Is Your Dream Home Just a Click Away? How Zillow and a Henderson Firm Are Inflating Prices by 30%!

Zillow is facing a federal lawsuit in the U.S. District Court in the State of Washington, with allegations that its business practices are inflating the cost of new homes for buyers. The lawsuit accuses Zillow of employing mechanisms that mislead homebuyers and limit their financial choices, leading to potential financial harm.

The plaintiffs argue that when prospective buyers click the "Contact Agent" button on Zillow's website, they are not directed to the listing agent for the property they are interested in. Instead, they are funneled to a Zillow-affiliated buyer's agent. This arrangement can require Zillow Flex agents to pay as much as 40% of their commission back to Zillow, potentially driving up costs for homebuyers.

Furthermore, the lawsuit claims that Zillow "compels Zillow Flex agents to steer homebuyers" toward using Zillow Home Loans. According to the allegations, the loans offered through this platform are less competitive than those available from other lenders. The lawsuit states that Zillow Home Loans reportedly offers fewer options, comes with undisclosed fees, and has higher interest rates while lacking common assistance packages typically available for first-time homebuyers.

The case also highlights troubling practices by Zillow loan officers, who allegedly "frequently misrepresent or omit important details about the borrowers' true costs at closing." This could lead to buyers either incurring excessive costs or losing potential homes altogether. Additionally, the lawsuit points out that many Zillow Flex agents may lack sufficient knowledge about the real estate process or the neighborhoods they serve, yet they are promoted as "Top Agents" based solely on their participation in the Zillow Flex program.

Among the defendants is GK Properties, a real estate firm based in Henderson. The lawsuit claims that this firm, specifically the George Kypreos Team, has not been honest with customers. The lawsuit notes that the team has sold a total of 7,050 properties, including 397 in the past 12 months, with an average sales price of $453,000. Over the last year alone, their sales reportedly total around $180 million. Disturbingly, all 32 agents listed on the team’s Zillow profile have been awarded the "Top Agent on Zillow" badge, despite the fact that three of them had no sales in the past year, and another had only a single sale.

The lawsuit asserts that Zillow was aware that potential buyers were being misled yet chose to maintain silence to advance what the plaintiffs call the "Zillow Fraudulent Business Enterprise."

Two plaintiffs named in the lawsuit include David Liao and Dale Kroger, who both purchased homes in Las Vegas. Liao, originally from Northridge, California, financed his home purchase through Zillow Home Loans. Kroger, a Henderson resident, alleges that after clicking the "Contact Agent" button on Zillow, he was compelled to work with a Zillow-affiliated agent, believing he was contacting the seller's agent. He claims this led him to pay inflated commission fees, suggesting that these could total as much as $15,000. The higher interest rates associated with Zillow's loan program might also cost buyers up to $100,000 over the life of a mortgage.

The lawsuit contends that Zillow's practices could have far-reaching effects on the real estate market, noting that experts believe this apparent efficiency actually conceals a system intended to steer homebuyers toward Zillow’s own mortgage lenders. This practice could limit competition and discourage buyers from seeking out more affordable options.

In response to the lawsuit, Zillow issued a statement asserting that the claims are "false and fundamentally mischaracterize how our business operates." The company emphasizes its commitment to empowering consumers with information and choice, stating that its programs are designed to facilitate accountability and help buyers understand their financial capacity while keeping them in control throughout the home buying process. Zillow has pledged to vigorously defend against the allegations.

As this case unfolds, it will be essential to keep an eye on the implications for the housing market, particularly in fast-growing regions like Las Vegas, where recent reports indicate that the median price of single-family homes has reached an all-time high of $488,995, up 1.9% from the previous year.

As the judicial process continues, the legal and financial ramifications of this case could shape the future for many homebuyers navigating the complexities of the housing market.