Neda Navab were grilled by Zillow lawyers over their approach to the “3-Phase Marketing Strategy” Compass uses, including communications to agents in the wake of Zillow’s announcement.
In a late June email presented in court, Compass President of Growth and Communications Rory Golod told national sales leaders that “Private Exclusives and the Compass 3-Phased Marketing Strategy are still allowed under Zillow’s ban and we encourage every agent to share the benefits of them with their clients.”
Alexander admitted on the stand she knew the Zillow rules would disallow Private Exclusives more than a full month before that email was sent, and had likely communicated that to other Zillow leadership. Three days later, Alexander also signed a sworn declaration in court attesting that Private Exclusives could be banned by Zillow.
Compass, for its part, has argued broadly that Zillow’s rollout of the new rules was inconsistent and confusing, with Zillow admitting yesterday it purposefully announced the standards without detailed terms and conditions or the technological ability to enforce them. Alexander previously said in court that Zillow’s enforcement of the rules has been generally inconsistent.
But Zillow highlighted these and other internal and external Compass communications and trainings as evidence the company was purposefully (or recklessly) misleading its own agents in order to promote its private exclusive network, noting that Zillow executives told Compass from April onward that it “took issue” with Compass’s private listings.
Asked directly by a Zillow lawyer if Compass “was encouraging its agents to share information with sellers that you knew was false,” Alexander answered, “I do see that that’s stated in this email.”
Zillow also highlighted a Compass training, in which talking points attached to certain slides claimed that “private exclusives are not impacted in any way” by Zillow’s rules, though on redirect she said she didn’t know when the training was created but that it was likely close to when the standards were announced, before details were available.
Navab separately said that the company “diverted a lot of resources” to train and educate agents about the Zillow rules, claiming the company has “a small slice of their attention” as they run their businesses.
The plan
At the trial, both companies have attempted to poke holes in the other side’s broader arguments around listing restrictions, with Zillow seeking to show that Compass pushed private listings relentlessly to the detriment of agents and consumers, and Compass highlighting how Zillow’s rules consolidate its significant market power, even as the portal touts transparency.
And although Compass has never made any secret of its intent to use private listings as a strategy to boost the company’s market share, more internal details of that effort have emerged through the trial.
According to internal documents presented in court, Compass offered $100 digital marketing credits to listings that used the strategy, as well as regional contests for tickets to company retreats. It also closely tracked adoption and ranked teams by their use of the private listing strategy, utilizing coaches specifically for 3-phase marketing.
Navab addressed emails from Compass agents saying there was “fatigue” related to the 3-phase strategy, but later clarified she believed this was due to so many agents already being on board with the strategy.
Compass has repeated many times publicly (and at the trial) that agents can use whatever marketing strategy works best for clients and are never forced to follow any specific plan or program.
Another key point yesterday was whether Compass was actually harmed by Zillow’s rules. Reffkin previously said in court that the harm was “unquantifiable” in the form of lost trust and lost opportunities for growing the business.
He also pointed to internal Zillow communications that named Compass as a potential “bad actor” that could spread a “contagion” of private listings, as Compass argues Zillow’s rules were designed to undermine competition.
Compass’s Head of Investor Relations Soham Bhonsle testified that Compass did not disclose the impact of Zillow’s rules on the company’s recent earnings releases, even as it is required to report “any risk factors that may be material to investors.”
Alexander and Navab both faced questions regarding how the Zillow rules impacted its business, from website traffic to listings, as Compass argues it is being harmed by the new rules. Alexander said that Zillow’s rules “were hurting (3-phase marketing) adoption numbers meaningfully” and also blamed the policy for a significant decrease in traffic to Compass’s website.
But Navab was pressed by Zillow on whether the company could point to an agent who lost a listing due to the Zillow rules, with Vargas sustaining an objection as Zillow’s attorney repeatedly asserted she “couldn’t name” an agent.
“I can remember the specific offices I was in, who said that they had lost listings because of the ban. I do not remember the specific name of the agents. I interact with thousands of agents a month, probably hundreds a week,” Navab said.
Navab also said she didn’t believe that the Zillow rules have been a source of “meaningful retention risk” for agents at Compass based on the “minimal way” Zillow has enforced the ban.
Zillow also sought to show that issues with the 3-phase marketing plan could originate elsewhere, noting that before the new Zillow rules many local MLSs already restricted how Compass could utilize Private Exclusives and Coming Soon listings. Zillow lawyers also presented data showing seasonal variations in website traffic that mirrored the decline, though Alexander asserted that Zillow restrictions were at least part of the recent drop.
But Navab claimed more qualitatively that early this year, the company “had an advantage” with its listing pitch and value proposition, and agents were “disportionately” winning listings ahead of Zillow’s announcement of its rules. She highlighted the National Association of Realtor®’s (NAR) modification of Clear Cooperation as a point where Compass felt especially optimistic—less than two weeks before the Zillow rules were announced.
“We saw an immediate drop-off of homeowners choosing to use the strategy, I think because at the outset, there was very few details provided around what the ban entailed,” she said. “Agents want to do what’s right for their client, but they are worried about the repercussions of unintentionally having a listing not appear on Zillow.”
Reffkin previously testified that he initially believed Zillow was going to follow along with NAR and allow more exceptions for delayed marketing, which would be “a good thing” as the updated Clear Cooperation policy offered “more choice.”
“The more choices sellers have, the more successful our agents will be,” Reffkin said. “The more successful our agents are, the more successful Compass will be.”
