Austin real estate tech firm targets Zillow

A battery of former aides to Texas Attorney General Ken Paxton is behind an antitrust lawsuit against Zillow.

The big picture: Zillow is the go-to site for home listing searches, but Austin-based REX, a tech-based real estate broker, alleges Zillow unfairly marginalized its listings, harming its business, homebuyers and sellers.

• REX's listings, along with others that don’t list with a realtor — such as sale by owner — are now found on an obscure "other listings" tab on the Zillow website, rather than the default tab.
• Zillow officials say they are complying with National Association of Realtors rules that call for the separation of agent-listed homes from those not represented by agents. The NAR is also a defendant in the REX lawsuit.

Why it matters: REX says its approach, which automates the work traditionally done by realtors by using data to marry sellers to potential buyers, cuts commission fees from roughly 6% to nearly 2%.

Michael Toth, former special counsel to Paxton, is general counsel for REX and tells Axios that the ratio of "agent listings" to other listings was 9:1 when Zillow started separating the two in January. The ratio in some areas is now closer to 100:1, as sellers find it increasingly difficult to sell outside listing agents.

• He has hired two former AG colleagues, Darren McCarty and former Texas Solicitor General Scott Keller, as part of his "motley crew" of attorneys, Toth tells Axios.
• McCarty and Toth worked on a Texas antitrust case against Google before each left Paxton’s office — Toth for a short-lived state judgeship before he lost an election to a Democrat, and McCarty as part of a mass exodus of aides who accused the attorney general of a bribery scheme.
• Keller, like Toth, is active in Republican politics, and he represented Texas in fights against the Obama administration over immigration, environmental regulation and voter ID laws.
• The AP reported earlier this year that Paxton is now seeking $43 million in public funds to replace some of his aides with outside lawyers to lead that Google antitrust effort.
• Other Paxton alumni working the case are Cristina Moreno and Todd Disher, who represented the Texas secretary of state (and lost) after the office was sued over bungled efforts to purge non-citizens from voter rolls.
• Former state Solicitor General Kyle Hawkins — who fought to overturn the Affordable Care Act and gained a small measure of fame for not signing Paxton’s lawsuit last year asking the Supreme Court to overturn President-elect Biden’s victory — also worked briefly on the case.

What they’re saying: Toth says what’s happened on Zillow is the "digitalization of a cartel."

"We cut our teeth on Google and are feasting on Zillow's decision to make collusion a business model. The days of brazen Big Tech harm to consumers are numbered."

The other side: Zillow officials have said REX’s claims are "without merit" and that the company will continue to "empower real estate consumers."

• "We actively advocate for updated industry rules that encourage transparency and allow a seamless search experience that displays all types of listing information," Zillow spokesperson Viet Shelton tells Axios, calling the rules that led to the separate tabs "outdated."

"REX voluntarily chooses to use Zillow’s services to advertise their for-sale properties on Zillow for free," Shelton said. "We encourage REX to join Zillow in advocating for industry rule changes that would allow their for-sale listings displayed on Zillow to appear the way they were last year."

What’s next: Last month a federal judge in Seattle denied Zillow’s motion to dismiss REX’s antitrust and false advertising claims — allowing the case to continue.

• But the judge also turned away REX’s injunction to move its listings out of the "other listings" tab.