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The stock market graphic of Zillow Group is displayed on a smartphone with the logo of Zillow in the background on Feb. 21, 2021.
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The Federal Trade Commission is suing real estate giants Zillow and Redfin, alleging the two illegally conspired to reduce competition in the online multifamily rental listing market, the agency said Tuesday.
In the complaint, the FTC alleges the companies violated federal antitrust laws earlier this year when Zillow paid Redfin $100 million to essentially re-host Zillow multifamily rental listings on Redfin and its sites.
Zillow- and Redfin-owned platforms such as Zillow Rentals and Rent.com are used by millions of Americans searching for their next home, the FTC said.
As part of the arrangement, the agency said Redfin agreed to terminate contracts with its existing advertising customers and assisted Zillow in acquiring that business. Redfin also committed to staying out of the multifamily advertising market for up to nine years and reduce its role to merely syndicating Zillow's listings, making Redfin's sites virtually identical to Zillow's.
The FTC also alleges Redfin fired hundreds of employees shortly after the deal was signed and then helped Zillow selectively rehire many of them.
"Paying off a competitor to stop competing against you is a violation of federal antitrust laws," said Daniel Guarnera, director of the FTC's bureau of competition, 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."
Following the FTC's announcement, shares of Zillow and Redfin parent Rocket Companies fell sharply in afternoon trading.
"Our listing syndication with Redfin benefits both renters and property managers and has expanded renters' access to multifamily listings across multiple platforms," a Zillow spokesperson said in a statement. "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. We remain confident in this partnership and the enhanced value it has delivered and will continue to deliver to consumers."
Redfin did not immediately respond to CNBC's request for comment.
The FTC's lawsuit seeks to unwind the agreement and may include requirements for divestitures or restructuring to restore competition in the rental advertising market.
