Business Breakdowns
· 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?
· Geoff Collette
[00:00:00] S1: There's not direct line of sight into that. I just go back to the three-phase marketing strategy. It's not the one-phase marketing strategy. And 94% make it to MLS, even those that don't. I believe Compass has disclosed that the majority of those that don't make it to MLS are co-broked. You're talking about a low single-digit percentage of the overall transactions that are done privately and double-sided. And so I think that talking point that you raise has been a key issue that folks have taken. I would just reiterate though, as a home seller, you're looking to execute on your objectives. And it's not the case that Compass is withholding the listings from other brokerages. There's just certain rules that actually make it around that public marketing dynamic that it's one-to-one to other brokerages or that book that exists. Compass is very supportive of that being the construct that works everywhere. It's just a matter of these local geographies choosing what's best. And I think it's not always clear to just say we represent what's best for the consumer if you're Zillow or if you're another constituent in the market. Because there are different needs and desires for different constituents that are selling their homes. And so I think it's probably likely that there needs to be some level of flexibility that's created in the industry. And I think places like Illinois with MLS create a positive construct where I think the other dynamic that flows from what you're asking about is just this idea that oh man, we'll have this market where listings aren't available in a centralized place. And all of a sudden this great market that was really transparent ends up going into this really much more difficult buyer's experience. And I just point to the areas Illinois and even other markets that are more flexible to this. There aren't huge issues in places in terms of accessing the inventory. So I think a lot of this is overblown, to be quite honest.
· Matt Reustle, Geoff Collette
[00:00:00] S0: Yeah. [00:00:00] S1: Yeah. It'll just be interesting to see what flows from all this. And I think one of the things that's probably worth pointing out here is that Compass and Robert Reffkin, the founder CEO, they believe that they work for their agents. And their efforts to create what they believe to be common-sense frameworks that enable their clients and agents to have successful outcomes is a little bit of a rallying cry for anyone in the industry that has similar beliefs. There are definitely people that don't agree with their approach. And I think that there's room for different models to operate in different ways. But what Compass has seen is their agents in listings presentations to go to the client and say, we're going to offer you this capability that is built into our model and makes it easy for you to go about this in a flexible way. A lot of other agents, particularly ones at brokerages that are saying don't do this are, to your point earlier, kind of use this commoditized. It helps Compass stand out a little bit and win listings in a manner that I think is important because agents are competing with each other at a local level on an everyday basis.