Why the FTC is targeting Zillow and Redfin’s rental deal

Despite rumors earlier this year that the Federal Trade Commission (FTC) was investigating Zillow and Redfin over their $100 million rental syndication deal, the announcement that the FTC was suing the two companies still carried an element of surprise.

“This shows that the Federal government is still looking hard at the realty space,” Chuck Cain, an attorney and the president of Alliance Solutions, wrote in an email. “Those who thought the current administration would back off on scrutiny and enforcement compared to previous ones are sadly mistaken.” 

FTC taking hard look at technology companies

While it is surprising to see the Trump administration taking a strong stance on antitrust enforcement, Marx Sterbcow, the managing attorney of Sterbcow Law Group, noted that the current FTC is taking a hard look at potential antitrust cases involving technology companies.

“It is not unexpected that the FTC is taking action. The folks that are leading it right now have strong backgrounds in technology antitrust actions and this is a technology issue that they felt strongly enough about,” Sterbcow said. “Their focus right now is on the monopolization of technology. They think it stifles competition, which it can.” 

In addition to the FTC’s lawsuit, the attorneys general in Virginia, Washington, New York, Connecticut and Arizona filed an identical lawsuit on Wednesday. Sterbcow noted that the political makeup of these attorneys general, which includes Jason Miyares, a republican from Virginia, indicates that this is a bipartisan issue. 

Zillow and Redfin allegedly conspired to eliminate competition

In the lawsuits, the state and federal regulators claim that Zillow and Redfin conspired to eliminate competition in the rental listing space and that their syndication agreement violates antitrust laws and Section 5 of the FTC Act. 

“The practical outcome of the agreement is obvious: Redfin has terminated its existing multifamily advertising business operations and, for the duration of the agreement, has stopped competing to provide [Internet Listing Services] advertising for multifamily properties,” the FTC’s filing states. “The wholesale elimination of critical competition in this highly concentrated space will harm rental advertisers and the Americans who rely on ILSs to find their next home.”

Allegations may have sticking power

Harrison McAvoy, a partner at Shinder Cantor Lerner LLP who specializes in antitrust law, believes that the allegations have sticking power.

“Generally these types of agreements receive intense scrutiny, so the defendants will have to identify some pro-competitive justification for the deal, otherwise it could be fairly smooth sailing for the government,” McAvoy said. 

McAvoy noted that the FTC also brought claims under the Clayton Act, in which it claims that the agreement constitutes an acquisition, as Zillow has acquired assets “including Redfin’s customer relationships, key employees, business information, and a commitment by Redfin to terminate a class of customer contracts by a date certain.”

“It accomplishes the transfer of a sufficient part of the bundle of rights and privileges from Redfin to Zillow such that the transfer has economic significance and an anticompetitive effect,” the FTC’s filing states. 

“Even if the court sees some justification for the deal, resulting in less scrutiny on the Sherman Act Section 1 claim, the court will also evaluate it under the standards for mergers,” McAvoy said.

When it comes to the government’s FTC Act claims, McAvoy said that since this statute is a bit broader than antitrust laws, it could provide the FTC with a little more flexibility for proving its case. 

FTC involvement is ‘quite the statement’

However, no matter how the case shakes out, Sterbcow feels that the FTC getting involved is quite the statement. 

“Anytime the Federal Trade Commission gets involved, especially in this day and age, that’s a big deal,” Sterbcow said. “And the FTC might be correct because many times when you consolidate it leads to higher costs and this deal could lead to reduced options for consumers to look for apartments and higher costs for landlords advertising properties.” 

Although the lawsuits may prove to be costly for Zillow and Redfin, which was acquired by Rocket in March of this year, in terms of legal fees, McAvoy notes that neither suit is requesting monetary damages, just injunctive relief, which could potentially mean just the unwinding of the deal.

“This may be to some degree about drawing a line in the sand or signaling to the rental listing market that these kinds of deals are not going to be acceptable in the future,” he said.