Competition ‘evisceration’: SCOTUS asked to forever end Realtors’ ‘optional’ rules

By Jonathan Bilyk | Legal Newsline
The Center Square

Amid a series of changes in the home selling business that have been called nothing short of seismic, the country’s largest real estate industry group also agreed earlier this year to quietly end a so-called “optional” rule which had previously allowed online home listing sites, like real estate online giant Zillow, to bury home sale listings posted by services that compete with traditional real estate agents and threaten their fee structure.

But whether the National Association of Realtors can yet sidestep the threat of a massive continuing lawsuit, potentially worth billions, accusing the NAR and Zillow of using those “optional” rules to sidestep antitrust law and smash competitors, is a question now in the hands of the U.S. Supreme Court.

On Friday, the Supreme Court will consider whether to accept an appeal from the company known as Real Estate Exchange (REX), as REX’s one-time operators seek to revive their lawsuit, accusing the NAR and Zillow of allegedly conspiring to drive them out of business.

The Austin, Texas-based REX filed suit in 2021, about six years after businessman and former investment banker Jack Ryan and his business partners launched the online company. Ryan is also a former candidate for U.S. Senate in Illinois, who would have run as a Republican against then-Illinois State Senator Barack Obama, but dropped out of the race in 2004 after details about his divorce from television actress Jeri Ryan became public.

According to published reports, Jack Ryan decided to start up REX after experiencing a home purchase process in which he reportedly did almost all of the work while his agent was out of the country, yet his agent still received the usual commission.

At that point, REX was launched with the goal of “resetting the traditional real estate broker model and upending how Americans interact with real estate,” and specifically to slash the fees paid by American home sellers and buyers from the traditional 6% fees paid in the U.S. to more closely align with the 2-3% paid in other countries.

On the sale of a $450,000 home, such a reduction could save home sellers and buyers tens of thousands of dollars in commissions paid to real estate agents.

According to court filings and public statements, REX attempted to do so, in large part, by bypassing the so-called Multiple Listing Services (MLS) run by NAR members, instead bringing listings direct to consumers through online listing sites, like Zillow, and social media platforms, like Facebook and Instagram.

At the same time, the NAR and large U.S. brokerages were targeted by a storm of lawsuits, taking aim at the commission and fee structure as monopolistic and collusive violations of federal antitrust laws.

The NAR and others targeted by the suits settled in 2024, paying hundreds of millions of dollars and, more consequentially, agreeing to reform its fee and commission practices to allow greater fee flexibility, particularly for sellers.

However, in their legal action, REX has argued the alleged antitrust behaviors of the NAR and its partners haven’t ended.

Specifically, the lawsuit asserts NAR has sought to protect its members through rules designed to control which real estate listings are seen online by people searching for their next home, allegedly with the goal of ultimately leading home buyers to pay more in commissions and fees.

The lawsuit asserts this allegedly illegal anti-competitive behavior is evidenced in an alleged agreement between NAR and Zillow to abide by a so-called “Segregation Rule,” under which Zillow allegedly created a two-tier listing system, which allegedly buried listings posted by non-NAR member realty services, like REX.

According to REX, after Zillow agreed to segregate listings from REX and other non-NAR members, pageviews of REX’s listings declined by at least 80%.

REX and Ryan have asserted in court and public statements that this alleged collusion drove them out of business within 18 months, allegedly costing them billions of dollars in lost business.

REX’s legal action, however, was cut short by federal courts, first in federal district court in Washington state, and then on appeal before the San Francisco-based U.S. Ninth Circuit Court of Appeals.

In those rulings, the judges determined REX had fallen short of proving an illegal conspiracy, in part, because the NAR’s “Segregation Rule” was “optional.”

Despite the wins in court, the NAR still repealed the “optional” rule concerning real estate listings earlier this year, appearing to come into line with the demands laid out in the REX lawsuit.

However, REX has persisted in its legal action, asking the Supreme Court to allow it to continue its lawsuit demanding the NAR and Zillow pay for their alleged antitrust violations, saying NAR and Zillow should not be allowed to just walk away from the allegedly illegal harm they caused.

“NAR should not get to avoid liability for killing its competitor, REX, simply by putting away its weapon after using it,” said REX’s attorney Bennett Rawicki.

Rawicki, of the firm of Hilgers Graben PLLC, of Dallas, Texas, responded by email to questions posed by The Record.

But even more consequentially, Rawicki, REX and others believe the high court must take up the case to prevent the NAR and other so-called “business associations” from using yet more “optional rules” to smash those who might compete or take business away from their members and allegedly sidestep federal antitrust law in the process.

In their petition to the high court, REX notes the Supreme Court had agreed to take up a case a decade ago which posed a similar question. However, that appeal fell apart on procedural grounds, leading the court to drop it.

REX argues its case presents the court with a strong legal “vehicle” to again tackle the thorny legal question surrounding whether business associations, like NAR, can continue to use “optional rules” to further alleged illegal conspiracies which allegedly stifle innovation, harm consumers and hurt the U.S. economy.

REX has been now been joined in the action by other organizations, including the Antitrust Education Project and Consumer Advocates in American Real Estate (CAARE). Both organizations have filed so-called amicus briefs, or “friend of the court” briefs, with the Supreme Court in support of REX’s claims.

They all note different federal courts have interpreted federal law differently on the key legal question in the REX case, leading to drastically different results in different parts of the country. They have urged the Supreme Court to take up the case to resolve the question permanently.

They further argue allowing the Ninth Circuit ruling to stand – and blocking REX’s lawsuit – would leave a “loophole” for the NAR and other professional and business associations to exploit and continue to limit competition.

“By conditioning access to its near-monopolistic MLS data feeds on adherence to its rules, NAR forces the entire digital real estate ecosystem into compliance,” CAARE wrote in its brief, filed Oct. 14. “This created a rigged, two-tiered system across every major portal, from Zillow to Realtor.com, where NAR members’ listings are given prominence whereas innovative, non-member listings are systematically downgraded to a hidden, secondary tab that consumers rarely see.

“Without Zillow, it is impossible for non-MLS members to compete. Real Estate Exchange, Inc … and similar corporate innovators were not the only competitors relegated to this digital ghetto. It included all American homeowners who wished to sell their property themselves, effectively punishing them for seeking to participate in a free market.

“The result is the evisceration of competition,” CAARE said.

For their part, Zillow and the NAR have to this point opted not to respond to REX’s petition at the Supreme Court.

However, justices could yet order them to do so before deciding whether to take up REX’s appeal.

According to the Supreme Court’s docket, justices are scheduled to consider that petition among many others at their regular conference, scheduled for Friday, Oct. 17.

In their petition, REX wrote: “This case is an opportunity to close the antitrust loophole of ‘optional’ rules, thus protecting the economic health of the country from thinly veiled conspiracies to restrain competition. The competition restrained here – which the lower courts did not consider or remedy after mistakenly ruling there was no conspiracy – affects transactions totaling $2 trillion each year.

“Few antitrust cases have ever been more important.”

REX is also represented before the Supreme Court by attorney Charles R. Flores, of Flores Law PLLC, of Houston.