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Does Zillow promote dual agency and anti-consumerism? Some say yes, others say no

When Morgan Stanley issued a new study on Zillow, they probably didn’t know they were hitting a nerve in the real estate industry regarding dual agency.

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Sometimes our best friends think they are doing us a favor when they should do their homework first. Case in point, the flap over Morgan Stanley’s recent report to investors on Zillow that implies the search giant has an anti-consumer slant in their advertising platform that is said to promote dual agency.

Before we dig into the study and responses it has drummed up, let’s get up to date on the sticky dual agency issue.

How dual agency works

Every newbie learns in real estate school that dual agency relationships can be toxic because 1) in some states they are outright illegal, and 2) in the remaining states, disclosure rules are complicated and vary significantly. For example, some require written disclosure forms be signed by all parties. Others require disclosure forms be attached to the sales contract. Further, some brokerages have policies on dual agency, others do not.

The lure of bringing home a double-ended commission is very real and there’s no doubt, especially in these times of rampant pocket listings, that some agents and brokers play with fire for the big pay day. The payoff, however, pales quickly when the slightest oversight in carrying out one’s fiduciary duty can lead to failure to disclose one party or the other, the result can be very nasty lawsuit or even loss of license.

Examples of dual agency lawsuits:

For example, two years ago, a top agent at Sotheby’s New York was sued after a seller alleged that he had breached their exclusive sale contract for his Manhattan apartment by clandestinely working with a prospective purchaser, effectively lowering the sale value of the home.

The case led to a New York State investigation last year that implicated the CEO of Sotheby’s.

Or, consider the Ohio agent last year who decided to go dual in violation of her own company’s policy and ended up being personally liable for failing to fully disclose all of a property’s defects to the buyer, even though the seller provided them to her in writing. It cost her $216,337 plus legal fees.

Then, there was there was the Mississippi case where a broker acting as a dual agent failed to tell the buyers that the house had suffered $35,000 worth of termite damage. The case resulted in suits and counter suits and went all the way to the state Court of Appeals, where the broker lost.

Does dual agency hurt home values?

Years ago, NAR estimated that nearly one-quarter of all lawsuits filed where real estate licensees are named as defendants involve “agency” disputes. Clearly, dual agency is as big an issue today as it was decades ago. Moreover, there’s evidence that dual agency is a bad deal for the seller.

A study published two years ago by the Journal for Real Estate Research found that dual-agency sales that occur in the first 30 days of the listing contract sell for roughly an 18% premium because agents may be able to more efficiently match the property with the right buyer if they search within their own network.

But sales during the last 30 days of the listing contract sell for roughly a 6% discount, or $9,300 less.

Overall, a dual-agency representation reduces sale prices by about 1.7%, according to the study.

Now, on to Zillow and dual agency

Enter Morgan Stanley’s research arm, Alphawise, with a September 10 report. “Our Alphawise study suggests that Zillow is enabling agents to increase their number of dual agency transactions… The key implication is that dual agency transactions offer lucrative economics, and by driving an increase in these transactions, Zillow is strongly reinforcing the return on investment (ROI) proposition for agents who successfully advertise with the platform.

“Our Alphawise study finds that for +60% of Zillow premier agents, advertising on Zillow enabled them to increase their number of dual agency transactions and specifically drove a ~30% increase in these transactions.”

Zillow’s advertisements are leading to a 60 percent increase in dual agency deals?

NAEBA implies a lack of loyalty to consumers

The report did not sit well with the National Association of Exclusive Buyer Agents, a sworn enemy of dual agency. “While that may be great news for the agents who get twice the pay for the same transaction, it’s not great news for consumers,” said NAEBA in a statement.

“Real estate buyers deserve to have someone on their side throughout the transaction,” says Chris Whitehead, NAEBA President. “Settling on a Zillow Premier Agent who is unlikely to be loyal only to them is not in the consumer’s best interest.”

Counter: Zillow isn’t forcing this

Countered Trey Garrison on Housing Wire:

“Keeping in mind dual agency isn’t even legal in a lot of markets — and let’s be frank, as long as there has been real estate there has been dual agency, so that’s nothing new — the Zillow approach to consumers is not to force any agent on consumers. So it’s not quite as black and white when the premiere agent, the agent and the buying agent are all three accessible on free listings.”

Garrison adds, “I’m not sticking up for Zillow or the study, but you can check that for yourself. And I’m not saying Morgan Stanley doesn’t have a point in some circumstances, but it’s just not as blanket as NAEBA makes it sound.”

Morgan Stanley pushed the big red button

Even though the Morgan Stanley Institutional Fund Inc. has owned a chunk of Zillow for years, since it just initiated coverage of Zillow on July 14, it’s understandable the folks at Morgan Stanley’s research shop probably didn’t have the faintest idea that they were pushing one of real estate’s hottest hot buttons.

#Zillow

Steve Cook is editor and co-publisher of Real Estate Economy Watch, which has been recognized as one of the two best real estate news sites in the nation by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, Cook was vice president of public affairs for the National Association of Realtors.

Real Estate Corporate

The tables have turned: Zillow being sued for violating antitrust law

(REAL ESTATE CORPORATE) A Vermont real estate company is bringing a lawsuit against Zillow for violating antitrust laws. Will it be enough to slow the real estate giant?

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Pen laying on a document covering antitrust law.

In a shocking upset, a Vermont real estate website is suing Zillow for violating antitrust law. The website, called Picket Fence, alleges that Zillow’s operation in Vermont led to millions in lost revenue, both past and projected.

According to court documents supplied by the state of Vermont, Picket Fence—a for-sale-by-owner business that originated and is located in Vermont—was one of the first significant FSBO businesses in the state. Picket Fence purportedly endeavored to use their services in order to connect private sellers with clients, thus negating the need for an agent or traditional real estate service.

Zillow, by contrast, is a “Foreign Profit Corporation” in Vermont. Since Zillow is located predominantly in Seattle, Washington, their presence in the state of Vermont falls under a different classification than that of Picket Fence.

The court document alleges that Zillow, by providing aggressive competition in a state other than that of its origin, deprived Picket Fence of due revenue. It also alleges that Zillow violated “state and federal consumer and antitrust laws” in addition to a handful of Vermont laws. The document refers to “unfair and deceptive acts” on behalf of Zillow, insinuating that Zillow’s operation in Vermont was damaging to FSBO services like Picket Fence.

While much of Zillow’s purported damage to Picket Fence is projected based on profit estimations from 2017, the fact remains that Zillow used the tactics they have used across the country to monopolize real estate business in Vermont. Picket Fence estimates that this will result in a net loss of over $142 million by 2030, so their case prioritizes monetary recompense.

On a separate note in the document, Picket Fence shows that Zillow’s operation and interference in Vermont prevented local FSBO and other real estate endeavors from taking hold despite the best efforts of Picket Fence. The complaint addresses this issue as another nail in the antitrust violation coffin.

Picket Fence continues to suggest that Zillow’s actions were and are illegal, damaging, and in violation of significant antitrust law. This isn’t surprising given Zillow’s long history of shady activity from patent-grabbing to lengthy court cases designed to crush competitors; it is these exact behaviors that Picket Fence is hoping to address in their complaint.

Zillow, for their part, will have to answer for a lot over the course of the last 12 months. This Vermont case is sure to be one of the first of many attempts to bring the real estate giant to its wobbly, monopoly-seeking knees—and, with any luck, it will be the first successful one.

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Real Estate Corporate

Watch out: Zillow’s terms of service have some sinister notes

(REAL ESTATE CORPORATE) Zillow’s updated terms of service allow them to make a lot of decisions with your data—none of which need your approval.

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Computer searching online open to terms of service page.

Zillow has a bit of a shady record. Between their excessive patent-hoarding and the aggressive nature with which they tend to squash competing services, you wouldn’t be remiss in treating them with caution—especially now that the real estate service is revamping their terms of service with some seemingly sinister changes in mind.

The actual terms of service prove for a lengthy—but recommended—read. However, WAV Group, a real estate consulting service, highlighted a few specific stipulations in the terms of service. If you’re here for the short version, it’s this: Have a lawyer look over the updated terms before agreeing to them if you’re a Zillow user. Otherwise, keep reading for a deep-dive on some of the more concerning aspects of these changes.

Data, regardless of the form in which it appears, should be considered an asset; if you aren’t worried about how Zillow (or other companies in their wake) will use the terms of service to legitimize sending away your information at a moment’s notice, you absolutely should be. To wit, WAV Group also recommends having a lawyer look over Zillow’s privacy policy which, while not on par with the terms of service, also underwent a bit of a redesign.

In a nutshell, Zillow’s updates allow them to use and distribute your data—including information associated with your listings—at their discretion. That sounds pretty standard, but Zillow makes it clear that they aren’t just using your data: They own it. What that means is you can’t repurpose or reuse that data again without specific parameters in place if you want to avoid breaking Zillow’s terms of service.

Zillow is also kind enough to alert you that they will take no responsibility for anything negative that happens as a result of your data use on their behalf, a process which can include unauthorized credit checks, the appropriation and use of your data by third-party services, and all of the downsides that accompany these actions.

So, for example, if Zillow passes along your data to a third-party service that has shaky web security, you can’t hold Zillow accountable for the hand-off regardless of negative repercussions on your end.

Now, you wouldn’t be wrong to want to delete your listing and clear out of Zillow after all of this, but you would be wrong in thinking it’s that simple. According to the new terms of service, you may delete your account, listing, and preferences; you just can’t delete any listing data from Zillow since, upon accepting those terms, your data is their data.

Finally—and, as WAV Group mentions, extremely importantly—Zillow’s new terms of service allow them to claim referral fees on your behalf without accepting any responsibility for potential harm to you, your property, your company, or—you guessed it—your data. This basically means that Zillow can act as a referring agency on your behalf without asking for your consent, which runs the risk of everything from raising your bottom line to risking your privacy.

It’s undeniable that Zillow has a motive here: Recuse themselves of responsibility for reckless and irresponsible behavior. Don’t trust the terms of service like you most likely do with other products here—make sure you have a lawyer (or at least a particularly shrewd second pair of eyes) to look over these terms before you sign any kind of deal with this real estate devil.

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Real Estate Corporate

Are rental companies taking too much advantage of apartment evictions?

(REAL ESTATE CORPORATE) With the convulsing housing market forcing people out of their apartment, massive rental companies are partnering with AirBNB to make up lost profit, and then some.

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As national lockdowns have left Americans feeling confined, the demand for short term rentals remains strong—despite the rampant rental crisis. It’s mighty convenient for corporate landlords and rental companies dealing with a backload of vacancies from recent waves of evictions.

ABC reports that the largest apartment landlord in the country, Greystar Real Estate, is gaining infamy for subletting their vacant apartments online. They manage over 500,000 rental units in the US.

One tenant, interviewed by Eyewitness News, stated they had found their apartment complex on the site, as well as 570 other Greystar properties across the country under the same host. Their landlord hadn’t disclosed these postings to them, either.

Most standard statewide rental contracts strictly forbid tenants from subletting to others through websites like AirBNB. But they don’t necessarily keep landlords from doing the same thing.

And in the absence of rent control laws, nothing stops them from rent gouging to drive their permanent tenants out.

Short term renters who apply for an apartment through AirBNB don’t agree to the same terms as long term renters. The actual residents of these buildings are ultimately held to a stricter standard, and potentially have to put up with more grief.

For example, if the property manager doesn’t intervene when disruptive behavior occurs in an STR, permanent residents are forced to put up with whatever trouble these guests might bring, from noise violations to dangerous activities. Anyone unfortunate enough to be stuck in a lease there is effectively trapped in a would-be hotel with no oversight. Over time, it creates a living environment that drives regular tenants out (meaning more space for overpriced Airbnb units.)

The practice puts disproportionate pressure on tenants that share complexes with temporary renters. And it’s not just unfair—this creates a potential health hazard, too.

Tenants in these buildings are rightfully concerned with the potential health risks of people constantly moving in and out of their building during a pandemic. Each new person passing through could potentially expose the rest of the building to the coronavirus (which is currently raging harder than ever, pushing hospitals to capacity across the country.)

All this stinks suspiciously like a potential violation of the Fair Housing Act to us. Renting an apartment through AirBNB or other rental companies would allow someone to potentially skirt the criteria that a regular applicant would otherwise be held to, and possibly rejected for.

In fairness, there are hosts doing their best to use their resources to help people, too.

Still, taking advantage of people’s desperation in the middle of an unprecedented economic depression is shameful—and AirBNB must take accountability for their role, too.

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