FTC Sues Over Zillow, Redfin Rentals Deal. Competition Is the Big Issue.

(Elijah Nouvelage/Bloomberg)

Key Points

• The Federal Trade Commission filed a complaint against Zillow and Redfin, alleging an unlawful agreement.
• Zillow paid Redfin $100 million to cease competing in the multifamily property advertising market.
• Zillow’s stock fell 3.5% and Rocket’s stock fell 5.4% following the FTC announcement.

Zillow Group’s rental syndication agreement with Redfin is the subject of a Federal Trade Commission complaint filed on Tuesday. At the heart of the issue concern about less competition in the rental market.

The FTC alleged in a complaint filed on Tuesday that Zillow and Redfin have “an unlawful agreement that eliminates Redfin as a competitor in the market.”

The agency said Redfin $100 million to end its contracts with advertising customers, to stop competing in the advertising market for multifamily properties, and to only syndicate Zillow rental listings.

“Paying off a competitor to stop competing against you is a violation of federal antitrust laws,” Daniel Guarnera, director of the FTC’s Bureau of Competition, said in a statement. “Zillow paid millions of dollars to eliminate Redfin as an independent competitor in an already concentrated advertising market—one that’s critical for renters, property managers, and the health of the overall U.S. housing market.”

In February, Zillow and Redfin said the partnership would make “Zillow the exclusive provider of multifamily rental listings (properties with 25 or more units) on Redfin and its sites, Rent.com and ApartmentGuide.com.”

Zillow and Redfin are both known for their for-sale home listings, though the companies are structured differently. Zillow in recent years has focused on its services for agents, buyers, and renters in its bid to build what it refers to as the “housing super app.”

As of its most recent quarter, Zillow’s residential revenue, which includes its lead generation business for agents along with other advertising and technology offerings, represents the bulk of its sales, at 66%. But the company has been growing its mortgages and rentals businesses more quickly. In the three months ended June 30, Zillow’s mortgages revenue grew 41% from the year prior, while its revenue from rentals was up 36%.

Redfin, a brokerage, was purchased by mortgage originator Rocket earlier this year in a deal that closed in July. Through that acquisition, along with its $14.2 billion deal for mortgage servicer Mr. Cooper, Rocket is aiming to build a one-stop shop for home buyers and owners.

“Together with Mr. Cooper, Rocket’s capabilities span the entirety of homeownership—home search, financing, title, closing and servicing,” Rocket wrote in a Wednesday press release announcing the closing of the deal.

Shares of Zillow Group and Rocket were moving in opposite directions on Wednesday morning. Zillow stock was down 2.6%, on track for its lowest close since July 8, according to Dow Jones Market Data. Rocket stock was up 3.2%.

Rocket’s stock may have been boosted by the news of the deal’s closing. The divergence could also be because of its strategy. Redfin’s rental platform isn’t pivotal to Rocket’s vision for the portal, which likely focuses on using Redfin’s well-known brand to attract mortgage customers, KBW analyst Ryan Tomasello wrote in a Tuesday report.

“While we believe the Zillow partnership was slightly accretive for Redfin since Redfin’s rentals business was previously unprofitable, we do not believe Redfin’s rentals business is viewed as a significant source of financial or strategic value in the context of Rocket’s broader story,” the analyst wrote.

Tomasello noted that there had been speculation about an FTC investigation several months ago, but “this chatter had mostly subsided in recent months,” so the announcement was unexpected.

The FTC said in its complaint that the two companies’ syndication agreement, through which Zillow advertises its home listings on Redfin, “is nothing more than an end run around competition that insulates Zillow from head-to-head competition on the merits with Redfin” for those advertising multifamily properties.

A Zillow spokesperson said the company is “confident in this partnership and the enhanced value it has delivered and will continue to deliver to consumers” in a statement.

“Our listing syndication with Redfin benefits both renters and property managers and has expanded renters’ access to multifamily listings across multiple platforms,” the spokesperson said. “It is pro-competitive and pro-consumer by connecting property managers to more high-intent renters so they can fill their vacancies and more renters can get home.”

A Redfin spokesperson in a statement said the company “strongly disagrees with the FTC’s allegations and is confident we will be vindicated by a court of law.”

The spokesperson said the company’s Zillow partnership gives renters and advertisers access to more listings. “By the end of 2024, it was clear that the existing number of Redfin advertising customers couldn’t justify the cost of maintaining our rentals sales force,” the spokesperson said. “Partnering with Zillow cut those costs and enabled us to invest more in rental-search innovations on Redfin.com, directly benefiting apartment seekers.”

The FTC asked the U.S. District Court for the Eastern District of Virginia to “cure any anticompetitive harm, prevent any future harm, and undo the continuing effects of past harm, including but not limited to, divestiture of assets, divestiture or reconstruction of businesses.”

Rocket didn’t respond to a request for comment about the FTC complaint.

(News Corp, which owns Barron’s also owns Move, which operates real estate listings website Realtor.com).

Write to Shaina Mishkin at shaina.mishkin@dowjones.com