Is Zillow skating dangerously close to thin ice?

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It is no secret that real estate agents have had a long-term love-hate relationship with Zillow since its online debut in 2006. Its advent, along with the other web-based portals that began to appear (Trulia, Realtor.com, Homes.com), inaugurated the transition of real estate information from the carefully guarded hands of real estate agents to the masses and fundamentally changed the industry. 

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Although there has always been significant tension between the online portals and real estate brokerages and their agents, the current war between Zillow and Compass has caused many to take a deeper look at Zillow and, as a result, has raised more than a few questions about some of Zillow’s practices. 

A look at the war between Compass and Zillow

To begin, let’s take a quick look at the current issue with Compass. In a nutshell, Zillow takes listings from the various MLSs across the country and posts them on its website. It then captures leads (mostly buyers), which Zillow then turns around and sells to participating agents who pay (at a basic level) a monthly fee for a prescribed number of leads or (for a higher level of better “qualified” leads) a monthly fee and a subsequent referral fee for closed transactions.

The rub here for many real estate agents is that they believe the leads should belong to them because they (as listing agents) do all of the legwork up front to develop a relationship with a seller, pay the costs of marketing and servicing the listing, and so on. 

Zillow’s contention has always been that listing agents and their brokers do not do a good enough job of online marketing, thus providing a foothold for companies such as Zillow and Realtor.com, which, by spending significant amounts to market those leads online, should reap the benefits. 

Zillow and other online portals rely on MLSs to provide them with data feeds that, in turn, provide the flow of listings they need to continue their business model. Enter Compass, which, by setting up its own independent feed of off-market listings, is cutting off some of the potential flow of listings to Zillow, thus undermining Zillow’s business model.

Compass — and I’ve certainly commented on this in other posts — has been flying in the face of many other brokerages with their blatant opposition to NAR’s Clear Cooperation Policy.

In retaliation, Zillow is refusing to allow any listings that have been previously marketed on off-MLS sites for more than a day to come onto its site. Let me clearly state that I support NAR’s CCP and, as such, do not agree with any attempts to set up private listing portals. With that out of the way, Zillow’s action does raise a number of questions that will now be played out in the courts. 

How Zillow’s brokerage status changes the picture

An important distinction to understand is that, unlike web-based portals such as Realtor.com, Homes.com and Trulia, Zillow is actually a broker in all 50 states. This means that Zillow operates by the same rules that govern brokers and their agents, a fact that separates Zillow from information-only portals.

One immediate question that arises from any given broker refusing to post any listing is the question of potential steering. 

Although I am not an attorney or capable of dissecting the finer points of the conflict, the overall topic of Zillow brings up some other questions about Zillow’s long-term intent and how real estate agents can continue to navigate with this “elephant” in the room effectively.  

At the heart of the issue is whether or not a portal is providing information or advice. If they are providing information, then they are acting as a web-based portal. If they provide advice, however, then they are entering into brokerage territory. There is no doubt that this is a finely nuanced discussion, and, at the end of the day, is fraught with legal implications. 

Take, for example, the idea of posting school scores. If you are simply a web-based information portal, then you can link to sites such as Great Schools and display their results for any given property. As such, and with the correct disclaimer, information is being displayed with no advice or interpretation.

As a broker or agent, however, the rules are different. To stay clear of fair housing violations and to avoid any appearance of steering, brokerages and their agents can disclose the existence of sites that provide school scores and even provide their clients with links to those sites, but should not communicate the actual scores themselves. 

Brokerages and real estate agents can do the following:

• Provide links or resources where buyers can research school performance themselves.
• Direct buyers to official sources for more detailed and up-to-date information (GreatSchools.org, Niche.com, state Department of Education websites).

Brokerages and their agents should avoid: 

• Providing specific scores or data. 
• Providing assessments or judgements (“this is a horrible school” or “that is a great school district”) can be considered to be steering and a violation of fair housing laws.
• Excluding or recommending neighborhoods based on school information.

To avoid any fair housing laws, Zillow and other brokerage sites, such as Redfin, follow strict guidelines to maintain a legal safety net:

• They present data from Great Schools “as-is,” not curated in any way.
• They provide disclaimers indicating the source of the data and encourage users to verify the information independently.
• They let users of their website draw their own conclusions.
• They ensure there is no editorializing or interpreting of the scores.
• They maintain a role closer to a search engine or web-based informational portal that provides them with more leeway than a licensed real estate agent offering guidance or advice.

Even though Zillow provides adequate legal disclaimers, there is still risk, and any brokerage displaying school scores opens itself up to potential violations in an indirect manner. 

• When it comes to fair housing laws, impact matters. Whereas the intent may have been to simply provide information, if that data is used by a consumer to avoid certain properties or areas, then the heart of fair housing laws has been violated. If the school scores are posted on an information-only web portal, there is no issue. If they are posted on a brokerage site, however, it is different.  
• If school scores can be demonstrated to steer certain demographic groups toward or away from any given area — even in a passive manner — this could then be challenged in court, especially if there’s a pattern of disparate impact.
• This is not a new issue: Consumer advocacy groups and HUD have complained about this practice, though, to date, no landmark case has held Zillow liable. Responding to concerns that have been raised about this practice, while Zillow has made changes to the way the information is being displayed, it chosen not to remove the data. 

As you can hopefully see by now, the inherent nuances are the issue, which brings up the next potential issue. 

Zillow’s ‘suggested offer prices’ 

I am going to guess that many agents simply do not know about this feature on Zillow’s site. Set approximately 50 percent of the way down the page of an active listing, this feature not only provides Zillow’s trademark Zestimate (along with its accuracy percentage over the past 10 years), but also outlines strategies a buyer can employ potentially to write a winning offer. Maybe it’s just me, but this looks like advice, not information. 

As an example, a home listed at $1,098,000 shows a Zestimate of $1,075,400. Under the Explore offer strategies headline are four buttons: Strong, Competitive, Moderate and Weak. 

• By pressing the Strong button, Zillow suggests that an offer of $1.09 million-plus has an over 90 percent chance of winning.
• Press the Competitive button, and Zillow suggests that by writing an offer between $1.07 million and $1.09 million, you now have a 70 percent to 90 percent chance of getting your offer accepted.
• Hit the Moderate button, and the numbers $1.07 million to $1.07 million are displayed, along with a 50 percent to 70 percent chance of getting your offer accepted.
• Finally, by using the Weak button, Zillow suggests that an offer between $1.01 million and $1.07 million has less than a 50 percent chance of winning. 

While these numbers for the specific property I used are close to the list price, I have seen instances where the recommended numbers are dramatically lower than the list price. 

Here are some important things to consider: 

• With this feature, even though the numbers provided are automated, Zillow is providing advice, which puts it squarely in the category of a broker or real estate agent. 
• It is using its Zestimate to provide the basis for recommendations, which, as has been demonstrated amply over the years, is not accurate enough to provide sound pricing advice. 
• By providing advice as to a recommended offer price lower than the list price, it is acting in direct competition with the listing agent and the seller.  

All of this poses some serious concerns and questions: 

By offering pricing suggestions — even algorithmically — this can be construed as real estate advice, which is inherently a part of a real estate agent’s fiduciary role.

This can interfere with buyer-agent relationships if a buyer’s agent recommends a specific offer price, based on their market knowledge, conversations with the listing agent and condition of the property, and Zillow recommends a lower price. This could potentially:

• Undermine the agent’s ability to represent their client
• Create confusion and mistrust between agent and clients
• Significantly impact negotiation strategies

This can also introduce potential liability:

• By providing “advice,” Zillow could potentially be construed as establishing an agency relationship with a buyer. 
• If buyers rely on Zillow’s “suggested pricing” and either lose out on a home by offering too little or, inversely, overpay, there could be potential legal risk and liability, especially if it could be proven that the data was flawed. (Since the data is based on the Zestimate, which does not provide information based on property condition, photos, etc., the chances for error are high.)

While Zillow attempts to mitigate concerns or liability by labeling its suggested prices as “an estimate,” including disclaimers such as “not a guarantee” and avoiding direct “you should offer this” language, they are still, in my opinion, skating on very thin ice. 

ChatGPT provides the following assessment: 

Zillow is skating a fine line by posting suggested offer prices. It’s not illegal, but it treads dangerously close to giving what amounts to licensed advice — especially since Zillow holds brokerage licenses.

They’re relying on:

• • Automation, not personal guidance.
  • Disclaimers to reduce liability.
  • Their platform status, not direct agent representation.

As a result, this practice has drawn criticism from brokerages, real estate agents, legal analysts, consumer advocacy groups and industry watchdogs alike. 

The irony here cannot be overstated: While we are in the midst of a battle over Clear Cooperation, with Zillow refusing to show listings on its portal that are not on the MLS, sellers, aware of the fact that Zillow’s Suggested Offer Prices may in fact be competing directly against their chances of a competitive price (to be fair, Zillow sometimes recommends higher than list price offers), may not want their listings (even though they are on the MLS) shown on Zillow.

What a tangled web we weave.