Involved in buying or selling a residential property any time soon? You are going to want to read this.
After 30+ years working as a real estate executive and consultant, I understand the real estate process and what makes a great transaction, so I feel qualified to weigh in on the evolving situation that directly affects people buying or selling. Whether you are an individual or a mobility professional, the ongoing shenanigans in residential real estate right now have given me pause as an observer who feels the need to share my opinion. And it is sure to ruffle some feathers.
Various real estate and mortgage processes and behavior are governed by different entities, including federal regulators (HUD, FHA, CFPB, DOJ, FTC), state real estate licensing departments and commissions, industry organizations such as the National Association of Realtors (NAR), and local Real Estate Boards and Multiple Listing Services (MLS). And each real estate company has its own set of guidelines, contractual agreements, and compliance structures. This is all for the benefit and protection of the consumer and as risk management for all stakeholders.
Here is what has changed.
Traditionally, when a real estate agent lists a property for sale, that listing must be added to the local MLS listing portal, typically within 24 hours (depending on the MLS), so all member agents can see it, which is a good thing for exposure. A consumer may opt out of having it displayed publicly on online real estate portals, but not to other agents in the MLS. There is a reason it is called the Clear Cooperation Policy. It is about transparently cooperating with all agents.
While the MLS process has worked for many years, there are flaws in the system. The number of MLSs in the US is ridiculous and inefficient. There are hundreds of them, some overlap territories, and they are disjointed and need a complete overhaul. But the owners of the MLSs (some are owned by NAR and others by consortia of brokers or investors) are white-knuckling it to keep their revenue and profits flowing. Agents pay dues to support the MLS. So the MLSs don’t want consolidation, even if it is for the good of the industry and the consumer. The end game should be consolidation and modernization to best serve its client base and its client base’s clients.
What is different today about buying and selling?
Without getting too far into the weeds, I want to lay out some recent changes that can dramatically affect buyers and sellers, and most don’t even know about them.
In the past, when an agent took a listing, that listing was entered into the local MLS, as required by NAR bylaws (since 2019), so every agent could see it. And those listings were also shared on online portals like Zillow, Realtor.com, and Homes.com for public viewing. Now that has all changed.
Compass’s stance.
Compass (the parent company now known as Compass Worldwide Holdings, Inc. after its recent Anywhere acquisition) decided to push the concept of ‘private exclusive listings’ or, as they are often known, ' office exclusives’, ‘pocket listings’, ‘off market listings’, ‘private network listings’, ‘coming soon’, or ‘whisper listings’ to their listing clients. This is selective marketing, and it screams of exclusionary tactics.
Compass has convinced many of its sellers that there is a benefit in not marketing their properties via the MLS. In simple terms, that means they are no longer feeding many of their listings into the MLS. They position it as a consumer choice, but Zillow (and many others) argue that the underlying reason is that the entity that controls the listing inventory controls the market.
They also say that ‘testing’ the market through the private listing process removes the ‘days on market’ pressure since it is not actually on the open market. My advice is to just price it right from the start. And it gives them an opportunity to sell properties ‘in-house’ without allowing other outside agents or companies to access their listings. Therefore, they retain the entire commission. And they feel it gives them an advantage with buyers who will come to them to see their inventory since they can’t see it elsewhere. They do claim that a huge percentage of their private listings do end up in the MLS, but that is only because the private strategy failed to sell the property.
They say it is their fiduciary duty to comply with the client’s wishes. The only reason the client ‘wishes’ to have their property ‘privately listed’ is that the agent has done a slick sales pitch to convince them of such. You can’t tell me that if an agent never opened their mouth, a seller would say, “I think it would be a great idea for me to not expose my property to the most potential buyers as possible.”
Compass, now the largest real estate company in the world, is trying to counter the negative narrative by partnering with Redfin (another real estate company and online portal) to increase exposure for its ‘coming soon’ listings by putting them on Redfin's website. But that is still a controlled environment, and I am sure the agreement ensures all leads come back to Compass. And by the way, Redfin is now owned by Rocket Mortgage, so there’s that. Another cross-marketing opportunity with revenue-sharing opportunities.
Compass recently bought Anywhere Real Estate, which includes Corcoran, Sotheby’s, Coldwell Banker, Century 21, BH&G, and ERA. So expect these brands (especially the company-owned branches) to face significant pressure to fall in line with the Compass private, exclusive listing model.
Zillow’s stance.
Zillow also wants to control the inventory through its agent partners and the MLS so it can collect fees by referring interested online shoppers to agents who will pay for those leads. Compass says Zillow is also trying to make money from its listings on the Zillow website, rather than sending listing inquiries to the listing agent for that property.
This Compass private exclusive listings strategy has choked off its inventory to the public online real estate portals and the MLSs, and a legal battle has ensued. Zillow refers to the Compass strategy as ‘selective access’.
The downline effect is that the MLS formerly gave all agents a very clear picture of how the market was performing and helped establish pricing. Now, since not everything is in the MLS, the MLS data only represents a portion of the market activity, which can impede a true picture of the market.
It was just announced as a counterattack to Compass, Zillow is partnering with big brands such as Keller Williams, Re/Max, eXp, LeadingRE Network, and Home Services of America to promote ‘off-market’ listings from those entities on its site. Their hand was forced. By putting them on Zillow, they aren’t private, since they receive millions of monthly views and are accessible to the public. Their message here is: ‘We want everyone to be able to see these.’ But don’t be fooled, it is a way to drive more traffic to the website, which means more money for them. Now this entire issue isn’t about keeping listings private any longer…it is about how listings are distributed. I can only assume that the thinking is, ‘he who controls the data wins the day’. This recent Zillow move caused Compass to drop one of its lawsuits against them.
It is a messy, embarrassing behind-the-scenes industry brawl over control and money that offers zero benefit to buyers and sellers.
So what does this all mean for a buyer or seller?
Buyers and sellers need to ask lots of questions and seek out the processes that benefit them, not the agent, their brokerage, or the online portals.
For Sellers:
1. Every seller needs to ask how their property is going to be marketed. No matter who you list with, your listing should be marketed via the MLS and on all online portals. Ask your agent, “Tell me exactly how and where my property will be marketed.” The list should be long.
2. Ask them, “When an inquiry is made on my property via the agent's website or an online portal, who will respond to that buyer inquiry and how fast?” Online shoppers expect fast responses, or they move on.
3. “What are you going to do that is unique to ensure I get the most exposure to potential buyers and other agents outside of your company for my property?”
4. Cut through the sales pitch, and think carefully about why you would not want the most potential buyers to see your property right away. The agent might use terms such as, “We can ‘test’ the market with your pricing”. You are only testing it with those who see it, not all potential buyers. Or “We can create pre-market buzz”. Seriously? Again, only creating buzz with those privileged to see it. It reeks of targeting a specific buyer pool.
5. Ask the agent directly, “Is there a reason why you would not want to expose my property to the greatest number of buyers and agents?” Weigh their answer carefully. If it is some convoluted answer about privacy, that’s a red flag. Because, unless you are wealthy or famous, or want extreme privacy for some reason, more eyeballs means more potential buyers and a higher sales price. For some context, MLS statistics show that properties listed on the MLS sell for 17% higher than properties listed ‘off market’ or ‘privately’.
For Buyers:
1. “How can you, as my agent, ensure that I am seeing every available listing on the market?” In today’s world, that means they will have to visit multiple locations to find what is available in your price point and area of interest.
2. “How/where can I see the properties that are not listed on the MLS?” This means more work for that agent. The MLS was formerly a one-stop shop for all properties listed with an agent. Now, not so much.
3. One of Compass’ selling points to their sellers is that they won’t show price reductions or days on market for their exclusive listings. As a buyer, you have a negotiating advantage if you know how long a property has been sitting unsold and chasing the market downward. That data will no longer be available in some locations.
What comes next?
Some states are taking matters into their own hands. Washington state and Wisconsin have passed laws that restrict private listings. The states of Illinois, Connecticut, and Hawaii have proposed bills. We are definitely not done with this contentious situation. Changes are happening almost daily.
So, as you can see, there is some messed-up stuff going on, and it is probably going to take legal or government intervention to set things right. Or another giant class-action lawsuit when the sellers realize they had less exposure for their listing and could have possibly gotten more for their property. Let’s just hope that whatever happens is in the best interest of those buying and selling the American dream.
