Editor’s note: This is part two of a two-part story examining the impact of the Redfin-Compass deal. Read part one here.
“Real estate isn’t a transaction. It’s a process.”
Those words, from Compass CEO Robert Reffkin on the company’s recent earnings call, were in response to a question about how Compass agents can communicate value amid tech and transparency changes to real estate. Reffkin had just announced an industry-rattling partnership with Rocket, syndicating the brokerage’s exclusive inventory to the portal as it barrels ahead with a private-listing focused strategy and the power of being the country’s largest brokerage.
But the rest of the industry is anxiously considering other aspects of the deal. While some experts have expressed doubt that the Redfin-Compass deal will fundamentally upend real estate, the deal offers a unique and potentially powerful new avenue for marketing homes, with Reffkin emphasizing Redfin’s reach with consumers and the potential benefits of removing so-called “negative insights” from listings.
“Homeowners who are reluctant to put their homes (up) for sale for fear of negative insights…will now have access to 60 million monthly active users without the risk of days on market or price drop history,” he told investors. “This will bring more inventory to the market because it eliminates the artificial barrier that home sellers have to list their home.”
Reffkin also further teased the idea that consumers will flock to Compass agents as the brand is promoted on Redfin, and that Compass agents (and the Anywhere and @properties agents now under its umbrella) will “stay for, feel value for, want to come for” leads and exposure.
“It will give all of our agents and our network of brands a huge advantage when they’re pitching, when they’re in the living room with the seller trying to get the business,” Reffkin claimed.
Can removing “negative insights” from one platform meaningfully impact the number of homes on the market? And will the allure of leads or premarketing further swell the ranks of agents at the country’s largest brokerage?
Seller choice
Ken H. Johnson is a broker turned economist who currently serves as chair of Real Estate at the University of Mississippi. He predicts that in the short term, this deal will help Compass and Redfin appeal to real estate professionals looking for a company that offers leads or a unique step-up to build their business—especially inexperienced agents or those new to the industry.
But he says the fundamentals of the deal make it unlikely to create the kind of “historic” shift that Reffkin described to investors, and predicts that smaller, independent companies will continue to operate.
“The brokers that are the most productive…they will see this as more work for less pay. So the squeeze probably will not be worth the juice for them,” Johnson says.
At the same time, the allure of being able to offer clients a particular kind of marketing, and shield properties from “negative insights” has obvious appeal for agents trying to grow their business.
That isn’t the whole picture though, says Bess Freedman, CEO of Manhattan luxury firm Brown Harris Stevens. She argues that all the terminology around private listings, from “coming soon” to “three-phase marketing,” only serves to confuse consumers, many of whom have only a vague understanding of how a home transaction works.
“They trust us to give them the best advice. And if I’m saying, ‘Hey, privately sell it here on my secret little network,’ and they believe me, and I get them a lower price—that’s hurting them down the line,” she says.
Compass, Zillow and the MLS industry have hotly debated whether “private” listings sell for more, putting out competing analyses that claim to support their view. Kristen Haseney, a lawyer who formerly worked as general counsel for the Connecticut Association of Realtors® and is currently a professor of real estate at the University of Connecticut School of Business, notes that the definition of “private” isn’t always consistent, but says that it “suggests” the property will get less views, which “could” reduce the final price.
“We’re going to continue to give service to our consumers, and we’re going to talk to them honestly and transparently and give them the best advice. Even if it’s advice that it’s hard to take—like it’s the truth. Sometimes you have to price the right way,” she says.
The Compass spokesperson says the benefits of the Redfin deal for agents are not complicated, and it is still about the principle that Reffkin continues to espouse in defense of his “3PM” program—seller choice. Redfin is just one more option, with the advantages of increased exposure, and the absence of “negative insights.”
Agent first
Compass’s 3PM program, or three-phase marketing, includes a “private exclusive” phase available only to Compass agents, followed by a “Coming Soon” status with limited public visibility before going on the MLS.
With the new partnership, Redfin is offering a similar setup to Homes.com’s “your listing, your lead” strategy for Compass “Coming Soon” listings, with the listing agent’s info prominently displayed, and buyer leads routed to that agent rather than sold to buyer agents. Reffkin has pointed to all of these as powerful assets for an agent.
But Johnson says that the fundamental issue comes back to what a “Coming Soon” or “Private Exclusive” actually means. Even on Redfin, these listings won’t see the same exposure as they would on the MLS and are syndicated to all portals.
“Look, this could work,” he says. “But…if you’re a broker and you’re marketing to get these ‘coming soons’…or you’re marketing to get these listings that are in this private exclusive group, your likelihood of success is going to be pretty low. I don’t see this being long-term viable.”
Although Compass appears to have been successful at pitching the program to its agents and brokers, Johnson argues that in the long-term, brokers will hesitate to build their pipelines around listings with limited visibility.
Johnson makes a further prediction—that the types of agents and sellers who utilize premarketing or private listings will price properties higher than comparable homes on the MLS. Compass has long touted that sellers can start with “aspirational pricing,” because price drops are not recorded for private exclusives or coming soon listings.
“You’re going to get a lot more price volatility, typically asymmetrically upwards, meaning the new guys are going to overprice the properties on average,” he says.
What are the consequences if those “overpriced” properties are concentrated on a single platform like Redfin? How will buyers, sellers and agents view a “coming soon” if this becomes the expectation?
The Compass spokesperson disputed that Redfin “Coming Soon” listings would be overpriced. At least partially, the spokesperson claimed that an initial “private exclusive” will allow sellers to more effectively price their listing after getting feedback from a handful of individual agents or buyers, and “Coming Soon” is essentially the actual launch of the property.
Buyer leads scraped from “Coming Soon” listings won’t necessarily want to see more properties that are in that category, Johnson claims. He also expects that both sellers and buyers who show interest in these types of listings will be more difficult clients and less likely to transact.
But the Compass spokesperson reiterates that 3PM is meant to allow flexibility, and can appeal to sellers beyond those who want a sleek premarketing plan, or those who have unlimited time to test price and build interest (and limited intent to actually get a deal done). The idea is to quickly test price with no consequences, a choice that is always up to the seller, the spokesperson said.
Speaking to investors late last month, Reffkin said he expects over 90% of “Coming Soon” and “Private Exclusives” to end up on Redfin.
“There really is no reason not to get that incremental exposure,” he said.
Two sides
The MLS system, even to its critics, offers a unique benefit to both agents and consumers. Johnson notes that while many people complain about the high cost of “brokerage prices” in the United States, MLS data is second-to-none in terms of breadth and reliability, and everyone suffers without—consumers in particular.
“Price variability is not good from an investment standpoint,” he says. “It means risk.”
One of the less talked about aspects of Compass’s push for private listings is removing data that helps buyers, but can disadvantage sellers in a transaction—the days-on-market stat, or the history of price drops. The Compass spokesperson says that on Redfin, other property history such as “Under Contract” or “Pending” statuses will not be shown.
Freedman says she believes consumers will quickly understand why this is a bad idea, with sellers realizing that when they are buyers, they won’t have access to this information.
“When you’re looking to buy, do you want to have transparency?” she asks. “This is creating this whole other network of bad behavior, bad practice.”
The Compass spokesperson differentiated the metrics that Compass wants to remove from “attributes of the house”—things like age of the roof, type of foundation or HVAC systems. The spokesperson claimed that other industries don’t require sellers to show price drops or how long the asset has been for sale—and neither do homebuilders, who are largely exempt from the MLS rules Compass is speaking out against.
But in theory, a deal falling apart or a price drop should correlate with tangible aspects of the property—an undisclosed issue with a foundation or a problem with the title that buyers will naturally base their decisions on. The Compass spokesperson said that issues like will come up through inspections or other parts of the transaction, and argued that the current rules around sharing price history and other data favors buyers.
But there is another part of the deal that Compass and Rocket executives argue should be seen as a boon for everyone. Rocket Companies CEO Varun Krishna said that the partnership will “help more sellers enter the market, reduce complexity for buyers and make homeownership more attainable.”
Johnson also generally disagreed that the deal does anything to address the most important housing issues facing consumers, noting it “doesn’t really do anything for supply.”
“This is not doing anything to add roofs,” he says.
And again, Johnson claims that the kind of prospective seller who is most interested in delayed marketing or a “private” listing is not the kind of seller that will be jumping into the transaction, motivated to get a deal done.
From an industry perspective, though, the debate seems to boil down to the MLS, and what it does—or doesn’t—offer. The word “transparency” has become the rallying cry of those who oppose Compass’s push for change, and Freedman more specifically points to “trust” that agents earn from clients through price discovery and MLS sharing.
“The whole point of the MLS…is it imperfect? Yes. But the point is that it’s for us to share and have transparency and create this structure where everything is out there, and (Reffkin) is now building up 10 different walls,” she says.
Reffkin and Compass have repeatedly pointed out that MLSs effectively make the rules on how agents and brokers can operate, as there is no real alternative for a residential real estate professional. MLSs and Realtor® associations, he claims, are protecting their own interests, and continue to carve out exceptions to these transparency principles—for homebuilders, for instance, who have long used delayed marketing tactics with new builds and don’t usually have to report price drops.
MLSs also control the data and listings that brokers provide, with Reffkin characterizing MLSs, NAR and portals as “those that profit off the work of others” while brokerages are “forced” to share listings under threat of fines.
The Compass spokesperson characterized the debate as about control, claiming the company supports MLSs that offer “choice” and allow premarketing.
Reffkin is not alone, even as other brokerages have backed off on plans for private listing networks. Other industry leaders share at least some of the overall sentiments, with CoStar CEO Andy Florance recently telling investors he believes “dissatisfaction” with the current MLS system will drive change.
But Freedman argues the pitch for private listings is not something being driven by the market or consumers, and doesn’t address the more fundamental needs of buyers and sellers. More importantly, she says that removing data and fragmenting the market will quickly erode trust at a time when real estate is already “being bludgeoned.”
“(Compass) doesn’t really care about the shared values of our industry,” she says. “And you know, the consumer is paying the price for that.
