Zillow is facing lawsuits. Here’s how it disrupted real estate

With approximately 250 million unique monthly visitors, Zillow is the most widely used real estate portal in the United States. It’s among just a handful of online real estate platforms that transformed the way Americans buy, sell and rent homes.

The company offers a free mobile and web app that provides significant detail on approximately 165 million homes. In the past, these listing data were available only to real estate agents in the industry’s Multiple Listing Services system.

Zillow also offers innovative products like the “Zestimate,” a machine learning algorithm that approximates a home’s value. The feature has a median error rate of 2% for active listings and 7.1% for off-market homes, according to Zillow.

Zestimates may increase seller profits by 4.16%, according to a 2023 paper by researchers at New York University, because the tool allows sellers to be more patient and set higher prices, then wait for buyers who truly value the property.

Zillow makes money by generating leads for real estate agents on the platform. If the agent converts that lead into a sale, Zillow takes a fee of up to 40% of the real estate commission. 

“[The agent] will bid on a specific zip code to try and win a certain number of leads, and then it’s on them to go and convert those leads into successful transactions and customers,” said Nikhil Devnani, senior U.S. internet analyst at global equity and research firm Bernstein.

The median U.S. home sold for $410,800 during the second quarter, according to data from the U.S. Census Bureau and Department of Housing and Urban Development. In the U.S., a buyer agent’s commission traditionally accounts for 3% of the home’s sale price, or approximately $12,324 based on that median price. Zillow’s fee, in this scenario, would be about $4,930 — if the lead was generated with Zillow’s tools.

“If we can help more of those transactions happen, then we participate in the revenue in that transaction and we make more money,” said Zillow CEO Jeremy Wacksman in an interview with CNBC.

In 2024, Zillow reported annual revenues of $2.2 billion. Residential real estate activity, including lead generation, accounted for 71% of its revenues. Zillow also has a mortgage financing business called “Zillow Home Loans” and a rental advertising business.

Other online real estate portals and brokerages have criticized Zillow’s strong position in the industry.

Competing real estate firm Compass filed a lawsuit against Zillow challenging its listing standards, which require sellers to list homes on Zillow within one business day of them appearing on the industry’s MLS system — or risk not being able to list it at all on Zillow.

“They’re banning any agent and their seller who doesn’t list on Zillow in 24 hours. It’s like Amazon saying if you don’t give me your listing so I can monetize it and sell it for a 40% referral fee, I’m going to ban you,” said Compass CEO Robert Reffkin on CNBC’s “Squawk on the Street” in July.

Zillow and Compass will meet in…