Business Breakdowns
· Geoff Collette
[00:00:00] S1: This is an area that has gotten increased focus more recently. Ultimately inventory's power in residential real estate. It's what drives everything from agents to platforms like Zillow. Without inventory, there isn't business to conduct. What's relevant to what you're asking about is Compass has taken a stance on pre-marketing. This fits back into the industry construct that we were talking about earlier in terms of NAR MLS rules around listings. And to level set a little bit, there's research that shows that there's real demand for off-MLS marketing. The Illinois MLS had on average 21% of its volume that eventually went to the full market go through its internal private listing network that's available to all agents and brokerages. And there's reasons why consumers want to be able to do this. Their home may not be ready to be shown yet. They want to understand price. In today's market, around 40% or so of listings are dropping their price on MLS and the portals like Zillow. It's tracking days on market, it's tracking price drops. Compass is taking a position that it wants to be very homeowner-friendly and facilitate this in a manner that provides flexibility to customers. Even Zillow's studies have found that 31% of sellers want to try pre-marketing efforts. And so what Compass has done starting last year is create a program around this. It's called the three-phase marketing strategy. It's meant to give sellers control and also buyers to have some early access to homes. And that can be relevant in a market where there's been a dearth of inventory that's come up more recently. But the three phases are as follows. There's the private exclusive phase. The aim is really to validate pricing and make adjustments before going to the public and MLS without being exposed to those metrics I mentioned earlier. That's accessible to Compass agents as well as their buy-side clients as well as other brokerages. There's just been rules that have been constructed in the industry that prevent a certain amount of marketing as it pertains to this phase of marketing. But Compass has a book that's available at all of its offices that make it such that those listings are available to anyone that's aware of them.
· Geoff Collette
When they have a high level of market share in a given market, it's not a secret to folks that are participating in the industry that these listings are available. And the outcome for sellers can always benefit from co-broking. So there's no effort to not co-broke. The second phase is coming soon. This is where they can potentially generate early demand on Compass.com, build buyer interest. And all of those inquiries are going to the listing agent who knows the property really well, that's made searchable to consumers and agents across the country. And then the third phase is launching on MLS and the public portals. At that point, ideally you have a really strong sense for pricing and confidence in how you're going to market so you can get the best possible outcome. And it's just worth noting that home builders, this process is meant to sort of reflect what home builders do to create demand. And they're very sophisticated repeat sellers of property who aren't really putting all of their inventory on MLS. Just to quickly hit on this, it's been a little bit of a lightning rod for the industry. But there are a number of markets that facilitate this type of program really well. And in Q1, about 50% of Compass listings went through this process. 94% of them still hit MLS. The purpose is not to sell the property in the private market, but the seller can have varying degrees of what they want to do in terms of the effort that they put in to sell the house. And if you can get top dollar and you don't want to put in extra effort, that should be the seller's discretion. They're actually getting better pricing outcomes for their customers. Listings using the strategy sold for about 3% more on average and offers were accepted 20% faster, about eight days quicker to close. And there were only 13% of these listings with price drops versus 40% more broadly. But just to sort of end on this topic, other people in the industry don't appreciate this practice and have been voicing concerns that I think are oftentimes informed by their position in the industry. And I just kind of underline that. There are markets like Chicago that have been operating with private listing networks as part of MLS for over a decade. There are other markets that offer similar things. Austin literally just this past week implemented something similar.
· Geoff Collette, Matt Reustle
There's a notion here basically that there's a place in the market to serve this need that is not in violation of fair housing and is also not meant to be double-ending deals. It's really to provide a better outcome for sellers. But it challenges some of the business models MLS and some of the portals. And so there's been a lot of outspoken chatter about it. [00:00:00] S0: I can certainly understand why MLS would challenge it for a portal. We'll use Zillow because I think they have publicly gone against this. If Compass is making these available to other brokers, then other brokers would have access to these opportunities. Is Zillow's challenge that they rely on the MLS listings for what goes up on Zillow?
· Geoff Collette
[00:00:00] S1: Just to step back. I think as a portal you want access to any and all listings that you can get. You want to be the one-stop shop to search for homes. So I think that's somewhat obvious if you just dial back the clock on the industry. MLSs didn't really invest in the same way that Zillow did to be able to really be that source for searching and support the customer in the way that they wanted to. And really what's ended up happening is the listings are going to Zillow and the listing agents aren't really necessarily benefiting all that much because instead of getting direct leads to them which can help them grow their business over time, those leads are being diverted to buyer's agents. But basically the background here and why it's so important to Zillow is there was a rule that came into play in 2019 called Clear Cooperation. And it basically forced listings into MLS within 24 hours of any public marketing. And so there was activity that was happening leading up to that. It was even coined by some as the Compass rule, because in areas like San Francisco, Compass had Coming Soons where in a market where they have a very high level of market share, they end up being a go-to place for searching. And it can compromise some of these structural dynamics that we've talked about already. So basically in March of this year, in '25 after these settlements occurred, in '24, after increasing levels of pressure. But just keep in mind that there's local level MLS that makes it such that I referenced Chicago. There's been different ways to go about things in a compliant manner. But basically it came to a head in March when they made some changes around clear cooperation that created some flexibility around pre-marketing. In response to that, Zillow created its own listings rules that basically went above and beyond what had been the clear cooperation rules and basically said if you list your property publicly and don't put it into MLS within the 24 hours, your listing will be banned from Zillow. That phase two encompasses, three-phase process really comes under pressure because you're basically needing to tell a client or the client needs to be aware that if you're going to market that property and you want it on Zillow, you can't do so for more than 24 hours.
· Geoff Collette
So basically the ability for a brokerage to create an ability to be a source of search is impacted by this somewhat. But I think the key thing to understand partially about this is Zillow. It's a fight over the top of funnel, and Compass is suing Zillow, an antitrust lawsuit. And so there's aspects that we can get into that the stakes are pretty big, but I would say the three-phase marketing process can continue unabated. It's just that phase two that's necessarily impacted. And to the extent that consumers choose to market their property and not comply with that, and compliance and enforcement of that from Zillow's perspective might be kind of tricky. It could bifurcate the market, particularly with higher-end homes where people don't want their listings on Zillow for privacy reasons or otherwise. And then you've also got dynamics a newer portal homes.com that's owned by CoStar Group that has a very different business model where it's not buyers leads, it's advertising for a listing agent. And they're basically providing free advertising boosts for listings that get banned from Zillow. So it's a very interesting dynamic here that ultimately I think if Compass wins out or there's just increasing levels of flexibility in terms of pre-marketing, that likely accrues to Compass's benefit. If the status quo persists, nothing really changes. And so that's kind of how I see it right now.
· Matt Reustle
[00:00:00] S0: Yeah, it's certainly an interesting dynamic. And it's hard to separate fairness for the consumer from companies and what benefits them. Certainly you can understand it from all sides of the equation. I guess just with Compass, do they ever split out how much of their sales are done where it's outside brokers? Are the purchasing agents on their listings? Is that anything they ever disclose? Because I do think it's one of those hot topics where it's very easy to pin that as the thing you want. You want to get both sides of the commission. You know, if you're an agent and that's an ideal spot to be in, do they give you any sense of what that looks like within their own business?